UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended April 1, 2022March 31, 2023
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 000-17781
NortonLifeLockGen Digital Inc.
(Exact name of registrant as specified in its charter)
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| Delaware |
| 77-0181864 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 60 E. Rio Salado Parkway, | Suite 1000, | Tempe, | Arizona | | 85281 |
| (Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code:
(650) 527-8000
________________________
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Common Stock, | par value $0.01 per share | NLOKGEN | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of Gen Digital (f/k/a NortonLifeLock Inc.) common stock on October 1, 2021September 30, 2022 as reported on the Nasdaq Global Select Market: $9,832,405,362.$9,340,370,900, based on a per share stock price of $20.14. Solely for purposes of this disclosure, shares of common stock held by each executive officer, director, and holder of 5% or more of the outstanding common stock have been excluded as of such date because such persons may be deemed to be affiliates. This determination of possible affiliate status is not a conclusive determination for any other purposes.
The number of shares of NortonLifeLockGen Digital common stock, $0.01 par value per share, outstanding as of May 19, 20222023 was 580,064,068640,770,648 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the 20222023 annual meeting of stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K where indicated. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended April 1, 2022.March 31, 2023.
NORTONLIFELOCKGEN DIGITAL INC.
FORM 10-K
For the Fiscal Year Ended April 1, 2022March 31, 2023
TABLE OF CONTENTS
“NortonLifeLock,Gen,” “we,” “us,” “our,” and “the Company” refer to NortonLifeLockGen Digital Inc. and all of its subsidiaries. NortonLifeLock, the NortonLifeLock Logo, the Checkmark Logo,Gen, Norton, Avast,
LifeLock, Avira, AVG, Reputation Defender, CCleaner and the LockMan Logoall related trademarks, service marks and trade names are trademarks or registered trademarks of NortonLifeLock Inc.Gen or its affiliates inother respective owners that have granted Gen the United States (U.S.) and other countries.right to use such marks. Other names may be trademarks of their respective owners.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The discussion below contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933, as amended (the Securities Act) and the Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements include references to our ability to utilize our deferred tax assets, as well asstatements about our future financial performance, statements including words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “goal,” “intent,” “momentum,” “projects,” and similar expressions. In addition, projections of our future financial performance; anticipated growthexpressions, and trends in our businesses and in our industries; the anticipated impacts of acquisitions, restructurings, stock repurchases, and investment activities; the outcomeany other statements that does not directly relate to any historical or impact of pending litigation, claims or disputes; our intent to pay quarterly cash dividends in the future; plans for and anticipated benefits of our solutions; matters arising out of the ongoing U.S. Securities and Exchange Commission (the SEC) investigation; the impact of the COVID-19 pandemic on our operations and financial performance; and other characterizations of future events or circumstances are forward-looking statements.current fact. These statements are only predictions, based on our current expectations about future events and may not prove to be accurate. We do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. These forward-looking statements involve risks and uncertainties, and our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors.
Thesefactors, including economic recessions, inflationary pressures and those other risks are described underfactors that we discuss in Item 1A. Risk Factors., of this Annual Report on Form 10-K. We encourage you to read that section carefully.
PART I
ITEM 1. Business
Vision &Purpose and Mission
Our vision is to protect and empowerPurpose: Powering Digital Freedom.
Mission: We create technology solutions for people to live theirtake full advantage of the digital lives safely.
Our mission is toworld, safely, privately, and confidently so together, we can build a comprehensive and easy-to-use integrated portfolio that prevents, detects and responds to cyber threats and cybercrimes in today’s digital world.better tomorrow.
Our Values
Protecting people is what inspires us, and our people are at the core of what we do. We seek to attract talent that embraces the following values:
•Advocate: Think Consumer FirstCustomer Driven. Community Minded. – ensureWe are advocates for our customers and are dedicated to making their lives simpler and safer. We are driven by the customer’s voice is heardpositive impact we can have on all the communities in which we live and consider how our actions benefit our customers’ digital lives.work.
•Think Big. Be Empowered:Bold. Own It –We empower and inspire one another to think in new ways and to embrace change. We take calculated risks and learn fast to drive innovation across the initiative to lead and speak up when we see an opportunity to delight our customers or improve the business, regardless of job title.business.
•Communicate: Be OpenKeep it real. Make it Happen. We are authentic, open, and Authentic – being true to ourselvestreat one another with respect. We do what we say and our mission;say what we build cross-functional and inclusive connections to stay aligned and move faster, and we operatedo with integrity.
•Execute: SmartPlay to win. Together. We act with passion, purpose, and Scrappy - be a leader, quickenergy to adapt, willing to take riskswin with customers and put yourself out there; be agile in adapting to meet new challenges and continue a constant learning journey.
•Win Together: Innovate and Grow – welcome diverse perspectives and seek and act on feedback; champion the unique valuemarketplace. We leverage the strength of every individual; diversity fuels innovation.our global team, knowing we’re more powerful together.
Company Overview
On September 12, 2022, we completed the merger with Avast (the Merger). In connection with the Merger, effective November 7, 2022, we changed our company name from NortonLifeLock, has the largestInc. to Gen Digital, Inc. (Gen). The Merger accelerated our transformation of consumer Cyber Safety, platformand increased our user reach and geographic footprint globally. The combined strengths of Gen created a broader and complementary product portfolio that spans beyond core security, into identity and privacy, and towards adjacent trust-based solutions.
Gen is a global company powering Digital Freedom with a family of trusted brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. We bring award-winning products and services in the world, empowering nearly 80Cyber Safety, covering security, privacy and identity protection to approximately 500 million users in more than 150 countries.
Our business is built around consumers, we are a trusted brandcountries so they can live their digital lives safely, privately, and confidently today and for customers, and we are number one top of mind company in consumer Cyber Safety, accordinggenerations to the 2021 NortonLifeLock brand tracking study.come.
Today’s world is increasingly digital, and this digital world has changed the way we live our lives every day. Between the massive shift to working and learning from home, and the ever-growing utility and opportunitiesThe last decade has brought increasingly impressive technological advances that have unlocked new ways to play and transact online, people’scontrol smart homes, and more. The possibilities in the digital lives have become the norm. Withworld will continue to transform our lives. However, with each new digital interaction comes increased risk and exposure for consumers as cybercriminals lookuse a mix of old and new tactics and technology, including phishing, vishing, smishing, based on machine learning and deep fake, to take advantage of these accelerating trends. This is why we view ourselves as aexecute highly advanced threats. We are our customers’ trusted ally for our customers in a complexthey can depend on to help secure and control their digital world andlives so they can be free to enjoy the promise of the digital world. We are committed more than ever to advancing our vision of protecting and empowering each element of theirpeople’s digital lives.lives with human-centered safety.
We are uniquelywell positioned for driving the awareness of Cyber Safety for individuals, families, and small businesses, fueled by an increasingly connected world. We maintain a global, multi-channelomni-channel sales approach, including direct acquisition and branda family of brands marketing program. This program is designed to grow our customer base by increasing brand awareness and understanding of our products and services and maximizing our global reach to prospective customers.
We help prevent, detect and restore potential damages caused by many cyber criminals.cybercriminals. We also make it easy for consumers to find, buy and use our products and services. To this end, we selloffer both free and paid subscription-based Cyber Safety solutions primarily direct-to-consumer through our portfoliofamily of websitesbrands and indirectly through partner relationships with retailers, telecom service providers, hardware original equipment manufacturers (OEMs), strategic partners and employee benefit providers.relationships. Most of our subscriptions are soldoffered on annual terms, but we also offerprovide monthly subscriptions.
As of April 1, 2022,March 31, 2023, we have nearly 80approximately 500 million total users, which come from direct, indirect and freemium channels. Of thethese total users, we have approximately 65 million paid Cyber Safety customers including over 2338 million direct customers with whom we have a direct billing relationship.
•Direct-to-consumer channel: We use advertising and direct response marketing to elevate our brand,family of brands, attract new customers and generate significant demand for our services. WeOur direct subscriptions are primarily sold through our e-commerce platform and mobile apps, and we have a direct billing relationship with the majority of these customers.
•Indirect partner distribution channels: We use strategic and affiliate partner distribution channels to refer prospective customers to us and expand our reach to our partners’ and affiliates’ customer bases. We developed and implemented a global partner sales organization that targets new, as well as existing, partners to enhance our partner distribution channels. These channels include retailers, telecom service providers, hardware OEMs, employee benefit providers, mobile app storesstrategic partners, and strategic partners.small office, home offices and very small businesses. Physical retail and OEM partners represent a small portion of our distribution, which minimizes the impact of supply chain disruptions.
•Freemium channel:channels: With the acquisition of Avast and Avira, we have expanded our go-to-market with amultiple freemium channel.channels. We use free versions of our products to reach the broadest set of customersconsumers globally and bring Cyber Safety to a larger audience, especially in international markets. The free solution offers a baseline of protection and presents premium functionalities based on the risk profile and device-typespecific needs of the user. The user can become a member of our paid customer base if they choose to add specific premium solutions or upgrade to Avira Prime, a suite ofsuites that provide security, identity, and privacy solutions across multiple platforms and devices.devices, thereby becoming a paid customer.
Seasonality
As is typical for many consumer technology companies, portions of our business are impacted by seasonality. However, we believe the net impact on our business is limited. Seasonal behavior in orders primarily reflects consumer spending patterns where our fiscal third and fourth quarters are higher due to the holidays in our third quarter, as well as follow-on holiday purchases and the U.S. tax filing season which typically is in our fourth quarter. Revenue generally reflects similar seasonal patterns but to a lesser extent than orders because of our subscription business model, as a large portionthe majority of our in-period revenues are recognized ratably from our deferred revenue balance.
Our Strategy
Our strategy is focused on long-term profitable growth, allowing consumers to experience Cyber Safety.growth. To fuel our growth, our consumer-centric strategy is to provide a comprehensive and easy-to-use integrated platform,platforms, which we have built in-house.in-house or acquired. By combining and leveraging our entire brand portfolio,family of trusted consumer brands, including offerings from Norton, Avast, LifeLock, Avira, AVG, Reputation Defender and others,CCleaner, we are able to deliver an industry-leading set of Cyber Safety solutions.
We are positioned for long-term growth and expansion. Our three primary growth levers are:
1.Extending Reach: Leveraging omni-channel strategy and building partnerships to broaden privacy and identity protection internationally.
2.Increasing Value: Cross-selling and up-selling, and expanding identity and privacy solutions to address consumers’ evolving needs.
3.Growing Loyalty: Increase customer loyalty and retention, as consumers move from point products protecting their devices towards all-in-one comprehensive Cyber Safety memberships.
The key elements of our strategy include the following:
•Extend our leadership position through new products and continued enhancement of our solutions and services: The Cyber Safety industry is large and expanding, which we believe provides a significant growth opportunity. Our strategy is to grow our business by investing in researchthrough innovation and development and pursuing acquisitions where appropriate, to expand the solutions and services we offer into new cohorts, territories and sectors. We believe there are many additional areas where we can both offer new solutions, as well as use our core capabilities and our integrated platform to reach new customers and markets globally.
•Grow our customer base through multiple channels: We have multiple go-to-market channels to reach new customers globally, including direct-to-customer, indirect partnerships and freemium. We intend to leverage our expertise in digital marketing, as well as existing and new strategic partnerships, to grow our customer base. We believe that continued investments in these areas, as well as our product offerings and infrastructure, will allow us to further enhance our leading brands and superior products, increase awareness of our consumer services and enhance our ability to efficiently acquire new customers.
•Continue our focus on customer retention: We plancontinue to invest in increasing customer retention by optimizingoptimize and expandingexpand the value we provide to customers.customers which we believe can positively impact retention. We aim to continue to increase customer engagements through actionable alerts, education on timely topics and introducing new product capabilities. We plan to also continue investing in enhancing both desktop and mobile customer experiences throughout a customer’s journey with NortonLifeLock,Gen, from purchase, to onboarding and beyond. We aim to build long-term relationships with our customers and to provide our customers with the peace of mind and confidence they need to protect their digital lives.
•Increase value to existing customers: We believe strong customer satisfaction will provide us with the opportunity to engage customers in new services offerings. We maintain the Norton 360 platform, withand Avast One platforms that have multiple tiers of membership, and we are actively engagingcontinue to engage customers with customers of standalone products to offer a Norton 360 membership. We also believe a substantial opportunity exists to increasemembership options and show the penetrationvalue proposition of our premium-level consumerpremium solutions. Over time, we plan to drive further growth as we add additional offerings and services for our customers.
•Draw strength from our world-class customer service support: We have the largest consumer Cyber Safety customer service support organization in the world. Our global support team seeks to ensure the voice of the consumer is heard and that we put our customers first. We leverage frequent communication and feedback from our customers to continually improve our solutions and services. We embrace end-to-end customer experience and aim to continue to improve our Net Promoter Scores and overall customer satisfaction.
•Leverage our global brands to drive growth: We will work to keep building our family of trusted brands in markets globally as we strive to bring protection and empowerment to all consumers when it comes to their digital lives. According to our most recent research, Norton has 87%84% global brand awareness, and 82% for device security. Wewe are best positioned and number one top of mind in consumer Cyber Safety, according to the 2021 NortonLifeLock2022 Gen Brand Impact study.
Our Cyber Safety Solutions and Services
Our vastbroad portfolio of products and services areis developed from consumer insights to help us bring to market real solutions to real problems and to raise the overall awareness of consumerengage and educate consumers about Cyber Safety across all audiences.Safety. We continuously target to release new products and features at an accelerated pace and find synergies to integrate current and future technology acquisitions.
Our fullCyber Safety portfolio provides protection across three Cyber Safetykey categories in multiple channels and geographies, including security and performance, identity protection, and online privacy. We have built aOur technology platform that bringsplatforms bring together software and service capabilities within these three categories into a comprehensive and easy-to-use integrated platform – it is called Norton 360. The Norton 360 integrated platform provides extensiveproducts and solutions across our brands. We have also evolved beyond traditional Cyber Safety coverage to our members, delivering Cyber Safety subscription solutions with industry leading features, coupled with an integrated user experience. Through our platform, we aim for simplicity and peace of mind for the consumers. We also complement this Cyber Safety platform by offeringoffer adjacent trust-based solutions, which enables people to live theirincluding digital lives without compromising their security, identity or privacy.
and access management, digital reputation, and restoration support services. We protect and empower consumers by providing solutions and services in two main ways:
•Comprehensive membership plans: Providing a completecomprehensive and all-in-one Cyber Safety portfolio of solutions for a membership fee. Plans are offered through Norton 360 and Avast One subscriptions, which includeboth brands provide multiple levels of membership tiers that incorporate solutionsrange from each of our key Cyber Safety categories: Security, Identity Protectionbasic, mid-level, or premium tiers where identity theft and Online Privacy. We also offer solutions that target specific needs of consumers such as Norton Family and Norton 360 for Gamers. Norton Family brings the protection and security of our products to every member of the family across multiple devices and platforms. Norton 360 for Gamers is designed by gamers to help protect gamers; we aim to provide the protection andonline privacy features gamers need the most, while minimizing interruptions to gaming.are included.
•Point solutions: Providing individual, stand-alone products and services in security, identity and privacy, which offers flexibility for consumers to choose between free or paid solutions. For example, Norton AntiTrack helps keep personal information and browsing activity private by blocking trackers and disguising digital fingerprints online. Avast Driver Updater allows PC users to keep their computer’s drivers up-to-date, improving performance and keeping their device secure from vulnerabilities or bugs caused by outdated drivers.
We are well positioned across three key Cyber Safety categories:
•Security and Performance (Norton, Avast, Avira, AVG, and AviraCCleaner offerings): Our Norton 360 and Avira offerings provide real-time protection for PCs, Macs and mobile devices against malware, viruses, adware, ransomware and other online threats. These offerings monitor and block unauthorized traffic from the internet to the device to help protect private and sensitive information when customers are online. For mobile devices, Norton 360 for Mobile alerts customers of risky apps, safeguards against fraudulent and malicious websites, identifies Wi-Fi networks that are under attack, enables stolen device recovery and blocks unwanted spam and potential fraud calls. Norton 360 includes 24x7 support by trained support agents. We provide on-call support and offer a money-back guarantee if we cannot remove viruses from infected devices through our Virus Protection Promise. We also have Norton Utilities Ultimate, aprovide performance offeringand optimization software solutions that optimizes Windows PC capabilities for faster, smootherfrees up space on devices, clears online tracking and more secure internet browsing, gaming or content streaming. This offering helps boost PC performance while also recovering lost files and protecting sensitive information.machines run faster.
•Identity Protection (Norton and LifeLock Identity Theft Protection and Restoration, Dark Web Monitoring, Home Title Protect, Social Media Monitoring)Monitoring, Avast Secure Identity): Our Norton and LifeLock identity theft protection solution includes monitoring, alerts and restoration services to help safeguard our customers’ personal information. We monitor events that may present a risk of identity theft, such as new account openings and applications. If we detect that a customer’s personally identifiable information is being used, we deliver notifications and alerts to our customers about potentially suspicious activity. In the event of identity theft, we assign an Identity Restoration Specialist to work directly with customers to help restore their identities. Customers are further protected by our Million Dollar Protection Package, which provides reimbursement for stolen funds and coverage for personal expenses. OurNorton Dark Web Monitoring product looks for personal information of our LifeLock, Norton 360 and Norton Identity Advisor Plus members on the Dark Web. We currently offer this product in many countries internationallyAvast Secure Identity provides advanced identity protection including credit monitoring and continue to add new countries each year. Ouralerts. LifeLock Home Title Protect product detects fraud and notifies members if we find changes made to their Home Title. OurNorton Social Media Monitoring features help keep customers’ social media accounts safer by monitoring them for account takeovers, risky activity and inappropriate content. Social Media Monitoring keeps a pulse on customers’ social media accounts, notifying them of suspected account compromise or potentially risky links in their account feed.
•Online Privacy (VPN, Privacy Monitor Assistant, AntiTrack, Online Reputation Management)Management, Secure Browser, BreachGuard, Online Security and Privacy Browser Extension): As people are exchanging more sensitive information through digital channels, such as personal healthcare information to enable tele-health or financial information for personal accounting, having a VPN has become even more crucial. Our VPN solution enhancessolutions enhance security and online privacy by providing an encrypted data tunnel. This allows customers to securely transmit and access private information, such as passwords, bank details and credit card numbers, when using public Wi-Fi on PCs, Macs and mobile iOS and Android devices. Our VPN service allows customers to browse the Web anonymously to protect their online privacy and prevent tracking by online advertisers and other companies. Customers can also change their virtual location when they are traveling internationally to allow them to connect to their favorite apps, websites and online streaming services as if they are in their home country. OurNorton Privacy Monitor Assistant is an on-demand, white glove service where our agents help our members delete personal information from Data brokers online. Our AntiTrack product helps keep personal information and browsing activity private by blocking trackers and disguising digital fingerprints online. This allows customers to browse anonymously and go beyond clearing cookies to obscure digital fingerprints. Our Online Reputation Management solutions help extend and strengthen NortonLifeLock’sGen’s privacy capabilities and functionalities, such as the ability to manage online search results, personal branding and digital privacy. These solutions can help our customers control their search resultsOur Secure Browser, BreachGuard and other browser extension products provide private, fast and secure browsing across different devices, as well as protect sensitive online information against malicious websites and phishing, data loss, data leaks, data breaches, and collection by promoting positive search results or suppressing incorrect search results, or help our customers protect their family’s privacy by hiding or removing sensitive personal information.third parties and provides assistance from experts when needed.
Innovation, and Research & Development
NortonLifeLockGen has a long history of innovation, and we plan to continue to invest in research and development to drive our long-term success.
As cyber threats evolve, we are focused on delivering a portfolio that protects each element of our customers’ digital lives. To do this, we engage and listen to our customers, and we embrace innovation by deploying a global research and development strategy across our Cyber Safety platform. Our engineering and product management teams are focused on delivering new versions of existing offerings, as well as developing entirely new offerings to drive the company’s global leadership in Cyber Safety.
We are committed to our innovation and research & development efforts. Norton Labs, a globalThe Technology team of experts,at Gen is leadingdriving the company’s future technologytechnologies and innovations, and helping guide the consumer cybersecurity industry. Within Norton Labs, ourOur global technology research organization is focused on applied research projects, with the goal of rapidly creating new products to address consumer trends and grow the business, including defending consumer digital privacy and identity. We also have a global threat
response and security technology organization that is comprised of leadingour dedicated team of threat and security researchers, supported by advanced systems to innovate security technology and threat intelligence.
We have one of the world’s largest consumer Cyber Safety networks. Leveraging our capabilities, our global threat response team handles a wide variety of attacks, including social engineering attacks, file-based attacks, web and network-based attacks, privacy and data exfiltration attacks, identity theft attacks, algorithmic manipulation attacks, and more.
Norton’s most recent Consumer Cyber Safety Pulse Report found that the company blocked over 3.5 billion threats in 2022, including 90.9 million phishing attempts, 260.4 million file threats and 1.6 million mobile threats.
In 2022, Avast processed more than 582 million new unique samples, of which over 282 million were malicious. Avast has also set up honeypots in 88 countries worldwide and captured over 1.45 billion attacks on average per month by these honeypots alone.
Our differentiated approach is powered by our global scale and visibility, geographically distributed cloud data platform, and advanced AI-based automation.
Our technology-based solutions:
•Giga-Scale Endpoint Visibility: Visibility on threat and behavioral trajectories across approximately 500 million endpoints and networks.
•Autonomous Defense: Automation of the detection pipeline by leveraging modern, featureless, explainable AI.
•Next-Gen Insight: AI-based enrichment and best-in-class analytics of multi-factor, large-scale behavior data in real-time.
Industry Overview & Market Opportunity
Cyber Safety is a growing market, fueled by the increase in activities online over the years as well as the years ahead. The core markets that we participate in are security, identity and privacy. We believe the Cyber Safety market will continue to expand beyond these core markets and grow significantly, driven by the growing number of people globally connected to the Internet who have ainternet and their expanding digital life.lives.
The cyber threat landscape is larger and more complicated than ever before, exposing consumers to an increased risk to their digital lives. The digitization of the world and the overlap between the physical and digital world is growing at a fast pace. New technologies, smart devices, digital identities and an increasingly more connected world means consumers will encounter a range of new Cyber Safety challenges. Consumer demands and behaviors are rapidly changing and driving more activities online, from shopping, socializing, working, banking, to other activities in healthcare, entertainment and so much more. Almost every aspect of a person’s life has a digital component. Unfortunately, many of those activities are left unprotected, and attackers are exploiting this larger opportunity and the inherent security and privacy vulnerabilities. Cybercriminals have not only expanded their reach, but the sophistication of digital threats and attacks are becoming increasingly more consumer-related.
Cybercrime, and the ways in which cybercriminals target consumers, continue to evolve along with behaviors and technology. Cybercrime encompasses any crime committed with devices over the internet and includes crimes where (i) malicious software or unauthorized access is detected on a device, network or online account (such as email, social media, online banking, crypto currency, online retail, gaming, online entertainment, etc.), and unauthorized access or connection to cloud service accounts; (ii) an individual is digitally victimized through a data breach, cyber theft, cyber extortion, or fraud (stolen personally identifiable information, identity theft, etc.); (iii) online stalking, bullying, or harassment is inflicted; or (iv) attacks related to privacy or disinformation (such as online tracking protection, identity impersonation, disinformation on social media, DeepFakes, non-trustworthydeepfakes, unsecured WiFi, network, EvilTwin attacks, etc.).
As cybercrime becomes an intensifying threat to our world, consumers are increasingly concerned. Our annual Norton Cyber Safety Insights Report examines the impact of cybercrime and consumers’ online behaviors and concerns related to their online security, privacy and identity. Our report can be found at Newsroom.GenDigital.com/2023-Norton-Cyber-Safety-Insights-Report-Special-Release-Online-Creeping. According to the 20222023 report, which is based on research conducted online by The Harris Poll on behalf of us, more than 415Gen, an estimated 463 million people across 10adults in 8 countries were victims ofexperienced cybercrime and more than 81about 47.5 million people were victims ofadults experienced identity theft in 2022. Among those who experienced cybercrime in 2022, over the past year. Cybercrime victims collectively spent nearly 4.43.5 billion hours were spent trying to resolve theirthe issues created and over half of thesethose cybercrime victims were impacted financially. For more insights or information related to our Norton Cyber Safety Insights Report, please visit have experienced financial loss.https://www.nortonlifelock.com/us/en/norton-cyber-safety-center.
Competitive Landscape
We operate in a highly competitive and dynamic environment. We face global competition from a broad range of companies, including software vendors focusing on Cyber Safety solutions, operating system providers such as Apple, Google and Microsoft, and ‘pure play’ companies that currently specialize in one or a few particular segments of the market and many of which are expanding their product portfolios into different segments. We believe the competitive factors in our market include innovation, access to a breadth of identity and consumer transaction data, broad and effective service offerings, brand recognition, technology, effective and cost-efficient customer acquisition, having a strong retention rate, customer satisfaction, price, convenience of purchase, ease of use, frequency of upgrades and updates and quality and reliable customer service. Our competitors may vary by offering, geography, business model and channel.
Our principal competitors are set forth below:
•Security: Our principal competitors in this segment include Apple, Avast, Bitdefender, Google, Kaspersky, McAfee, Microsoft, Trend Micro, Webroot, Malwarebytes and Trend Micro.F-Secure.
•Identity Protection: Our principal competitors in this segment include credit bureaus such as Equifax, Experian and TransUnion, as well as certain credit monitoring and identity theft protection solutions from others such as Allstate, Generali (Iris), Aura and Credit Karma.Intuit (Credit Karma).
•Online Privacy: Our principal competitors in this segment include Apple, Aura, (which recently acquired Pango), Avast, Kape, (which recently purchased ExpressVPN), NordVPN (now NordSecurity), Life360Nord Security, IPVanish, Mozilla, Brave, and Bark.DuckDuckGo.
•Other Competitors: In addition to competition from independent software vendors such as Avast, Bitdefender, Kaspersky, McAfee and Trend Micro, and from OS providers such as Apple, Google and Microsoft, we also face competition from other companies that currently focus on one or a few Cyber Safety or adjacent segments but are developing additional competing products and expanding their portfolios into new segments, such as ‘pure play’ companies ISPs,such as Life360, Bark, Dashlane, LastPass, internet service providers, big tech platform providers, insurance companies and financial service organizations.
We believe we compete favorably with our competitors on the strength of our technology, people, product offerings and presence in all of the current key Cyber Safety categories. However, some of our competitors have greater financial, technical, marketing, distribution or other resources than we do, including in new Cyber Safety and digital life segments we may enter, which consequently affords them competitive advantages. As a result, they may be able to devote greater resources to develop, promote and sell their offerings; deliver competitive offerings at lower prices or for free; and introduce new solutions and respond to market developments and customer requirements and preferences more quickly or cost effectively than we can. In addition, for individual solutions or features, smaller, well-funded competitors may be able to innovate and adapt more nimbly to the dynamic nature of the market and shift consumer needs.
For more information on the risks associated with our competitors, please see “Risk Factors” – Risks Related to Our Business Strategy and Industry – “We operate in a highly competitive and dynamic environment, and if we are unable to compete effectively, we could experience a loss in market share and a reduction in revenue” and “We may need to change our pricing models to compete successfully,” in Item 1A included in this Annual Report on Form 10-K.
Environmental, Social and Governance (ESG)
Our commitment to ESG is a core component of our company Purpose and Mission. The Nominating and Governance Committee of our Board of Directors has oversight over the Company’s ESG strategy, and our full Board of Directors receives a quarterly ESG update. This quarterly update includes performance data and program information across environmental stewardship, ethics, community investment, and more; progress made toward our ESG targets; and information on emerging ESG priorities. Additionally, as part of our ESG reporting process, we hold regular meetings with functional leaders to review our ESG disclosures. Our Leadership Team is highly engaged in our ESG efforts. Our Head of Corporate Responsibility and Government Affairs reports to our Chief Marketing Officer and meets quarterly with our CEO and Leadership Team and cross-functional ESG Working Group to review our strategy, progress, and program updates.
Building a brand centered on trust is critically important, and our focus on corporate responsibilityESG helps us earn trust from our users,customers, employees, investors and shareholders. As such, environmental, social and governanceESG topics are core to our business strategy:
•Environment: Protecting our planet is fundamental to ensuring a safe and sustainable future. We work to reduce greenhouse gas emissions from our operations through operational efficiencies, reduce the environmental footprint of our products across their lifecycle through innovative approaches to product development and packaging, promote high standards for environmental stewardship in our supply chain and engage with employees and environmental partners to amplify our work. We believe we can contribute to a future where the natural world is thriving and call these efforts Environmental Stewardship.
•Social: We are proud to support the communities where our team members live and work. Our community impact programs include employee volunteering and giving, product donations, signature programs that leverage our unique expertise in increasing digital safety literacy, and corporate philanthropic giving focused on digital safety education; diversity, equity, and inclusion; environmental action; and disaster response. We also support diversity, equity, and inclusion and employee engagement, discussed in more detail in the Human Capital Management subsection.
•Governance: Governance covers many core operating principles overseen by the Nominating and Governance Committee of our Board of Directors. This committee has oversight of Corporate ResponsibilityESG issues and receives quarterly updates on topics such as diversity, ethics, environmental stewardship and community investment. Our global culture of responsibility, and the positive contributions we make to the customers, employees, communities, and other stakeholders that we serve drives value for our business.
Setting strategic, achievable, and business-aligned corporate responsibility objectives helps to guide our work and improves our company performance. We align our objectives with the company’s financial goals and focus on the unique positive social and environmental impacts that our business model can have on the world.
Our objectives include:
•Data Privacy and Protection: We safeguard our customer, partner and employee data and offer products including Norton Privacy Monitor Assistant that help consumers protect their personal data wherever it is found.
•Education and Training for Cyber Safety: We leverage our leading expertise and technology in Cyber Safety to protect communities. Malicious phone and computer applications, known as stalkerware, are used to harass, control and harm people. We are a founding member of the Coalition Against Stalkerware and donate products to victims to help keep their personal data protected. We also provide Cyber Safety training to help empower victims and survivors to reduce their vulnerability. Additional examples of our efforts include our partnership with the World Association of Girl Guides and Girl Scouts on the Surf Smart program to empower girls to keep themselves and others safe online and The Smart Talk, a free tool co-created in partnership with National PTA.
•Diversity, Equity & Inclusion in Technology: We are focused on bringinginvest in high-impact non-profits to bring more women and under-represented groups into cybersecurity and tech. We do this by investing in high-impact, nonprofit organizations. We have made a three-year commitment to the Reboot Representation tech coalition, which is dedicated to doubling the number of Black, Latina and Native American women graduating with computing degrees by 2025. We also support Women4Cyber in Europe and the NASSCOM Foundation’s Cyber Security Skills Development Initiative for Women in India. In fiscal 2022, approximately 62% of NortonLifeLock Foundation grants across all objectives had a focus on Diversity, Equity and Inclusion.technology.
•Employee Volunteering & Giving:Environment: Our goal is to establish Gen as an environmentally responsible business. We have created a variety of opportunities for employee volunteering and giving and work to increase employee participation rates. In fiscal 2021, we launched a virtual volunteer program with team building opportunities and joint events withfocus our Diversity and Inclusion Communities. We offer employees paid time off to volunteer, have an employee matching gift program and provide dollars-for-doers grants to encourage volunteer service. Our employee participation rate in our volunteering and giving program was 41% in fiscal 2022.
•Environmental Stewardship: We finalized and launched our new environmental strategy which focuses on climate and energy, sustainable products, our supply chain, engagement with employees and nonprofit partners and being transparentwith an emphasis on transparency about our progress and commitments.
•Employee Engagement: We launched a new platform for employees called the Giving Hub. It provides for easier participation for employees to give to their favorite nonprofits and for additional global opportunities for volunteering and service in their communities.
We cannot guarantee that we will achieve these objectives, and our ability to achieve them is subject to risks and uncertainties both known and unknown, including various risks noted in Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K. Our annual ESG and Corporate Responsibility Report can be found via the NortonLifeLock website at https://www.nortonlifelock.com/about/corporate-responsibilityInvestor.GenDigital.com/ESG.
Human Capital Management
Our human capital management strategy reflects our unique values and growth mindset. Working in close partnership with our Board of Directors on our talent management strategy, we work hard to lead, develop and grow our diverse team. We strive to be a diverse, vibrant community with strong values and a shared commitment to each other, the work we do and the world we all share.
At NortonLifeLock,Gen, our mission is to build a comprehensive and easy-to-use integrated portfolio that prevents, detects and responds to cyber threats and cybercrimes in today’s digital world. Our success in helping achieve this mission depends, in large part, on the success of our employees.
•General Employee Demographics: As of April 1, 2022,March 31, 2023, we employed nearly 2,700just under 3,700 employees in 24nearly 30 countries worldwide, with approximately 1,200worldwide. With dual headquarters in Tempe, Arizona, and in Prague, Czech Republic, we have over 1,100 active employees located in the U.S. and nearly 900 active employees in the Czech Republic. None of our U.S. employees are represented by a labor union or covered by a collective bargaining agreement. We are focused on attracting, developing, rewarding
As of March 31, 2023, inclusive of our integration of bringing together NortonLifeLock and retainingAvast teams as a diversecombined company, women represented 32% of Gen’s total workforce and truly global team. The Compensation and Leadership Development Committeeheld positions in 30% of our leadership. In addition, as of March 31, 2023, women represented 40% of our Board of Directors oversees senior management compensation and development, andhalf of our Board is invested in our talent management strategies, including DEI, culture and engagement.independent board membership.
•Diversity, Equity and Inclusion (DEI): We strive to be a diverse, vibrant community with strong values and a shared commitment to our customers, to each other, the work we do and the world we all share. Our mission is to increase our global representation of underrepresented groups at all levels (diversity), where everyone has an opportunity for development and advancement (equity) and is able tocan bring their whole selves to work and feel valued every day (inclusion). This mission is built upon four foundational pillars: (1) measurement and accountability; (2) fostering an inclusive environment; (3) diversifying our workforce; and (4) employee development and retention, which are designed to support, attract, retain and develop the bestnurture our talent.
Clear and actionable multi-year representation goals are set at the leadership level to support accountability and tracking the data regularly to assessprogress, against our progressgoals. Diversity and drive accountability go hand in hand.inclusion are woven into our people processes and our culture. We ask applicants, new hires and employees to self-identify not only their demographics, but alsoand important characteristics to help us better measure the diversity of our applicant pool and of our team to derive insights and actionable people strategies. We partner with Work180, a women-focused recruitment site that only lists career opportunities from employers that support diversity, inclusion and flexibility. We post positions on several diverse recruiting sites and have dedicated budget to support increasing diverse candidate pipelines. In fiscal 2022,2023, we publicly disclosed our most recent US Equal Employment Opportunity Commission EEO-1 Component 1 Data Collection Report on our investor relations website located at https://investor.nortonlifelock.com/Investor.GenDigital.com/governance/governance-documents/governance-documents.
Inclusion is something we strive for and invest in every day. Raising awareness and appreciation of various diversity topics via our learning curriculum, global all employee conversations, published Blogs and active employee engagement.Events. We measure belonging as a key metric in our quarterly NGageEngage employee surveys. Wesurveys and are proud to support our severaleight employee resource groups our Gen communities for people to come together as allies, to learn, support, mentor, and celebrate with one another and to provide an environment where everyone feels seen, heard, respected and valued.
•Employee Development and Training: Our people programs are designed to provide our team members with support, resources, and opportunities they need to grow, learn and thrive in their careers. We continued to focus on learning and development in fiscal 2023, investing further in digital learning via our Rise Learning (formally Nvest Learning) programs for all employees. Leveraging an extensive breadth of content and learning opportunities. This umbrella of offerings includes Rise Mentorship, Rise eLearning and University of Rise.
Rise eLearning, a collection of digital, on-demand modules categorized around leadership, health and wellness, business skills, and technical skills, experienced a steady increase in participation during the year with over 1,200 individual learners who have experienced 5000 modules total. We also provide group learning designed around TED Talks on topics including leadership, change management and to support our diversity, equity and inclusion efforts.
Our Rise Mentorship program continues to grow and boasts an active community of mentors and mentees across the world. University of Rise (U Rise) leadership program that offers best-in-class content from Harvard ManageMentor to inspire and engage existing and aspiring people leaders provides over 40 course options and group learning opportunities. Over 200 participants have enrolled in this program to date.
Diversity is a key pillar of our talent management strategy. As of April 1, 2022, women represented 33% of our workforce and held positions in 33% of our leadership. In addition, as of April 1, 2022, women represented 44% of our Board of Directors and half of our independent board membership. We partner with Work180, a women-focused recruitment site that only lists career opportunities from employers that support diversity, inclusion and flexibility. We post positions on several diverse recruiting sites, including Black Tech Jobs, Jobs for Her and Women Who Code.
As part of our ongoing focus on diverse employee development, we extendedcontinue to extend our participation in McKinsey & Company’s Connected Leaders Academy for our Asian, Black and Hispanic-Latino leaders. Additionally, we had women globally attend the Women in Tech conference and several employees attended the Out & Equal Global Workplace Summit.
•Employee Development, Engagement and Training:Engagement: We increasedvalue our investment in learningpeople and development in fiscal 2022, launching Nvest Learning programsare committed to creating a positive and fulfilling experience for all employees leveraging an extensive breadth of content and learning opportunities. This umbrella of offerings includes Nvest Mentorship, Nvest eLearning and Nvest NLOK University.
Our homegrown Nvest Mentorship program and platform continued to grow and now boasts over 200 active mentors and mentees. Nvest eLearning, a collection of digital, on-demand modules categorized around leadership, health and wellness, business skills, and technical skills, launched in the second quarter of fiscal 2022 with a steady increase in participation during the year with over 600 individual learners. We also provide group learning designed around TED Talks on topics including leadership, change management and further diversity, equity and inclusion efforts.
Nvest NLOK University (Nvest NU) launched in the third quarter of fiscal 2022 and is a leadership program that offers best-in-class content from Harvard ManageMentor that inspires, engages and invests in current and emerging leaders by leveraging 42 course options and group learning opportunities. Hundreds of recognition badges and certificates have been awarded to recognize various levels of achievement.
everyone. Feedback from our employees is critical, and we have developed an ongoing dialogue with our teams via our quarterly NgageEngage pulse survey on a targeted topic that drives actions and improvements. More recently as we worked through our integration bringing together NortonLifeLock and Avast teams we pulse surveyed at a more frequent interval to hear directly on what was going well and where we could improve together as we evolve our culture as a combined team.
•Benefits; Health and Wellness: At Gen, we value our people and are committed to creating a positive and fulfilling experience for everyone through the programs and benefits we offer. Our employee value proposition, Life@Gen is centered on choice, flexibility and growth and encompasses the many elements of our employee experience. Our commitment to overall health and wellness are centered around having an integrated and equitable wellness program that supports body, mind and financial health.
•Human Capital Governance: We partner closely with our Board of Directors and the Compensation and Leadership Development Committee on executive compensation, our broader reward strategies and objectives related to talent management, talent acquisition, leadership development, retention and succession, DEI and employee engagement.
Intellectual Property
Our intellectual property is an important and vital asset that enables us to develop, market, and sell our software products and services and enhance our competitive position. We are a leader amongstamong consumer Cyber Safety solutions for consumers in pursuing patents and currently have a portfolio of over 1,000 U.S. and international patents issued with many pending. We protect our intellectual property rights and investments in a variety of ways to safeguard our technologies and our long-term success. We work actively in the U.S. and internationally to ensure the enforcement of copyright, trademark, trade secret and other protections that apply to our software products and services. The term of the patents we hold is, on average, twelveseventeen years.
From time to time, we enter into cross-license agreements with other technology companies covering broad groups of patents; we have an additional portfolio of over 2,100 U.S. and international patents cross-licensed to us as part of our arrangement with Broadcom as a result of the asset sale of our former Enterprise Security business. We also use software from third parties in our business and generally must rely on those third parties to protect the licensed rights. This can include open source software, which is subject to limited proprietary rights. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products, services, and business methods, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. The ability to maintain and protect our intellectual property rights is important to our success, but we believe our business is not materially dependent on any individual patent, copyright, trademark, trade secret, license, or other intellectual property right.
CircumstancesHowever, circumstances outside our control could pose a threat to our intellectual property rights. Effective intellectual property protection may not be available, and the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operating results.
In addition, companies in the technology industry may own a large number of patents, copyrights and trademarks andare owned by other companies in the technology industry. Those companies may frequently request license agreements, threaten litigation, or file suit against us based on allegations of infringement or other violations of intellectual property rights.
For more information on the risks associated with our intellectual property, please see “Risk Factors” in Item 1A included in this Annual Report on Form 10-K.
Information Security and Risk Oversight
We maintain a comprehensive technology and cybersecurity program to ensure our systems are effective and prepared for information security risks, including regular oversight of our programs for security monitoring for internal and external threats to ensure the confidentiality and integrity of our information assets. We regularly perform evaluations of our security program and continue to invest in our capabilities to keep customers, employeesinformation technology infrastructure and critical assets safe.information security management systems are audited by external auditors each fiscal year. Our Headinformation security management system is based upon industry leading frameworks, including ISO 27001, PCI DSS requirements and the National Institute of CyberStandards and Technology Cybersecurity Framework (NIST CSF). Our Chief Information Security is ultimately responsible forOfficer (CISO) leads our cybersecurity program, which includes the implementation of controls aligned with industry guidelines and applicable statutes and regulations to identify threats, detect attacks and protect these information assets. We have implemented security monitoring capabilities designed to alert us to suspicious activity and developed an incident response program that includes periodic testing and is designed to restore business operations as quickly and as orderly as possible in the event of a breach. In addition, employees participate in an ongoing program of mandatory annual training and receive communications regarding the cybersecurity environment to increase awareness throughout the company. We also implemented an enhanced annual training program for specific specialized employee populations, including secure coding training.
The Technology and Cybersecurity Committee of the Board withhas direct oversight to the Company’s (1) technology strategy, initiatives and investments and (2) key cybersecurity information technology risks against
both internal and external threats. The Technology and Cybersecurity Committee is comprised entirely of independent directors, two of whom have significant work experience related to information security issues or oversight.oversight and meets and reports to the Board on a quarterly basis. The Audit Committee, which is also comprised entirely of independent directors, considers cybersecurity information technology risks in connection with overseeing our enterprise risk management system, and reports to the Board on enterprise risk management matters on a quarterly basis. Management will report security instances to the committeeTechnology and Cybersecurity Committee as they occur, if material, and will provide a summary multiple times per year to the Technology and Cybersecurity Committee. Additionally, our Head of Cyber SecurityCISO attends each Technology and Cybersecurity Committee meeting and meets regularly with the Board of Directors or the Audit Committee of the Board of Directors to brief them on technology and information security matters. We carry insurance that provides protection against the potential losses arising from a cybersecurity incident. In the last fiscal three years, we have not experienced any material information security breach incidences and the expenses we have incurred from information security breach incidences were immaterial. This includes penalties and settlements, of which there were none.
Governmental Regulation
We collect, use, store or disclose an increasingly high volume, variety and velocityvariety of personal information, including from employees and customers, in connection with the operation of our business, particularly, in relation to our identity and information protection offerings, which rely on large data repositories of personal information and consumer transactions. The personal information we process is subject to an increasing number of federal, state, local and foreign laws regarding privacy and data security.
For information on the risks associated with complying with privacy and data security laws, please see “Risk Factors” in Item 1A included in this Annual Report on Form 10-K.
Available Information
Our Internetinternet home page is located at https://www.nortonlifelock.comGenDigital.com. We make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission (SEC) on our investor relations website located at https://investor.nortonlifelock.comInvestor.GenDigital.com. The information contained, or referred to, on our website, including in any reports that are posted on our website, is not part of this annual report unless expressly noted. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings at http://www.sec.gov.
Item 1A. Risk Factors
RISKS RELATED TO THE PROPOSED MERGER
We may fail to consummate the Proposed Merger with Avast plc, may not consummate the Proposed Merger on the expected terms, or may not achieve the anticipated benefits.
It is currently anticipated that the Proposed Merger will be consummated in mid-to-late calendar 2022. Completion of the Proposed Merger is subject to, among other things, approval from the U.K. Competition and Markets Authority (the “CMA”) and other customary closing conditions for the acquisition of a UK public company, including the sanction of the UK’s High Court. All necessary regulatory approvals have been satisfied, with the exception of approval required from the CMA, which has referred the Proposed Merger to a Phase 2 investigation. As a result, the possible timing and likelihood of completion are uncertain, and, accordingly, there can be no assurance that the Proposed Merger will be completed on the expected terms, on the anticipated schedule or at all. In addition, the CMA may require, in connection with granting its approval of the transaction, divestitures or ongoing restrictions on the operation of the combined business, each of which could have a material impact on the anticipated strategic benefits and synergies from the combination. Any delay in consummation of the Proposed Merger will result in greater transaction costs and professional fees and continue to expose us to market risk. If we fail to receive approval from the CMA and cannot consummate the Proposed Merger, we may be required to pay Avast a break fee of up to $200 million under the Co-operation Agreement. If consummated, the success of the Proposed Merger will depend, in significant part, on our ability to successfully integrate Avast and its subsidiaries, grow the revenue of the combined company and realize the anticipated strategic benefits and synergies from the combination. We believe that the addition of Avast and its subsidiaries represents an attractive opportunity to create a new, industry leading consumer Cyber Safety business, leveraging the established brands, technical expertise and innovation of both groups to deliver substantial benefits to consumers, shareholders and other stakeholders. Achieving these goals requires growth of the revenue of the combined company and realization of the targeted synergies expected from the Proposed Merger. This growth and the anticipated benefits of the Proposed Merger may not be realized fully or at all, or may take longer to realize than we expect. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than we expect or may take longer to achieve than anticipated. If we are not able to achieve these objectives and realize the anticipated benefits and synergies expected from the Proposed Merger within a reasonable time, our business, financial condition and operating results may be adversely affected.
Litigation filed against us could prevent or delay the completion of the Proposed Merger or result in the payment of damages following completion of the Proposed Merger.
As previously reported in our Form 8-K dated October 29, 2021, we received letters on behalf of our purported stockholders, in each case stating the stockholder’s belief that the proxy statement filed by us on October 4, 2021 omitted material information with respect to the Merger and demanding that we make additional and supplemental disclosures regarding the Merger. Additionally, six complaints have been filed by our purported stockholders in connection with the Merger (collectively, the Merger Complaints). The Merger Complaints were brought by the plaintiffs individually and also allege that the proxy statement omitted material information with respect to the Merger. After the Company issued its October 29, 2021 Form 8-K, the plaintiffs in the Merger Complaints dismissed their actions as moot while reserving the right to seek a fee in connection with their respective litigations.
RISKS RELATED TO COVID-19
The COVID-19 pandemic has affected how we are operating our business, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic has had widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. At the onset of the pandemic, to protect the health and well-being of our employees, partners and third-party service providers, we facilitated a work-from-home requirement for most employees and established site-specific COVID-19 prevention protocols. We continue to monitor the situation and over the past several months have adjusted our policies and protocols to reflect changes to public health regulations and guidance. A majority of our offices are now open to employees on a voluntary return basis, and we anticipate opening the remaining offices on a voluntary return basis within the first quarter of fiscal 2023. To date, we have not seen any meaningful negative impact on our customer success efforts, sales and marketing efforts, or employee productivity. Nevertheless, as more employees, partners or third-party services providers return to work during the COVID-19 pandemic, the risk of inadvertent transmission of COVID-19 through human contact could still occur and result in litigation.
While the COVID-19 pandemic has negatively impacted many sectors of the U.S. and global economies, the consumer Cyber Safety market experienced increased demand as the pandemic greatly accelerated the digital lives of people around the world. However, with the extended duration of the pandemic and the easing of prevention protocols and restrictions, we are seeing decreasing demand and increased competition. In addition, should the negative macroeconomic impacts of the COVID-19 pandemic persist or worsen, we may experience continued slowdowns in our business activity and an increase in cancellations by customers or a material reduction in our retention rate in the future, especially in the event of a prolonged recession. A prolonged recession could adversely affect demand for our offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures, as well impact the value of our common stock, ability to refinance our debt and our access to capital.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of new variants of the disease, the extent, effectiveness and acceptance of containment actions, such as vaccination programs, and the impact of these and other factors on our employees, customers and the overall demand for our products, partners and third-party service providers. If we are not able to respond to and manage the impact of such events effectively and if the macroeconomic conditions of the general economy or the industries in which we operate do not improve, or deteriorate further, our business, operating results, financial condition and cash flows could be adversely affected.
RISKS RELATED TO OUR BUSINESS STRATEGY AND INDUSTRY
If we are unable to develop new and enhanced solutions, or if we are unable to continually improve the performance, features, and reliability of our existing solutions, our business and operating results could be adversely affected.
Our future success depends on our ability to effectively respond to evolving threats to consumers, as well as competitive technological developments and industry changes, by developing or introducing new and enhanced solutions on a timely basis. We have inIn the past, we have incurred, and will continue to incur, significant research and development expenses as we focus on organic growth through internal innovation. We believe that we also must continue to dedicate a significant amount of resources to our research and development efforts to decrease our reliancedeliver innovative market competitive products and avoid being reliant on third parties.party technology and products. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected. Additionally, weWe must continually address the challenges of dynamic and accelerating market trends and competitive developments. Customers may require features and capabilities that our current solutions do not have. Our failure to develop new solutions and improve our existing solutions to satisfy customer preferences and effectively compete with other market offerings in a timely and cost-effective manner may harm our ability to retain our customers and attract new customers. A loss of customers would adversely impact our business and operating results.
The development and introduction of new solutions involve a significant commitmentcommitments of time and resources and are subject to a number of risks and challenges including but not limited to:
•Lengthy development cycles;
•Evolving industry and regulatory standards and technological developments by our competitors and customers;
•Rapidly changing customer preferences;
•Evolving platforms, operating systems, and hardware products, such as mobile devices;
•Product and service interoperability challenges with customer’s technology and third-party vendors;
•The integration of products and solutions from acquired companies;
•Availability of engineering and technical talent;
•Entering into new or unproven market segments; and
•Executing new product and service strategies.
In addition, third parties, including operating systems and internet browser companies, may take steps to further limit the interoperability of our solutions with their own products and services, in some cases to promote their own offerings. This could delay the development of our solutions or our solutions may be unable to operate effectively. This could also result in decreased demand for our solutions, decreased revenue, and harm to our reputation, and adversely affect our business, financial condition, results of operations, and cash flows.
If we are not successful in managing these risks and challenges, or if our new or improved solutions are not technologically competitive or do not achieve market acceptance, our business and operating results could be adversely affected.
We operate in a highly competitive and dynamic environment, and if we are unable to compete effectively, we could experience a loss in market share and a reduction in revenue.
We operate in intensely competitive and dynamic markets that experience frequent and rapid technological developments, changes in industry and regulatory standards, evolving market trends, changes in customer requirements and preferences, and frequent new product introductions and improvements. If we are unable to anticipate or react to these continually evolving conditions, we could experience a loss of market share and a reduction in our revenues, which could materially and adversely affect our business and financial results. To compete successfully, we must maintain an innovative research and development effort to develop new solutions and enhance our existing solutions, effectively adapt to changes in the technology, privacy and data protection standards or product rights held by our competitors as well as the ways our information is accessed, used and stored by our customers, and appropriately respond to competitive strategies.trends.
We face competition from a broad range of companies, including software vendors focusing on Cyber Safety solutions such as Bitdefender, Kapersky, McAfee and Trend Micro, operating system providers such as Apple, Google and Microsoft, and ‘pure play’ companies such as Nord, Life360, Last Pass and others that currently specialize in one or a few particular segments of the market and many of which are expanding their product portfolios into different segments. Many of these competitors offer solutions or are currently developing solutions that directly compete with some or all of our offerings. We also face growing competition from other technology companies, as well as from companies in the identity threat protection space such as credit bureaus. Further, many of our competitors are increasingly developing and incorporating into their products data protection software and other competing Cyber Safety products such as antivirus protection or VPN, often free of charge, that compete with our offerings. Our competitive position could be adversely affected by the functionality incorporated into these products rendering our existing solutions obsolete.obsolete and therefore causing us to fail to meet customer expectations. In addition, the introduction of new products or services by competitors, and/or market acceptance of products or services based on emerging or alternative technologies, could make it easier for other products or services to compete with our solutions.
We anticipate facing additional competition as new participants continue to enter the Cyber Safety market and as our current competitors seek to increase their market share and expand their existing offerings. Some of our competitors have greater financial, technical, marketing, or other resources than we do, including in new Cyber Safety and digital life segments, and consequently,segments. Consequently, those competitors may have the ability to influence customers to purchase their products instead of ours including through investing more in internal innovation than we can and through benefiting fromtheir unique access to customer engagement points. Further consolidation among our competitors and within our industry or, in addition to other changes in the competitive environment, such as greater vertical integration from key computing and operating system suppliers could result in larger competitors that compete more frequently with us.
In addition to competing with these vendors directly for sales to end-users of our solutions, we compete with them for the opportunity to have our solutions bundled with the offerings of our strategic partners, such as computer hardware original equipment manufacturers (OEMs) and, internet service providers (ISPs), operating systems and operating systems.telecom service providers. Our competitors could gain market share from us if any of these strategic partners replace our solutions with those of our competitors or with their own solutions; similarly,solutions. Similarly, they could gain market share from us if these partners more actively promote our competitors’ solutions or their own solutions more than our solutions. In addition, software vendors who have bundled our solutions with theirs may choose to bundle their solutions with their own or other vendors’ solutions or may limit our access to standard interfaces and inhibit our ability to develop solutions for their platform. In the future, furtherFurther product development by these vendors could cause our solutions to become redundant, which could significantly impact our sales and operating results.
We may need to change our pricing modelscannot be sure that we will accurately predict how the markets in which we compete or intend to compete successfully.
The intense competition we face,will evolve. Failure on our part to anticipate changes in additionour markets and to generaldevelop solutions and economic business conditions, can put pressure on usenhancements that meet the demands of those markets or to change our pricing practices. Ifeffectively compete against our competitors offer deep discounts on certain solutions or provide offerings, or offer free introductory productswill significantly impair our business, financial condition, results of operations, and cash flows.
Our acquisitions and divestitures create special risks and challenges that compete with ours, we may need to lower prices or offer similar free introductory products in order to compete successfully. Similarly, if external factors, such as economic conditions or market trends, require us to raise our prices, our ability to acquire new customers and retain existing customers may be diminished. Any such changes may reduce revenue and margins and could adversely affect our financial results.
Additionally,As part of our business strategy, we may be affected by changesacquire or divest businesses or assets. For example, in 2019, we completed the macroeconomic environment. Our solutions are discretionary purchases,sale of certain of our enterprise security assets to Broadcom Inc. (the Broadcom sale), in January 2021, we completed the acquisition of Avira, and customers may reduce or eliminate their discretionary spending on our solutions during a difficult macroeconomic environment. Although we did not experience a material increase in cancellations by customers or a material reduction in our retention rate in fiscal 2021 or fiscalSeptember 2022, we completed the Merger with Avast. These activities have and may experience such an increasecontinue to involve a number of risks and challenges, including:
•Complexity, time and costs associated with managing these transactions, including the integration of acquired and the winding down of divested business operations, workforce, products, IT systems and technologies;
•Challenges in retaining customers of acquired businesses, or reduction inproviding the future, especially in the eventsame level of a prolonged recession or a worseningservice to existing customers with reduced resources;
•Diversion of current conditions as a result of the COVID-19 pandemic. In addition, during a recession, consumers may experience a decline in their credit or disposable income, which may result in less demand for our solutions. As a result, we may have to lower our prices or make other changes to our pricing model to address these dynamics, any of which could adversely affect our businessmanagement time and financial results.attention;
In addition, in January 2021, we acquired Germany-based Avira. Many•Loss or termination of Avira’s users are freemium subscribers, meaning they do not pay for its basic services. Much of our anticipated growth in connectionemployees, including costs associated with the Avira acquisition is attributable to attracting and converting Avira’s freemium users to a paid subscription option. Numerous factors, however, may impede our ability to attract, retain and convert these users into paying customers.
If we fail to manage our sales and distribution channels effectively,termination or if our partners choose not to market and sell our solutions to their customers, our operating results could be adversely affected.
A portionreplacement of our revenues is derived from sales through indirect channels, including, but not limited to, distributors that sell our products to end-users and other resellers, and OEM partners that incorporate our products into, or bundle our products with, their products. These channels involve a number of risks, including:those employees;
•Our resellers, distributorsAssumption of liabilities of the acquired and OEMs are generally not subjectdivested business or assets, including pending or future litigation, investigations or claims related to minimum sales requirementsthe acquired business or any obligation to market our solutions to their customers;assets;
•Our reseller and distributor agreements are generally nonexclusive and may be terminated at any time without cause and our OEM partners may terminate or renegotiate their arrangements with us and new terms may be less favorable due to competitive conditions in our markets and other factors;Addition of acquisition-related debt;
•Our resellers, distributors and OEMs may encounter issuesDifficulty in entering into or have violations of applicable lawexpanding in new markets or regulatory requirements or otherwise cause damage to our reputation through their actions;geographies;
•Our resellersIncreased or unexpected costs and distributors frequently market and distribute competing solutions and may, from time to time, place greater emphasis on the sale of these competing solutions due to pricing, promotions, and other terms offered by our competitors;working capital requirements;
•Any consolidationDilution of electronics retailers can increase their negotiating power with respect to software providers such as us and any decline in the numberstock ownership of physical retailers could decrease the channels of distribution for us;existing stockholders;
•The continued consolidationOngoing contractual obligations and unanticipated delays or failure to meet contractual obligations;
•Substantial accounting charges for acquisition-related costs, asset impairments, amortization of online sales through a small numberintangible assets and higher levels of larger channels has been increasing, which could reduce the channels available for online distribution of our solutions;stock-based compensation expense; and
•Sales throughDifficulty in realizing potential benefits, including cost savings and operational efficiencies, synergies and growth prospects from integrating acquired businesses.
Macroeconomic factors, such as rising inflation and interest rates, and capital market volatility could negatively influence our partnersfuture acquisition opportunities. Moreover, to be successful, large complex acquisitions depend on large-scale product, technology, and sales force integrations that are subjectdifficult to changes in general economic conditions, strategic direction, competitivecomplete on a timely basis or at all and may be more susceptible to the special risks and challenges described above. Any of the foregoing, and other issues thatfactors, could result in a reductionharm our ability to achieve anticipated levels of sales,profitability or causeother financial benefits from our partnersacquired or divested businesses, product lines or assets or to suffer financial difficulty which could delay payments to us, affecting our operating results.
If we fail to manage our sales and distribution channels successfully, these channels may conflict with one anotherrealize other anticipated benefits of divestitures or otherwise fail to perform as we anticipate, which could reduce our sales and increase our expenses as well as weaken our competitive position.acquisitions.
Our revenue and operating results depend significantly on our ability to retain our existing customers and expand sales to them, convert existing non-paying customers to paying customers and add new customers.
We generally sell our solutions to our customers on a monthly or annual subscription basis. It is important to our business that we retain existing customers and that our customers expand their use of our solutions over time. Customers may choose not to renew their membership with us at any time. Renewing customers may require additional incentives to renew, may not renew for the same contract period, or may change their subscriptions. We therefore may be unable to retain our existing customers on the same or on more profitable terms, if at all. In addition, we may not be able to accurately predict or anticipate future trends in customer retention or effectively respond to such trends.
Our customer retention rates may decline or fluctuate due to a variety of factors, including the following:
•Our customers’ levels of satisfaction or dissatisfaction with our solutions and the value they place on our solutions;
•The quality, breadth, and prices of our solutions;
•Our general reputation and events impacting that reputation;
•The services and related pricing offered by our competitors; including increasing availability and efficacy of free solutions;
•Disruption by new services or changes in law or regulations that impact the need for efficacy of our products and services;
•Changes in auto-renewal and other consumer protection regulations;
•Our customers’ dissatisfaction with our efforts to market additional products and services;
•Our customer service and responsiveness to the needs of our customers; and
•Changes in our target customers’ spending levels as a result of general economic conditions, inflationary pressures or other factors.factors; and
•The quality and efficacy of our third-party partners who assist us in renewing customers’ subscriptions.
Declining customer retention rates could cause our revenue to grow more slowly than expected or decline;decline, and our operating results, gross margins and business will be harmed. In addition, our ability to generate revenue and maintain or improve our results of operations partly depends on our ability to cross-sell our solutions to our existing customers and to convert existing non-paying customers to paying customers. We may not be successful in cross-selling our solutions because our customers may find our additional solutions unnecessary or unattractive. Our failure to sell additional solutions to our existing customers could adversely affect our ability to grow our business.
An important part of our growth strategy involves continued investment in direct marketing efforts, indirect partner distribution channels, freemium channels, our sales force, and infrastructure to add new customers. The number and rate at which new customers purchase our products and services depends on a number of factors, including those outside of our control, such as customers’ perceived need for our solutions, competition, general economic conditions, market transitions, product obsolescence, technological change, public awareness of security threats to IT systems, macroeconomic conditions, and other factors. These new customers, if any, may renew their subscriptions at lower rates than we have experienced in the past, which could affect our financial results.
Additionally, there are inherent challenges in measuring the usage of our products and solutions across our brands, platforms, regions, and internal systems, and therefore, calculation methodologies for direct customer counts may differ, which may impact our ability to measure the addition of new customers. The methodologies used to measure these metrics require
judgment and are also susceptible to algorithms or other technical errors. We continually seek to improve our estimates of our user base, and these estimates are subject to change due to improvements or revisions to our methodology. From time to time, we review our metrics and may discover inaccuracies or make adjustments to improve their accuracy, which can result in adjustments to our historical metrics. Our acquisitionsability to recalculate our historical metrics may be impacted by data limitations or other factors that require us to apply different methodologies for such adjustments.
We may need to change our pricing models to compete successfully.
The intense competition we face, in addition to general and divestitures create special riskseconomic business conditions (including economic volatility, recent bank failures, and challengesincreased inflation and interest rates, among other things), may put pressure on us to change our pricing practices. If our competitors offer deep discounts on certain solutions or provide offerings, or offer free introductory products that compete with ours, we may need to lower prices or offer similar free introductory products to compete successfully. Similarly, if external factors, such as economic conditions, market trends, or business combinations require us to raise our prices, our ability to acquire new customers and retain existing customers may be diminished. Any such changes may reduce revenue and margins and could adversely affect our financial results.
As part ofAdditionally, our business strategy, we may acquirebe affected by changes in the macroeconomic environment. Our solutions are discretionary purchases, and customers may reduce or divest businesseseliminate their discretionary spending on our solutions during a difficult macroeconomic environment. We may experience a material increase in cancellations by customers or assets. For example,a material reduction in 2019 we completedour retention rate in the salefuture, especially in the event of certaina prolonged recession or a worsening of current conditions as a result of inflation, changes in interest rates, or other macroeconomic events. We may have to lower our enterprise security assetsprices or make other changes to Broadcom Inc. (the Broadcom sale)our pricing model to address these dynamics, any of which could adversely affect our business and financial results. Additionally, our results of operations and cash flows are subject to fluctuations due to inflation, changes in foreign currency exchange rates relative to U.S. dollars, our reporting currency, and changes in interest rates. Growth in our international operations will incrementally increase our exposure to foreign currency fluctuations as well as volatile market conditions, including the weakening of foreign currencies relative to USD, which has and may in the future negatively affect our revenue expressed in USD. Volatile market conditions related to Russia’s invasion of Ukraine and retaliatory sanctions against the Russian Federation and Belarus, and other global or macroeconomic events have, at times, and may in the future negatively impact our results of operations and cash flows.
Finally, in January 2021, we acquired Germany-based Avira and in September 2022, we completed the acquisitionMerger with Avast. Many of Avira. These activities can involve a numberAvira’s and Avast’s users are freemium subscribers, meaning they do not pay for its basic services. Much of risks and challenges, including:
•Complexity, time, and costs associatedour anticipated growth in connection with managing these transactions, including the integration of acquiredAvira acquisition and the winding downMerger with Avast is attributable to attracting and converting Avira’s and Avast’s freemium users to a paid subscription option. Numerous factors, however, may impede our ability to attract free users, convert these users into paying customers and retain them.
If we fail to manage our sales and distribution channels effectively, or if our partners choose not to market and sell our solutions to their customers, our operating results could be adversely affected.
A portion of divested business operations, workforce,our revenues is derived from sales through indirect channels, including, but not limited to, distributors that sell our products IT systems,to end-users and technologies;other resellers, and partners that incorporate our products into, or bundle our products with, their products. These channels involve risks, including:
•Challenges in retaining customers of acquired businesses,Our resellers, distributors and telecom service providers are generally not subject to minimum sales requirements or providing the same level of serviceany obligation to existing customers with reduced resources; market our solutions to their customers;
•Diversion of managementOur reseller and distributor agreements are generally nonexclusive and may be terminated at any time without cause and attention; our partners may terminate or renegotiate their arrangements with us and new terms may be less favorable due to competitive conditions in our markets and other factors;
•LossOur resellers, distributors and OEMs may encounter issues or terminationhave violations of employees, including costs associated with the terminationapplicable law or replacement of those employees; regulatory requirements or otherwise cause damage to our reputation through their actions;
•AssumptionOur resellers and distributors frequently market and distribute competing solutions and may, from time to time, place greater emphasis on the sale of liabilitiescompeting solutions due to pricing, promotions, and other terms offered by our competitors;
•Any consolidation of electronics retailers can increase their negotiating power with respect to software providers such as us and any decline in the acquired and divested business or assets, including pending or future litigation, investigations or claims related tonumber of physical retailers could decrease the acquired business or assets; channels of distribution for us;
•The additionconsolidation of acquisition-related debt;
•Difficulty in entering into or expanding in new markets or geographies;
•Increased or unexpected costs and working capital requirements;
•Dilutiononline sales through a small number of stock ownershiplarger channels has been increasing, which could reduce the channels available for online distribution of existing stockholders;
•Unanticipated delays or failure to meet contractual obligations;
•Substantial accounting charges for acquisition-related costs, asset impairments, amortization of intangible assets, and higher levels of stock-based compensation expense;our solutions; and
•DifficultySales through our partners are subject to changes in realizing potential benefits, including cost savings and operational efficiencies, synergies and growth prospects from integrating acquired businesses.
Moreover, to be successful, large complex acquisitions depend on large-scale product, technology, and sales force integrations that are difficult to complete on a timely basis or at all and may be more susceptible to the specialgeneral economic conditions, strategic direction, competitive risks, and challenges described above. Anyother issues that could result in fewer sales, or cause our partners to suffer financial difficulty which could delay payments to us, affecting our operating results.
If we fail to manage our sales and distribution channels successfully, these channels may conflict with one another or otherwise fail to perform as we anticipate, which could reduce our sales and increase our expenses as well as weaken our competitive position.
Changes in industry structure and market conditions could lead to charges related to discontinuance of certain of our products or businesses and asset impairments.
In response to changes in industry structure and market conditions, we may be required to strategically reallocate our resources and consider restructuring, disposing of, or otherwise exiting certain businesses. Any decision to limit investment in or dispose of or otherwise exit businesses may result in the recording of special charges, such as technology-related write-offs, workforce reduction costs, charges relating to consolidation of excess facilities, or claims from third parties who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of our carrying basis of assets, including purchased intangible assets, could change as a result of such assessments and decisions. Although in certain instances our vendor agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, ourOur loss contingencies may include liabilities for contracts that we cannot cancel, reschedule or adjust with suppliers.
Further, our estimates relating to the liabilities for excess facilities are affected by changes in real estate market conditions. Additionally, we are required to evaluate goodwill impairment on an annual basis and between annual evaluations in certain circumstances, and future goodwill impairment evaluations may result in a charge to earnings.
RISKS RELATED TO OUR OPERATIONS
Our international operations involve risks that could increase our expenses, adversely affect our operating results and require increased time and attention of our management.
Following the Merger with Avast, we derive a significant portion of our revenues from customers located outside of the U.S., and we have substantial operations outside of the U.S., including engineering, finance, sales and customer support. Our international operations are subject to risks in addition to those faced by our domestic operations, including:
•Difficulties staffing, managing, and coordinating the activities of our geographically dispersed and culturally diverse operations;
•Potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;
•Requirements of foreign laws and other governmental controls, including tariffs, trade barriers and labor restrictions, and related laws that reduce the flexibility of our business operations;
•Fluctuations in currency exchange rates, economic instability, and inflationary conditions could make our solutions more expensive or could increase our costs of doing business in certain countries;
•Potential changes in trade relations arising from policy initiatives or other political factors;
•Regulations or restrictions on the use, import, or export of encryption technologies that could delay or prevent the acceptance and use of encryption products and public networks for secure communications;
•Local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;
•Central bank and other restrictions on our ability to repatriate cash from our international subsidiaries or to exchange cash in international subsidiaries into cash available for use in the United States;
•Limitations on future growth or inability to maintain current levels of revenues from international sales if we do not invest sufficiently in our international operations;
•Difficulties in staffing, managing, and operating our international operations;
•Costs and delays associated with developing software and providing support in multiple languages;
•Political, social or economic unrest, war, or terrorism, regional natural disasters, or export controls and trade restrictions, particularly in areas in which we have facilities; and
•Multiple and possibly overlapping tax regimes.
The expansion of our existing international operations and entry into additional international markets has required and will continue to require significant management attention and financial resources. These increased costs may increase our cost of acquiring international customers, which may delay our ability to achieve profitability or reduce our profitability in the future. We are dependent upon Broadcom for certain engineeringmay also face pressure to lower our prices in order to compete in emerging markets, which could adversely affect revenue derived from our international operations.
Our business has not been materially impacted to date by Russia’s invasion of Ukraine and threat response services,retaliatory sanctions against the Russian Federation and Belarus; however, it is not possible to predict the broader consequences of this conflict or other conflicts that may arise in the future, which could include geopolitical instability and uncertainty; adverse impacts on global and regional economic conditions and financial markets, including significant volatility in credit, capital, and currency markets; reduced economic activity; changes in laws and regulations affecting our business, including further sanctions or counter-sanctions which may be enacted; and increased cybersecurity threats and concerns. The ultimate extent to which Russia’s invasion of Ukraine or other future conflicts may negatively impact our business, financial condition and results of operations will depend on future developments, which are criticalhighly uncertain, difficult to our productspredict and business.
Our endpoint security solution has historically relied upon certain threat analytics software engines and other software (the Engine-Related Services) that have been developed and provided by engineering teams that have transferredsubject to Broadcom as part of the Broadcom sale. The technology, including source code, at issue is shared, and pursuant to the terms of the Broadcom sale, we retain rights to use, modify, enhance and create derivative works from such technology. Broadcom has committed to provide these Engine-Related Services substantially to the same extent and in substantially the same manner, as has been historically provided under a license agreement with a limited term.change.
As a result, we are dependent on Broadcom for services and technology that are critical to our Norton business, and if Broadcom fails to deliver these Engine-Related Services it would result in significant business disruption, and our business and operating results and financial condition could be materially and adversely affected. Furthermore, if our current sources become unavailable, and if we are unable to develop or obtain alternatives to integrate or deploy them in time, our ability to compete effectively could be impacted and have a material adverse effect on our business. Additionally, in connection with the Broadcom sale, we lost other capabilities, including certain threat intelligence data which were historically provided by our former Enterprise Security business, the lack of which could have a negative impact on our business and products.
Our future success depends on our ability to attract and retain personnel in a competitive marketplace.
Our future success depends upon our ability to recruit and retain key management, technical (including cyber security experts), sales, marketing, e-commerce, finance, and other personnel. As a result of the Merger with Avast, we have expanded our leadership team. Our officers and other key personnel are “at will” employees and we generally do not have employment or non-compete agreements with our employees. Competition is significant for people with the specific skills that we require is significant. While we continue to monitor the competitive environment, it is possible that the COVID-19 pandemic may affect the productivity of our employees and our ability to attract and retain key talent.require. As a result of the COVID-19 pandemic, in March 2020, we transitioned to a remote working environment for the substantial majority of our employees. While our employees have transitioned effectively to working from home, overOver time such remote operations may decrease the cohesiveness of our employees and our ability to maintain our culture, both of which are integral to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, to foster a creative environment, to hire new employees and to retain existing employees.
In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation. Additionally, changes in immigration laws could impair our ability to attract and retain highly qualified employees. If we fail to attract, retain and motivate new or existing personnel, our business, results of operations and future growth prospects could suffer. The volatilityVolatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. In addition, we may not have an adequate number of shares reserved under our equity compensation plans, forcing us to reduce awards of equity-based compensation, which could impair our efforts to attract, retain and motivate necessary personnel. If we are unable to hire and retain qualified employees, or conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our business and operating results could be adversely affected.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. From time to time, key personnel leave our company and the frequency and number of such departures have widely varied and have, in the past, resulted in significant changes to our executive leadership team. The loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, our internal control over financial reporting, and our results of operations. In addition, hiring, training, and successfully integrating replacement personnel can be time consuming and expensive, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future financial results.
Our inability to successfully recover from a disaster or other business continuity event could impair our ability to deliver our products and services and harm our business.
We are heavily reliant on our technology and infrastructure to provide our products and services to our customers. For example, we host many of our products using third-party data center facilities, and while we require them to maintain formal service level agreements around availability, we do not control the operation of these facilities. These facilities are vulnerable to damage, interruption, or performance problems from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures, pandemics and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of a natural disaster, an act of terrorism, a pandemic, and similar events could result in a decision to close the facilities without adequate notice or other unanticipated problems, which in turn, could result in lengthy interruptions in the delivery of our products and services, which could negatively impact our sales and operating results.
Furthermore, our business administration, human resources, compliance efforts, and finance services depend on the proper functioning of our computer, telecommunication, and other related systems and operations. A disruption or failure of these systems or operations because of a disaster, cyber-attack or other business continuity event, such as the COVID-19 pandemic, could cause data to be lost or otherwise delay our ability to complete sales and provide the highest level of service to our customers. In addition, we could have difficulty producing accurate financial statements on a timely basis, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results, all of which could adversely affect the trading value of our stock. Although we endeavor to ensure there is redundancy in these systems and that they are regularly backed-up, there are no assurances that data recovery in the event of a disaster would be effective or occur in an efficient manner.If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
If we fail to offer high-quality customer support, our customer satisfaction may suffer and have a negative impact on our business and reputation.
Many of our customers rely on our customer support services to resolve issues, including technical support, billing and subscription issues, that may arise. If demand increases, or our resources decrease, we may be unable to offer the level of support our customers expect. Any failure by us to maintain the expected level of support could reduce customer satisfaction and negatively impact our customer retention and our business.
Our international operations involve risks that could increase our expenses, adversely affect our operating results and require increased time and attention of our management.
We derive a portion of our revenues from customers located outside of the U.S., and we have significant operations outside of the U.S., including engineering, finance, sales and customer support. Our international operations are subject to risks in addition to those faced by our domestic operations, including:
•Potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;
•Requirements of foreign laws and other governmental controls, including tariffs, trade barriers and labor restrictions, and related laws that reduce the flexibility of our business operations;
•Potential changes in trade relations arising from policy initiatives or other political factors;
•Regulations or restrictions on the use, import, or export of encryption technologies that could delay or prevent the acceptance and use of encryption products and public networks for secure communications;
•Local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;
•Central bank and other restrictions on our ability to repatriate cash from our international subsidiaries or to exchange cash in international subsidiaries into cash available for use in the U.S.;
•Fluctuations in currency exchange rates, economic instability, and inflationary conditions could make our solutions more expensive or could increase our costs of doing business in certain countries;
•Limitations on future growth or inability to maintain current levels of revenues from international sales if we do not invest sufficiently in our international operations;
•Difficulties in staffing, managing, and operating our international operations;
•Difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;
•Costs and delays associated with developing software and providing support in multiple languages; and
•Political unrest, war, or terrorism, or regional natural disasters, particularly in areas in which we have facilities.
RISKS RELATED TO OUR SOLUTIONS
Our solutions, systems, websites and the data on these sources have been and may continue to be subject to intentional disruptioncybersecurity events that could materially harm to our reputation and future sales.
Despite our precautions and significant ongoing investments to protect against security risks, data protection breaches, cyber-attacks, and other intentional disruptions of our solutions, we expect to continue to be an ongoinga target of attacks specifically designed to impede the performance and availability of our offerings and harm our reputation as a leading cyber security company. In addition, we face the risk of cyberattacks by nation-states and state-sponsored actors. These attacks may target us, our partners, suppliers, vendors or customers. Similarly, experienced computer programmers or other sophisticated individuals or entities, including malicious hackers, state-sponsored organizations, and insider threats including actions by employees and third-party service providers, may attemptcould or have attempted to penetrate, and in some cases have penetrated, our network security or the security of our systems and websites and misappropriate proprietary informationvendors or cause interruptions of our products and services.suppliers. Such attempts are increasing in number and in technical sophistication, and if successful could expose us and the affected parties, to risk of loss or misuse of proprietary, personal or confidential information or disruptions of our business operations.
While we engage in a number of measures aimed to protect against security breaches and to minimize the impact ifWhen a data breach were to occur,occurs, our information technology systems and infrastructure maycan be vulnerablesubject to damage, compromise, disruption, and shutdown due to attacks or breaches by hackers or other circumstances, such as error or malfeasance by employees or third partythird-party service providers or technology malfunction. There is no guarantee that these issues will not ultimately result in significant legal, financial, and reputational harm, including government inquiries, enforcement actions, litigation, and negative publicity. There is also no guarantee that a series of issues may not be determined to be material at a later date in the aggregate, even if they may not be material individually at the time of their occurrence. The occurrence of any of these events, as well as a failure to promptly remedy these events shouldthem when they occur, could compromise our systems and the information stored in our systems could be accessed, publicly disclosed, lost, stolen, or damaged.systems. Any such circumstance could adversely affect our ability to attract and maintain customers as well as strategic partners, cause us to suffer negative publicity or damage to our brand, and subject us to legal claims and liabilities or regulatory penalties. In addition, unauthorized parties might alter information in our databases, which would adversely affect both the reliability of that information and our ability to market and perform our services as well as undermine our ability to remain compliant with relevant laws and regulations. Techniques used to obtain unauthorized access or to sabotage systems change frequently, are constantly evolving and generally are difficult to recognize and react to effectively. We may be unableare not always able to anticipate these techniques or to implement adequate or timely preventive or reactive measures. Several recent, highly publicized data security breaches, including a large-scale attack on SolarWinds customersattacks by a foreign nation state actoractors and a significant uptick in ransomware/extortion attacks at other companies, have heightened consumer awareness of this issue and may embolden individuals or groups to target our systems or those of our strategic partners or enterprise customers. As an example, aIn December 2021, a critical remote code execution (RCE) vulnerability was identified in the Apache Software Foundation’s Log4j software library (Log4j), which if exploited could result in unauthorized access to Company systems and data, and acquisition of the same. We are taking, and have taken, steps to remediate all known Log4j vulnerabilities within our environment, deployed compensating controls, and implemented additional changes to protect against an exploit of those vulnerabilities. A threat actor could exploit a Log4jnew vulnerability or newly discovered vulnerabilities before we complete our remediation work or identify a vulnerability that we did not effectively remediate. If that happens, there could be unauthorized
access to, or acquisition of, data we maintain, and damage to Companyour systems. We could also face legal action from individuals, business partners, and regulators in connection with exploitation of those vulnerabilities,data breaches, which would result in increased costs and fees incurred in our defense against those proceedings.proceedings, and/or payment of any regulatory penalties.
We collect, use, disclose, store or otherwise process personal information, which subjects us to privacy and data security laws and contractual commitments.
We collect, use, process, store, transmit or disclose (collectively, process) an increasingly large amount of confidential information, including personal information (which includes credit card information and other critical data from employees and customers), in connection with the operation of our business, particularly in relation to our identity and information protection service offerings.
The confidential and personal information we process is subject to an increasing number of federal, state, local, and foreign laws regarding privacy and data security, as well as contractual commitments. Any failure or perceived failure by us to comply with such obligations may result in governmental enforcement actions, fines, litigation, or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
Additionally, changes to applicable privacy or data security laws could impact how we process personal information and therefore limit the effectiveness of our solutions or our ability to develop new solutions. For example, the European Union General Data Protection Regulation imposes more stringent data protection requirements and provides for greater penalties for noncompliance of up to the greater of €20 million or four percent of our worldwide annual revenues.
Data protection legislation is also increasing in the U.S. at both the federal and state level. For example, the California Consumer Privacy Act of 2018 (the CCPA) requires, among other things, covered companies to provide new disclosures to California consumers regarding the use of personal information, gives California residents expanded rights to access their personal information that has been collected and allows such consumers new abilities to opt-out of certain sales of personal information. Further, the new California Privacy Rights Act (the CPRA) significantly modifies the CCPA and there are new similar and overlapping state privacy laws in Colorado, Connecticut, Virginia, Utah, and Iowa. These new laws may result in additional uncertainty and require us to incur additional costs and expenses in our effort to comply. Additionally, the Federal Trade Commission (the FTC) and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. The burdens imposed by the new state privacy laws and other similar laws that may be enacted at the federal and state level may require us to modify our data processing practices and policies, adapt our goods and services and incur substantial expenditures in order to comply.
Global privacy and data protection legislation and enforcement are rapidly expanding and evolving, and may be inconsistent from jurisdiction to jurisdiction. We may be or become subject to data localization laws mandating that data collected in a foreign country be processed and stored only or primarily within that country. If any country in which we have customers were to adopt a data localization law, we could be required to expand our data storage facilities there or build new ones in order to comply. The expenditure this would require, as well as costs of compliance generally, could harm our financial condition.
Additionally, third parties with whom we work, such as vendors or developers, may violate applicable laws or our policies and such violations can place the personal information of our customers at risk. In addition, our customers may also accidentally disclose their passwords or store them on a device that is lost or stolen, creating the perception that our systems are not secure against third-party access. This could have an adverse effect on our reputation and business. In addition, such third parties could expose us to compromised data or technology, or be the target of cyberattack and other data breaches which could impact our systems or our customers’ records and personal information. Further, we could be the target of a cyberattack or other action that impacts our systems and results in a data breach of our customers’ records and personal information. This could have an adverse effect on our reputation and business and potentially result in litigation and/or regulatory penalties.
Our inability to successfully recover from a disaster or other business continuity event could impair our ability to deliver our products and services and harm our business.
We are heavily reliant on our technology and infrastructure to provide our products and services to our customers. For example, we host many of our products using third-party data center facilities and we do not control the operation of these facilities. These facilities are vulnerable to damage, interference, interruption, or performance problems from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures, pandemics and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of a natural disaster, an act of terrorism state-sponsored attacks, a pandemic, geopolitical tensions or armed conflicts, and similar events could result in a decision to close the facilities without adequate notice or other unanticipated problems, which in turn, could result in lengthy interruptions in the delivery of our products and services, which could negatively impact our sales and operating results.
Furthermore, our business administration, human resources, compliance efforts, and finance services depend on the proper functioning of our computer, telecommunication, and other related systems and operations. A disruption or failure of these systems or operations because of a disaster, cyberattack or other business continuity event, such as a pandemic, could cause data to be lost or otherwise delay our ability to complete sales and provide the highest level of service to our customers. In addition, we could have difficulty producing accurate financial statements on a timely basis, and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results, all of which could adversely affect the trading value of our stock. There are no assurances that data recovery in the event of a disaster would be effective or occur in an efficient manner. If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make corrections or find alternative sources for performing these functions.
We are dependent upon Broadcom for certain engineering and threat response services, which are critical to many of our products and business.
Our Norton branded endpoint security solution has historically relied upon certain threat analytics software engines and other software (the Engine-Related Services) that have been developed and provided by engineering teams that have transferred to Broadcom as part of the Broadcom sale. The technology, including source code, at issue is shared, and pursuant to the terms of the Broadcom sale, we retain rights to use, modify, enhance and create derivative works from such technology. Broadcom has committed to provide these Engine-Related Services substantially to the same extent and in substantially the same manner, as has been historically provided under a license agreement with a limited term.
As a result, we are dependent on Broadcom for services and technology that are critical to our business, and if Broadcom fails to deliver these Engine-Related Services it would result in significant business disruption, and our business and operating results and financial condition could be materially and adversely affected. Furthermore, if our current sources become unavailable, and if we are unable to develop or obtain alternatives to integrate or deploy them in time, our ability to compete effectively could be impacted and have a material adverse effect on our business. Additionally, in connection with the Broadcom sale, we lost other capabilities, including certain threat intelligence data which were historically provided by our former Enterprise Security business, the lack of which could have a negative impact on our business and products.
If we fail to offer high-quality customer support, our customer satisfaction may suffer and have a negative impact on our business and reputation.
Many of our customers rely on our customer support services to resolve issues, including technical support, billing and subscription issues, that may arise. If demand increases, or our resources decrease, we may be unable to offer the level of support our customers expect. Any failure by us to maintain the expected level of support could reduce customer satisfaction and negatively impact our customer retention and our business.
Our solutions are complex and operate in a wide variety of environments, systems and configurations, which could result in failures of our solutions to function as designed.
Because we offer very complex solutions, errors, defects, disruptions, or other performance problems with our solutions may and have occurred. For example, we may experience disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, fraud, security attacks, or capacity constraints due to an overwhelming number of users accessing our websites simultaneously, fraud, or security attacks.simultaneously. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our solutions, could impact our revenues or cause customers to cease doing business with us. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose customer data or personal information, or experience material adverse interruptions to our operations or delivery of solutions to our clients in a disaster recovery scenario.
Negative publicity regarding our brand, solutions and business could harm our competitive position.
Our brand recognition and reputation as a trusted service provider are critical aspects of our business and key to retaining existing customers and attracting new customers. Our business could be harmed due to errors, defects, disruptions or other performance problems with our solutions causing our customers and potential customers to believe our solutions are unreliable. Furthermore, negative publicity, whether or not justified, including intentional brand misappropriation, relating to events or activities attributed to us, our employees, our strategic partners, our affiliates, or others associated with any of these parties, may tarnish our reputation and reduce the value of our brands. In addition, the rapid rise and use of social media has the potential to harm our brand and reputation. We may be unable to timely respond to and resolve negative and inaccurate social media posts regarding our company, solutions and business in an appropriate manner. Damage to our reputation and loss of brand equity may reduce demand for our solutions and have an adverse effect on our business, operating results, and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brands may be costly and time consuming, and such efforts may not ultimately be successful.
We collect, use, disclose, store Our reputation and/or otherwise process personal information, which subjects usbusiness could be negatively impacted by ESG matters and/or our reporting of such matters.
The focus from regulators, customers, certain investors, employees, and other stakeholders concerning environmental, social and governance (ESG) matters and related disclosures, both in the United States and internationally, have resulted in, and are likely to privacycontinue to result in, increased general and data security lawsadministrative expenses and contractual commitments.
We collect, use, process, store, transmitincreased management time and attention spent complying with or disclose (collectively, process) an increasingly large amount of confidential information, including personally identifiable information, credit cardmeeting ESG-related requirements and expectations. For example, developing and acting on ESG-related initiatives and collecting, measuring and reporting ESG-related information and other critical data from employeesmetrics can be costly, difficult and customers, in connection with the operation of our business, particularly in relation to our identitytime consuming and information protection offerings.
The personal information we process is subject to an increasing number of federal, state, local,evolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We communicate certain ESG-related initiatives, goals, and/or commitments regarding environmental matters, diversity, responsible sourcing and foreign laws regarding privacysocial investments, and data security, as well as contractual commitments. Any failure or perceived failure by us to comply with such obligations may result in governmental enforcement actions, fines, litigation, or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effectother matters, on our reputation and business.
Additionally, changes to applicable privacy or data security laws could impact how we process personal information and therefore limit the effectiveness of our solutions or our ability to develop new solutions. For example, the European Union General Data Protection Regulation imposes more stringent data protection requirements and provides for greater penalties for noncompliance of up to the greater of €20 million or four percent of our worldwide annual revenues.
Data protection legislation is also becoming increasingly common in the U.S. at both the federal and state level. For example, the California Consumer Privacy Act of 2018 (the CCPA) requires, among other things, covered companies to provide new disclosures to California consumers regarding the use of personal information, gives California residents expanded rights to access their personal information that has been collected and allows such consumers new abilities to opt-out of certain sales of personal information. Further, the new California Privacy Rights Act (the CPRA) significantly modifies the CCPA. These modifications may result in additional uncertainty and require us to incur additional costs and expenseswebsite, in our effortfilings with the SEC, and elsewhere. These initiatives, goals, or commitments could be difficult to comply. Additionally,achieve and costly to implement, the Federal Trade Commission (the FTC) and many state attorneys general are interpreting federal and state consumer protection lawstechnologies needed to impose standards for the online collection, use, dissemination, and security of data. The burdens imposed by the CCPA, CPRA and other similar laws thatimplement them may not be enacted at the federal and state level may require us to modify our data processing practices and policies, adapt our goods and services and incur substantial expenditures in order to comply.
Global privacy and data protection legislation, enforcement, and policy activity are rapidly expanding and evolving,cost effective and may be inconsistent from jurisdiction to jurisdiction. We may be or become subject to data localization laws mandating that data collected innot advance at a foreign country be processedsufficient pace, and stored only within that country. If any country in which we have customers were to adopt a data localization law, we could be requiredcriticized for the accuracy, adequacy or completeness of the disclosure. Further, statements about our ESG-related initiatives, goals or commitments and progress with respect to expandsuch initiatives, goals or commitments may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the timing, scope or nature of these initiatives, goals or commitments, or for any revisions to them. If we fail to achieve progress with respect to our data storage facilities thereESG-related initiatives, goals or build new ones in order to comply. The expenditure this would require, as well as costs of compliance generally, could harm our financial condition.commitments on a timely basis, or at all,
Additionally, third parties with whom we work, such as vendors or developers,if our ESG-related data, processes and reporting are incomplete or inaccurate, our reputation, business, financial performance and growth could be adversely affected.
We are affected by seasonality, which may violate applicable laws orimpact our policiesrevenue and such violations can place personal informationresults of operations.
Portions of our customers at risk. In addition,business are impacted by seasonality. Seasonal behavior in orders has historically occurred in the third and fourth quarters of our customersfiscal year, which include the important selling periods during the holidays in our third quarter, as well as follow-on holiday purchases and the U.S. tax filing season, which is typically in our fourth quarter. Revenue generally reflects similar seasonal patterns, but to a lesser extent than orders. This is due to our subscription business model, as a large portion of our in-period revenue is recognized ratably from our deferred revenue balance. An unexpected decrease in sales over those traditionally high-volume selling periods may also accidentally disclose their passwords or store them on a device that is lost or stolen, creating the perception thatimpact our systems are not secure against third-party access. Thisrevenue and could have an adversea disproportionate effect on our reputation and business. In addition, such third parties could expose us to compromised data or technology, or beresults of operations for the target of cyberattack and other data breaches which could impact our systems or our customers’ records. Further, we could be the target of a cyberattack or other action that impacts our systems and results in a data breach of our customers’ records. This could have an adverse effect on our reputation and business.entire fiscal year.
LEGAL AND COMPLIANCE RISKS
Matters relating to or arising from our completed Audit Committee Investigation, including litigation matters, and potential additional expenses, may adversely affect our business and results of operations.
As previously disclosed in our public filings, the Audit Committee completed its internal investigation in September 2018. In connection with the Audit Committee Investigation, we voluntarily self-reported to the SEC. The SEC commenced a formal investigation with which we cooperated. In April 2022, the SEC Staff informed the Company that it concluded its investigation and does not intend to recommend an enforcement action by the Commission against us.
We have incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with or relating to the SEC investigation, which may continue to adversely affect our business and financial condition. In addition, securities class actions and other lawsuits have been filed against us, certain current and former directors, and former officers. The outcome of the securities class actions and other litigation is difficult to predict, and the cost to defend, settle, or otherwise resolve these matters may be significant. Plaintiffs in these matters may seek recovery of very large or indeterminate amounts. The monetary and other impact of these litigations, proceedings, or actions may remain unknown for substantial periods of time. Further, an unfavorable resolution of litigations, proceedings or actions could have a material adverse effect on our business, financial condition, and results of operations and cash flows. Any future investigations or additional lawsuits may also adversely affect our business, financial condition, results of operations, and cash flows.
Our solutions are highly regulated, which could impede our ability to market and provide our solutions or adversely affect our business, financial position, and results of operations.
Our solutions are subject to a high degree of regulation, including a wide variety of international and U.S. federal, state, and local laws and regulations, such as the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Federal Trade Commission Act (FTC(the FTC Act), and comparable state laws that are patterned after the FTC Act. LifeLock hasWe have previously entered into consent decrees and similar arrangements with the FTC and the attorney generals of 35 states as well as a settlement with the FTC relating to allegations that certain of LifeLock’s advertising, marketing and security practices constituted deceptive acts or practices in violation of the FTC Act, which impose additional restrictions on our business, including prohibitions against making any misrepresentation of “the means, methods, procedures, effects, effectiveness, coverage, or scope of” our solutions. NortonLifeLockWe signed an Undertaking, effective June 14, 2021, with the United Kingdom’s Competition and Markets Authority (CMA) requiring our NortonLifeLock Ireland Limited and NortonLifeLock UK entities to make certain changes to itstheir policies and practices related to automatically renewing subscriptions in the United Kingdom as part of the CMA’s investigation into auto-renewal practices in the antivirus sector it launched in December 2018. Any of the laws and regulations that apply to our business are subject to revision or new or changed interpretations, and we cannot predict the impact of such changes on our business.
Additionally, the nature of our identity and information protection products subjects us to the broad regulatory, supervisory, and enforcement powers of the Consumer Financial Protection Bureau which may exercise authority with respect to our services, or the marketing and servicing of those services, through the oversight of our financial institution or credit reporting agency customers and suppliers, or by otherwise exercising its supervisory, regulatory, or enforcement authority over consumer financial products and services.
If we do not protect our proprietary information and prevent third parties from making unauthorized use of our products and technology, our financial results could be harmed.
Much of our software and underlying technology is proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and procedures and through copyright, patent, trademark, and trade secret laws. However, these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties. Third parties may copy all or portions of our products or otherwise obtain, use, distribute, and sell our proprietary information without authorization.
Patents may also not be issued from our pending patent applications and claims allowed on any future issued patents may not be sufficiently broad to protect our technology. Also, these protections may not preclude competitors from independently developing products with functionality or features similar to our products.
Third parties may also develop similar or superior technology independently by designing around our patents. Our consumer agreements do not require a signature and therefore may be unenforceable under the laws of some jurisdictions. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as the laws of the U.S., and we may be subject to the unauthorized use of our products in those countries. The unauthorized copying or use of our products or proprietary information could result in reduced sales of our products. Any legal action to protect proprietary information that we may bring or be engaged in with a strategic partner or vendor could adversely affect our ability to access software, operating system, and hardware platforms of such partner or vendor, or cause such partner or vendor to choose not to offer our products to their customers. In addition, any legal action to protect proprietary information that we may bring or be engaged in, could be costly, may distract management from day-to-day operations, and may lead to additional claims against us, which could adversely affect our operating results.
From time to time we are a party to lawsuits and investigations, which typically require significant management time and attention and result in significant legal expenses.
We are frequently involved in litigation and other proceedings, including, but not limited to, patent litigation, class actions, and governmental claims or investigations, some of which may be material initially or become material over time. The expense of initiating and defending, and in some cases settling, such matters may be costly and divert management’s attention from the day-to-day operations of our business, which could have a materially adverse effect on our business, results of operations, and cash flows. In addition, such matters may thruthrough the course of litigation or other proceedings incur an unfavorable change unfavorably which could alter the profile of the matter and create potential material risk to the company. Any unfavorable outcome in a matter could result in significant fines, settlements, monetary damages, or injunctive relief that could negatively and materially impact our ability to conduct our business, results of operations, and cash flows. Additionally, in the event we did not previously accrue for such
litigation or proceeding in our financial statements, we may be required to record retrospective accruals that adversely affect our results of operations and financial condition.
Third parties claiminghave claimed and, from time to time, additional third parties may claim that we infringe their proprietary rights, which has previously and could in the future cause us to incur significant legal expenses and prevent us from selling our products.
FromThird parties have claimed and, from time to time, additional third parties may claim that we have infringed their intellectual property rights, including claims regarding patents, copyrights, and trademarks.
Because of constant technological change in the segments in which we compete, the extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. In addition, former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us confidential or proprietary information of these former employers. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of, or redesign our solutions, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our partners. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. We have made and expect to continue making significant expenditures to investigate, defend, and settle claims related to the use of technology and intellectual property rights as part of our strategy to manage this risk.
In addition, we license and use software from third parties in our business.business and generally must rely on those third parties to protect the licensed rights. These third-party software licenses may not continue to be available to us on acceptable terms or at all and may expose us to additional liability. This liability, or our inability to use any of this third-party software, could result in delivery delays or other disruptions in our business that could materially and adversely affect our operating results.
Some of our products contain “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Certain of our products are distributed with software licensed by its authors or other third parties under so-called “open source” licenses. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software if we combine our proprietary software with open source software in a certain manner. Some open source software may include generative artificial intelligence (AI) software or other software that incorporates or relies on generative AI. The use of such software may expose us to risks as the intellectual property ownership and license rights, including copyright, of generative AI software and tools, has not been fully interpreted by U.S. courts or been fully addressed by federal, state, or international regulations. In addition to risks related to license requirements, usage ofusing open source software, including open source software that incorporates or relies on generative AI, can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source, butsource. However, we cannot be sure that all open source, including open source that incorporates or relies on generative AI, is submitted for approval prior to use in our products. In addition, many of the risks associated with usage of open source, including open source that incorporates or relies on generative AI, may not or cannot be eliminated and could, if not properly addressed, negatively affect our business.
RISKS RELATED TO OUR LIQUIDITY AND INDEBTEDNESS
There are risks associated with our outstanding and future indebtedness that could adversely affect our financial condition.
As of April 1, 2022,March 31, 2023, we had an aggregate of $3,747$9,899 million of outstanding indebtedness that will mature in calendar years 20222025 through 2030, and $1,0001,500 million available for borrowing under our revolving credit facility. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on our outstanding debt. Our ability to meet expenses, remain in compliancecomply with the covenants under our debt instruments, pay interest and repay principal for our substantial level of indebtedness depends on, among other things, our operating performance, competitive developments, and financial market conditions, all of which are significantly affected by financial, business, economic and other factors. We are not able to control many of these factors. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on our debt, including our 5.0% Senior Notes due 2025, 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030 (collectively, the notes,Senior Notes), and meet our other obligations. Our level of indebtedness could have other important consequences, including the following:
•We must use a substantial portion of our cash flow from operations to pay interest and principal on the term loansAmended and revolving credit facility,Restated Credit Agreement, our existing senior notes,Senior Notes, and other indebtedness, which reduces funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes, and potential acquisitions;
•We may be unable to refinance our indebtedness or to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes;
•We are exposedhave significant exposure to fluctuations in interest rates because borrowings under our senior secured credit facilities bear interest at variable rates;
•Our leverage may be greater than that of some of our competitors, which may put us at a competitive disadvantage and reduce our flexibility in responding to current and changing industry and financial market conditions;
•We may be more vulnerable to an economic downturn or recession and adverse developments in our business;
•We may be unable to comply with financial and other covenants in our debt agreements, which could result in an event of default that, if not cured or waived, may result in acceleration of certain of our debt and would have an adverse effect on our business and prospects and could force us into bankruptcy or liquidation; and
•Changes by any rating agency to our outlook or credit rating could negatively affect the value of our debt and/or our common stock, adversely affect our access to debt markets, and increase the interest we pay on outstanding or future debt; and
•Conversion of our convertible note could result in significant dilution of our common stock, which could result in significant dilution to our existing stockholders and cause the market price of our common stock to decline.debt.
There can be no assurance that we will be able to manage any of these risks successfully. In addition, we conduct a significant portion of our operations through our subsidiaries. Accordingly, repayment of our indebtedness will be dependent in part on the generation of cash flow by our subsidiaries and their abilityrespective abilities to make such cash available to us by dividend, debt repayment, or otherwise, which may not always be possible. In the event thatIf we do not receive distributions from our subsidiaries, we may be unable to make the required principal and interest payments on our indebtedness.
The elimination of LIBOR after June 2023 may affect our financial results.
All LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. This means that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate. In the U.S., the Alternative Reference Rates Committee, a committee of private sector entities convened by the Federal Reserve BoardOur Amended and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (SOFR) plus a recommended spread adjustment as LIBOR's replacement. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities. If our LIBOR-based borrowings are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our operating results. Although SOFR is the ARRC's recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher interest costs for us. It is not yet possible to predict the magnitude of LIBOR's end on our borrowing costs given the remaining uncertainty about which rates will replace LIBOR.
Our term loan and revolving credit facility agreement imposeRestated Credit Agreement imposes operating and financial restrictions on us.
Our term loanAmended and revolving credit facility agreement containRestated Credit Agreement contains covenants that limit our ability and the ability of our restricted subsidiaries to:
•Incur additional debt;
•Create liens on certain assets to secure debt;
•Enter into certain sale and leaseback transactions;
•Pay dividends on or make other distributions in respect of our capital stock or make other restricted payments; and
•Consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.
All of theseThese covenants may adversely affect our ability to finance our operations, meet or otherwise address our capital needs, pursue business opportunities, react to market conditions, or may otherwise restrict activities or business plans. A breach of any of these covenants could result in a default in respect of the related indebtedness.default. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and, to the extent such indebtedness is secured, in the future, proceed against any collateral securing that indebtedness.
The failure of financial institutions or transactional counterparties could adversely affect our current and projected business operations and our financial condition and result of operations.
We regularly maintain cash balances with other financial institutions in excess of the FDIC insurance limit. A failure of a depository institution to return deposits could result in a loss or impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity and financial performance.
Additionally, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. Our general business strategy, including our ability to access existing debt under the terms of our Amended and Restated Credit Agreement may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly, more onerous with respect to financial and operating covenants and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our operations, growth strategy, financial performance and stock price and could require us to alter our operating plans.
Hedging or other mitigation actions to mitigate against interest rate exposure may adversely affect our earnings, limit our gains or result in losses, which could adversely affect cash available for distributions.
We have previously and may in the future enter into interest rate swap agreements or pursue other interest rate hedging strategies. In March 2023, we entered into interest rate swap agreements to mitigate risks associated with the variable interest rate of our Term A Facility. These pay-fixed, receive-floating rate interest rate swaps have the economic effect of hedging the variability of forecasted interest payments until their maturity on March 31, 2026. Pursuant to the agreements, we will effectively convert $1 billion of our variable rate borrowings under Term A Facility to fixed rates, with $500 million at a fixed rate of 3.762% and $500 million at a fixed rate of 3.550%. The objective of our interest rate swaps, all of which are designated as cash flow hedges, is to manage the variability of future cash interest expense.
Our future hedging activity will vary in scope based on the level of interest rates, the type and expected duration of portfolio investments held, and other changing market conditions. Our current and future interest rate hedging may fail to protect or could adversely affect us because, among other things:
•Interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
•Available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;
•The duration of the hedge may not match the duration of the related liability or asset;
•The credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;
•The party owing money in the hedging transaction may default on its obligation to pay; and
•We may purchase a hedge that turns out not to be necessary (i.e., a hedge that is out of the money).
Any hedging activity we engage in may adversely affect our earnings, which could adversely affect cash available for distributions. Unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.
GENERAL RISKS
Government efforts to combat inflation, along with other interest rate pressures arising from an inflationary economic environment, have led to and may continue to lead to higher financing costs.
We operate globally and as a result our business and revenues are impacted by global macroeconomic conditions. Inflation has risen on a global basis, including in the United States, and government entities have taken various actions to combat inflation, such as raising interest rate benchmarks. Government entities may continue their efforts, or implement additional efforts, to combat inflation, which may include continuing to raise interest rate benchmarks or maintaining interest rate benchmarks at elevated levels. Such government efforts, along with other interest rate pressures arising from an inflationary economic environment, have led to higher financing costs and have had and may continue to have a material adverse effect on our business, financial condition and results of operations.
Fluctuations in our quarterly financial results have affected the trading price of our outstanding securitiesstock in the past and could affect the trading price of our outstanding securitiesstock in the future.
Our quarterly financial results have fluctuated in the past and are likely to vary in the future due to a number of factors, many of which are outside of our control. If our quarterly financial results or our predictions of future financial results fail to meet our expectations or the expectations of securities analysts and investors, the trading price of our outstanding securities could be negatively affected. Volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions.
Factors associated with our industry, the operation of our business, and the markets for our solutions may cause our quarterly financial results to fluctuate, including but not limited to:
•Fluctuations in demand for our solutions;
•Disruptions in our business operations or target markets caused by, among other things, terrorism or other intentional acts, outbreaks of disease, such as the COVID-19 pandemic, or earthquakes, floods, or other natural disasters;
•Entry of new competition into our markets;
•Technological changes in our markets;
•Our ability to achieve targeted operating income and margins and revenues;
•Competitive pricing pressure or free offerings that compete with one or more of our solutions;
•Our ability to timely complete the release of new or enhanced versions of our solutions;
•The amount and timing of commencement and termination of major marketing campaigns;
•The number, severity, and timing of threat outbreaks and cyber security incidents;
•Loss of customers or strategic partners;partners or the inability to acquire new customers or cross-sell our solutions;
•Changes in the mix or type of solutions and subscriptions sold and changes in consumer retention rates;
•The rate of adoption of new technologies and new releases of operating systems, and new business processes;
•Consumer confidence and spending changes;
•The outcome or impact of litigation, claims, disputes, regulatory inquiries, or investigations;
•The impact of acquisitions and divestitures and(and our ability to achieve expected synergies or attendant cost savings;savings), divestitures, restructurings, share repurchase, financings, debt repayments and investment activities;
•FluctuationsChanges in U.S. and worldwide economic conditions, such as economic recessions, the impact of inflation, fluctuations in foreign currency exchange rates and changes in interest rates;rates, conflicts including Russia’s invasion of Ukraine, and other global macroeconomic factors on our operations and financial performance;
•The publication of unfavorable or inaccurate research reports about our business by cybersecurity industry analysts;
•The success of our corporate responsibilityESG initiatives;
•Changes in tax laws, rules, and regulations;
•Changes in tax rates, benefits, and expenses; and
•Changes in consumer protection laws and regulations.
Any of the foregoing factors could cause the trading price of our outstanding securities to fluctuate significantly.
Changes to our effective tax rate, including through the adoption of new tax legislation or exposure to additional income tax liabilities, could increase our income tax expense and reduce (increase) our net income (loss), cash flows and working capital. In addition, audits by tax authorities could result in additional tax payments for prior periods.
We are a multinational company dual headquartered in the U.S. and Czech Republic, with our principal executive offices in Tempe, Arizona. As such, we are subject to tax in multiple U.S. and international tax jurisdictions. Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:
•Changes to the U.S. federal income tax laws, including the potential for federal tax law changes put forward by Congress and the Bidencurrent administration including potentially increased corporate tax rates, new minimum taxes and other changes to the way that our US tax liability has been calculated following the 2017 Tax Cuts and Jobs Act. Certain of these proposals could have significant retroactive adjustments adding cash tax payments/liabilities if adopted;
•Changes to other tax laws, regulations, and interpretations in multiple jurisdictions in which we operate, including actions resulting from the Organisation for Economic Co-operation and Development's (OECD) base erosion and profit shifting project including recent proposals for a global minimum tax rate, proposed actions by international bodies such as digital services taxation, as well as the requirements of certain tax rulings. In October 2021, the OECD/G20 inclusive framework on Base Erosion and Profit Shifting (the Inclusive Framework) published a statement updating and finalizing the key components of a two-pillar plan on global tax reform which has now been agreed upon by the majority of OECD members. Pillar One allows countries to reallocate a portion of residual profits earned by multinational enterprises (MNE), with an annual global turnover exceeding €20 billion and a profit margin over 10%, to other market jurisdictions. Pillar Two requires MNEs with an annual global turnover exceeding €750 million to pay a global minimum tax of 15%. Additional guidance is expectedOn December 12, 2022, the European Union reached an agreement to implement the Pillar Two Directive of the OECD’s reform of international taxation at the European Union level. The agreement affirms that all Member States must transpose the Directive by December 31, 2023. The rules will therefore first be published in 2022.applicable for fiscal years starting on or after December 31, 2023. We will continue to monitor the implementation of the Inclusive Framework agreement by the countries in which we operate. We are unablewill continue to predict ifmonitor and determine how these and other legislative changes will be enacted into law and ithow they will potentially impact our corporate tax liabilities, our income tax provision, and cash tax liability. It is possible that they could have a material effect on our corporate tax liability and our global effective tax rate;
•Changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
•Changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process;
•The tax effects of significant infrequently occurring events that may cause fluctuations between reporting periods;
•Tax assessments, or any related tax interest or penalties, that could significantly affect our income tax expense for the period in which the settlements take place; and
•Taxes arising in connection to changes in our workforce, corporate entity structure or operations as they relate to tax incentives and tax rates.
From time to time, we receive notices that a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have reported to such authority.authority and we are consequently subject to tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Additionally, our ability to recognize the financial statement benefit of tax refund claims is subject to change based on a number of factors, including but not limited to, changes in facts and circumstances, changes in tax laws, correspondence with both IRS and State tax authorities, and the results of tax audits and related proceedings, which may take several years or more to resolve. If tax authorities disagree with certain tax reporting positions taken by us, as a result, they assess additional taxes against us. We are regularly engaged in discussions and sometimes disputes with these tax authorities. We ultimately sometimes have to engage in litigation to achieve the results reflected in our tax estimates, and such litigation can be time consuming and expensive. We regularly assess the likely outcomes of any audits in order to determine the appropriateness of our tax provision. If the ultimate determination of our taxes owed in any of these jurisdictions is for an amount in excess of the tax provision we have recorded or reserved for, our operating results, cash flows, and financial condition could be materially and adversely affected.
Any changes or interpretations to existing accounting pronouncements or taxation rules or practices may cause fluctuations in our reported results of operations or affect how we conduct our business.
A change in accounting pronouncements or taxation rules or practices could have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective. New accounting pronouncements, taxation rules and varying interpretations of accounting pronouncements or taxation rules have occurred in the past and may occur in the
future. We could be required to modify a current tax or accounting position as a result of any such change, and this could adversely affect our reported financial results and could change the way we conduct our business.
Item 1B. Unresolved Staff Comments
There are no unresolved issues with respect to any Commission staff’s written comments that were received at least 180 days before the end of our fiscal year to which this report relates and that relate to our periodic or current reports under the Exchange Act.
Item 2. Properties
Not applicable.
Item 3. Legal Proceedings
Information with respect to this Item may be found under the heading “Litigation contingencies” in Note 18 of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K which information is incorporated into this Item 3 by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock symbol and stockholders of record
Our common stock is traded on the Nasdaq Global Select Market under the symbol “NLOK”“GEN”. As of April 1, 2022,March 31, 2023, there were 1,4843,694 stockholders of record. A substantially greater number of holders of our common stock are "street name" or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions.
Stock performance graph
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the S&P 500 Composite Index and the S&P Information Technology Index for the five fiscal years ended April 1, 2022March 31, 2023 (assuming the initial investment of $100 in our common stock and in each of the other indices on the last day of trading for fiscal 20172018 and the reinvestment of all dividends). The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast the possible future performance of our common stock.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among NortonLifeLockGen Digital Inc., the S&P 500 Index
and the S&P Information Technology Index
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of NortonLifeLockGen Digital under the Securities Act or the Exchange Act.
Repurchases of our equity securities
Under our stock repurchase programs, shares may be repurchased on the open market and through accelerated stock repurchase transactions. On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million. As of April 1, 2022,March 31, 2023, we had $1,774$870 million remaining authorized to be completed in future periods with no expiration date. No shares were repurchased during the three months ended April 1, 2022.March 31, 2023.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Please read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related Notes thereto included under Item 15 of this Annual Report on Form 10-K.
OVERVIEW
NortonLifeLockGen Digital Inc. has the largestis a global company powering Digital Freedom with a family of trusted consumer brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. Our core Cyber Safety portfolio provides protection across three key categories in multiple channels and geographies, including security and performance, identity protection, and online privacy. We have built a technology platform that brings together software and service capabilities within these three categories into a comprehensive and easy-to-use integrated platform across our brands. We bring award-winning products and services in the world, empowering nearly 80cybersecurity, privacy and identity protection to approximately 500 million users in more than 150 countries. We are the trustedcountries so they can live their digital lives safely, privately, and number one top of mind brand in consumer Cyber Safety, accordingconfidently today and for generations to the 2022 NortonLifeLock brand tracking study. We help prevent, detect and restore potential damages caused by many cybercriminals.come.
Fiscal Year Highlights
•In May 2021,June 2022, we entered intofully repaid the first amendment to our credit agreement (the First Amendment), which provided for an incremental increaseprincipal and accrued interest under the Initial Term Loan,3.95% Senior Notes due June 2022, which had an aggregate principal amount outstanding of $400 million. In addition, we paid $7 million of accrued and extendedunpaid interest through the maturity date of the Initial Term Loan, the Delayed Draw Term Loan and revolving credit facility from November 2024 to May 2026. We borrowed $525 million under the First Amendment of our Initial Term Loan.redemption date.
•In May 2021,August 2022, we settled the $250$525 million principal and conversion rights of theour New 2.5%2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $364$630 million was based on $24.40$20.41 per underlying share into which the 2.5%New 2.0% Convertible Notes were convertible. In addition, we paid $5 million of accrued and unpaid interest through the date of settlement. The extinguishmentrepayments resulted in an adjustment to stockholders’ equity of $112 million and a loss on extinguishment of $2$100 million.
•In July 2021,September 2022, we completed the saleissued two series of certain landsenior notes, consisting of 6.75% Senior Notes due 2027 and buildings in Mountain View, California7.125% Senior Notes due 2030, for cash considerationan aggregate principal of $355 million, net of selling costs. We recognized a gain of $175 million on the sale. In conjunction with the sale, we signed a 7-year leaseback agreement for a portion of the property.$1,500 million.
•In September 2021,January 2023, we completed an acquisitionmade a voluntary prepayment of an online reputation management and digital privacy solutions company$250 million for total aggregate consideration of $39 million, net of $1 million cash acquired.our senior credit facilities, which was applied exclusively to the Term B Facility.
•In MarchDuring fiscal 2023, we repurchased 40 million shares of our common stock for an aggregate amount of $904 million and paid a total of $314 million in quarterly dividends to shareholders.
Merger with Avast
On September 12, 2022, we completed the Merger with Avast with the issuance of 94,201,223 shares of our restructuring plan (the December 2020 Plan)common stock to consolidate facilitiesAvast shareholders and reduce operating costs incash consideration of $6,910 million, which includes repayment of Avast’s outstanding debt. In connection with the Merger, we changed our acquisition of Avira during fiscal 2021. We incurred total costs of $24 million sincecorporate name to Gen Digital Inc. and became dual headquartered in Tempe, Arizona and Prague, Czech Republic, although our principal executive offices remain in Tempe, Arizona. Prior to the inception of the December 2020 Plan, primarily related to severance and termination costs.
Proposed Merger, with Avast
On August 10, 2021, we announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales andwas a global leader in consumer cybersecurity, offering a comprehensive range of digital security and privacy headquartered in Prague, Czech Republic (Avastproducts and such transaction, the Proposed Merger).services that protected and enhanced users’ online experiences. The Proposed Merger will be implemented by means ofenables us to create a court-sanctioned scheme of arrangement under the UK Companies Act 2006, as amended (the Scheme),broad and remains subjectcomplementary consumer product portfolio beyond core security and towards adjacent trust-based solutions and achieve greater geographic diversification and access to a certain numberlarger user base. We believe this combination will accelerate the transformation of conditions. Under the termsglobal consumer Cyber Safety. All financial information related to Avast that is discussed below in key financial metrics, results of operations and liquidity and capital resources is inclusive as of the Proposed Merger, Avast shareholders will be entitled to elect to receive, for each ordinary share of Avast held, in respect of their entire holding of Avast shares, either: (i) $7.61 in cash and 0.0302 of a new share of our common stock (such option, the Majority Cash Option); or (ii) $2.37 in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option). Based on our undisturbed closing share price of $27.20 on July 13, 2021, and depending on the Avast shareholder elections, the estimated purchase price range for the Avast shares under the Proposed Merger is $8.1 billion to $8.6 billion. EachClosing Date.
Upon close of the directors of Avast who holds shares has undertaken to elect for the Majority Stock Option in respect of their entire beneficial holdings of Avast shares. We plan to finance the Proposed Merger with existing cash, cash to be generated by operations and new debt financing.
In conjunction with the Proposed Merger, on August 10, 2021,Avast, we entered into an agreement (as amended, the Interim FacilitiesAmended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $3,600$1,500 million revolving credit facility (Revolving Facility), (ii) a $3,910 million term loan interimA facility B (the Interim Facility B)(Term A Facility), (ii) $750(iii) a $3,690 million term loan interimB facility A1 (the Interim Facility A1)(Term B Facility) and $3,500(iv) a $750 million termtranche A bridge loan interim facility A2 (the Interim Facility A2), and (iii) a $1,500 million interim revolving facility (the Interim Revolving Facility)(Bridge Loan) (collectively, the Interim Facilities)senior credit facilities). The Bridge Loan was undrawn and a commitment letter (as amended,immediately terminated at the Commitment Letter) with certain financial institutions, in which they agreed to provide us with financing no less thanclosing of the financing available underMerger. We drew down the Interim Facilities (the Definitive Facilitiesaggregate principal amounts of the Term A Facility and together with the Interim Facilities, the Facilities)Term B Facility to finance the cash consideration payable in connection withfor the Proposed Merger. The Definitive Facilities will be financed by a syndicatetransaction and to fully repay the outstanding principal of lenders led by Bank$1,703 million and aggregate accrued and unpaid interest of America, N.A. and Wells Fargo Bank N.A. On January 28, 2022, Bank of America, N.A. and Wells Fargo Bank N.A. agreed to arrange, on a best efforts basis, additional term loans$3 million under the Definitive Facilities in an amount up to $500 million. The Interim Facilities Agreement contains,Initial Term Loan and any definitive financing documentation for the Definitive Facilities entered into in connection with the Commitment Letter (the Facilities Agreement) will contain, customary representations and warranties, events of default and covenants for transactions of this type. The Facilities Agreement will replaceDelay Draw Term Loan from the existing credit facility agreementfacilities. The Credit Agreement replaced our then existing credit facilities upon the close of the transaction.
In conjunction with the Proposed Merger, on August 10, 2021, we entered into a Co-operation Agreement (the Co-operation Agreement) with Nitro Bidco Limited, our wholly-owned subsidiary (Bidco), and Avast, pursuant to which we and Bidco agreed to, among other things, use all reasonable endeavors for the purposes of obtaining any regulatory authorizations which are required to implement the Proposed Merger, and we, Bidco and Avast agreed to cooperate with each other in preparing required transaction documents and certain other matters in connection with the Proposed Merger. The Co-operation Agreement also contains certain termination rights. The Co-operation Agreement also provides that, if we fail to receive approval from the U.K Competition and Markets Authority and cannot consummate the Proposed Merger, we may be required to pay Avast a break fee of up to $200 million.
The Proposed Merger was approved byhas altered the size and scope of our Boardoperations, impacting our assets, liabilities, obligations, capital requirements and performance measures. We expect the key financial metrics and results of Directorsoperations of the combined company to be materially different than the trends experienced during the year ended March 31, 2023. As a combined company, we expect to achieve synergies, rapidly launch a broad and by our shareholders,innovative product portfolio, expand into new and diversified sales channels and enhance customer experience and retention. Refer to Note 4 of the Board of Directors and shareholders of Avast and regulators includingNotes to the Federal Trade Commission under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR” Act) andConsolidated Financial Statements included in Europe, the German Federal Cartel Office and the Spanish National Markets and Competition Commission. On March 25, 2022, the U.K Competition and Markets Authority referred the Proposed Merger to a Phase 2 review investigation. The Proposed Merger is currently expected to close mid-to-late calendar year 2022, subject to regulatory approvals and the satisfaction or waiver of other customary closing conditions.this Annual Report on Form 10-K for further information about this business combination.
Fiscal calendar and basis of presentation
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Fiscal 2023, 2022 2021 and 20202021 in this report refers to fiscal years ended March 31, 2023, April 1, 2022 and April 2, 2021, and April 3, 2020, respectively. Fiscal 2020respectively, each of which was a 53-week year, whereas fiscal 2022 and 2021 each consisted52-week year.
Key financial metrics
The following table provides our key financial metrics for fiscal 20222023 compared with fiscal 2021:2022:
| | | Fiscal Year | | Fiscal Year |
| (In millions, except for per share amounts) | (In millions, except for per share amounts) | 2022 | | 2021 | (In millions, except for per share amounts) | 2023 | | 2022 |
| Net revenues | Net revenues | $ | 2,796 | | | $ | 2,551 | | Net revenues | $ | 3,338 | | | $ | 2,796 | |
| Operating income (loss) | Operating income (loss) | $ | 1,005 | | | $ | 896 | | Operating income (loss) | $ | 1,227 | | | $ | 1,005 | |
| Income (loss) from continuing operations | $ | 836 | | | $ | 696 | | |
| Income (loss) from discontinued operations | $ | — | | | $ | (142) | | |
| | Net income (loss) | Net income (loss) | $ | 836 | | | $ | 554 | | Net income (loss) | $ | 1,349 | | | $ | 836 | |
| Net income (loss) per share from continuing operations - diluted | $ | 1.41 | | | $ | 1.16�� | | |
| Net income (loss) per share from discontinued operations - diluted | $ | — | | | $ | (0.24) | | |
| | Net income (loss) per share - diluted | Net income (loss) per share - diluted | $ | 1.41 | | | $ | 0.92 | | Net income (loss) per share - diluted | $ | 2.16 | | | $ | 1.41 | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 974 | | | $ | 706 | | Net cash provided by (used in) operating activities | $ | 757 | | | $ | 974 | |
| | | As of | | As of |
| (in millions) | April 1, 2022 | | April 2, 2021 | |
| (In millions) | | (In millions) | March 31, 2023 | | April 1, 2022 |
| Cash, cash equivalents and short-term investments | Cash, cash equivalents and short-term investments | $ | 1,891 | | | $ | 951 | | Cash, cash equivalents and short-term investments | $ | 750 | | | $ | 1,891 | |
| Contract liabilities | Contract liabilities | $ | 1,306 | | | $ | 1,265 | | Contract liabilities | $ | 1,788 | | | $ | 1,306 | |
•Net revenues increased $245$542 million, primarily due to higher sales in both of our consumer security products and our identity and protection products. This was driven by an increase in our direct customer count year-over-year and revenue attributable to Avira,the contribution from Avast, which was acquired during the fourthsecond quarter of fiscal 2021.2023, and higher sales in both our consumer security and identity and information protection products, partially offset by unfavorable foreign currency fluctuations.
•Operating income (loss) increased $109$222 million, primarily due to operating income attributable to Avast, which was acquired during the increase in revenuesecond quarter of fiscal 2023, and a decrease in restructuring costs for which the related activities were completed in fiscal 2021. This iscost synergies post-acquisition, partially offset by an increase in related cost of revenue, a legal accrual relating to an ongoing patent infringement lawsuit and our investment in advertising during fiscal 2022.
•Income (loss) from continuing operations increased $140 million, primarily due to the increase in operating income as well as other income (expense), net, which was driven by the gain on sale of certain land and buildings in Mountain View, California. This is partially offset by an increase in income tax expense.
•Income (loss) from discontinued operations, increased from a loss of $142 million, primarily due to the completion of the discontinued operations activities during fiscal 2021.unfavorable foreign currency fluctuations.
•Net income (loss) increased $282$513 million and net income per share increased $0.49,$0.75, primarily due to thean income tax benefit in fiscal 2023, and increased operating income, partially offset by an increase in income from continuing operationsinterest expense associated with our new senior credit facilities and the completion of discontinued operations activities during fiscal 2021 as discussed above.two senior notes.
•Cash, cash equivalents and short-term investments increaseddecreased by $940$1,141 million compared to April 2, 2021,1, 2022, primarily due to cash generatedthe completion of the Merger, repurchases of our common stock, income taxes paid, dividends paid to shareholders, and voluntary prepayment of our Term B facility, offset by operations during fiscal 2022.proceeds from the issuance of the senior credit facilities and the two senior notes. Additionally, subsequent to March 31, 2023, we made another voluntary prepayment of $150 million for our senior credit facilities, which was applied exclusively to Term B Facility.
•Contract liabilities increased $41$482 million, primarily due to higher billings than recognized revenue, partially offset by unfavorablecontract liabilities assumed from Avast, which was acquired during the second quarter of fiscal 2023.
GLOBAL MACROECONOMIC CONDITIONS
Our results of operations and cash flows are subject to fluctuations due to inflation, changes in foreign currency exchange rates relative to U.S. dollars, our reporting currency, changes in interest rates, as well as recession risks, which may persist for an extended period. Additionally, our international results are impacted by the economic conditions in the foreign markets in which we operate and by fluctuations in foreign currency exchange rates. We conduct business in numerous currencies throughout our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues, or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses, which impact our operating results. As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge foreign currency balance sheet exposure. In addition, in early 2022, worldwide inflation began to increase. In response to the Euroheightened levels of inflation, central banks, including the U.S. Federal Reserve and Japanese Yen.
COVID-19 UPDATE
Thedebt. Interest rates have increased and are expected to continue to increase in 2023, although at a slower rate. Volatile market conditions related to Russia’s invasion of Ukraine and retaliatory sanctions against the Russian Federation and Belarus, the COVID-19 pandemic has had widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets,other macroeconomic events have, at times, and business practices. Atmay in the onsetfuture negatively impact our results of operations and cash flows. Conversely, we have seen and may continue to see cost savings from the pandemic,shift to protect the healthremote and well-beingdistributed work for certain of our employees partnersin areas including events, travel, utilities and third-party service providers, we facilitatedother benefits. Due to our subscription-based business model, the effect of recent macroeconomic events may not be fully reflected in our results of operations until future periods, if at all. For a work-from-home requirement for most employees and established site-specific COVID-19 prevention protocols. We continue to monitor the situation and over the past several months have adjusted our policies and protocols to reflect changes to public health regulations and guidance. A majority of our offices are now open to employees on a voluntary return basis, and we anticipate opening the remaining offices on a voluntary return basis within the first quarter of fiscal 2023. To date, we have not seen any meaningful negative impact on our employee productivity. Nevertheless, as more employees, partners or third-party services providers return to work during the COVID-19 pandemic, the risk of inadvertent transmission of COVID-19 through human contact could still occur and result in litigation.
While the COVID-19 pandemic has negatively impacted many sectorsfurther discussion of the U.S. and global economies, the consumer Cyber Safety market experienced increased demand as the pandemic greatly accelerated the digital lives of people around the world. However, with the extended duration of the pandemic and the easing of prevention protocols and restrictions, we are seeing decreasing demand and increased competition. In addition, while we did not experience a material increase in cancellations by customers or a material reduction in retention rate in fiscal 2021 or fiscal 2022, should the negative macroeconomicpotential impacts of the COVID-19 pandemic persist or worsen, we may experience continued slowdowns inglobal macroeconomic conditions on our business activity and an increase in cancellations by customers or a material reduction in our retention rate in the future, especially in the event of a prolonged recession. A prolonged recession could adversely affect demand for our offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures, as well impact the value of our common stock, ability to refinance our debt and our access to capital.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of new variants of the disease, the extent, effectiveness and acceptance of containment actions, such as vaccination programs, and the impact of these and other factors on our employees, customers, partners and third-party service providers. For more information on the risks associated with the COVID-19 pandemic,, please see “Risk Factors” in Item 1A.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S. (GAAP) requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant
uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.
Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our Consolidated Financial Statements. A summary of our significant accounting policies is included in Note 1, and a description of recently adopted accounting pronouncements and the Company’s expectationsexpectation of the impact on our Consolidated Financial Statements and disclosures isare included in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our Consolidated Financial Statements.
Business combinations
We allocate the purchase price of acquired businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Any residual purchase price is recorded as goodwill. The allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed especially with respect to intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, future expected cash flows from customer relationships, developed technology, trade names, and acquired patents, and discount rates. Management estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Third-party valuation specialists are also utilized for certain estimates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
Income taxes
We are subject to tax in multiple U.S. and foreign tax jurisdictions. We are required to estimate the current tax exposure as well as assess the temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. We apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates.
We use a two-step process to recognize liabilities for uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that the tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Loss contingencies
We are subject to contingencies that expose us to losses, including various legal and regulatory proceedings, asserted and potential claims that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. We review the status of each significant matter quarterly, and we may revise our estimates. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our Consolidated Financial Statements for that reporting period.
RESULTS OF OPERATIONS
We have elected to omit discussion on the earliest of the three years presented in the Consolidated Financial Statements of this Annual Report on Form 10-K. Refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended April 2, 20211, 2022 for year-over-year comparisons of the results of operation between fiscal 20212022 and fiscal 20202021 as well as discussion of fiscal 20202021 performance metrics and cash flow activity, all of which are incorporated herein by reference.
The following table sets forth our Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:
| | | Fiscal Year | | Fiscal Year |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
| Net revenues | Net revenues | 100 | % | | 100 | % | | Net revenues | 100 | % | | 100 | % | |
| Cost of revenues | Cost of revenues | 15 | % | | 14 | % | | Cost of revenues | 18 | | | 15 | | |
| Gross profit | Gross profit | 85 | % | | 86 | % | | Gross profit | 82 | | | 85 | | |
| Operating expenses: | Operating expenses: | | | Operating expenses: | | |
| Sales and marketing | Sales and marketing | 22 | % | | 23 | % | | Sales and marketing | 20 | | | 22 | | |
| Research and development | Research and development | 9 | % | | 10 | % | | Research and development | 9 | | | 9 | | |
| General and administrative | General and administrative | 14 | % | | 8 | % | | General and administrative | 9 | | | 14 | | |
| Amortization of intangible assets | Amortization of intangible assets | 3 | % | | 3 | % | | Amortization of intangible assets | 5 | | | 3 | | |
| Restructuring and other costs | Restructuring and other costs | 1 | % | | 6 | % | | Restructuring and other costs | 2 | | | 1 | | |
| Total operating expenses | Total operating expenses | 49 | % | | 51 | % | | Total operating expenses | 46 | | | 49 | | |
| Operating income (loss) | Operating income (loss) | 36 | % | | 35 | % | | Operating income (loss) | 37 | | | 36 | | |
| Interest expense | Interest expense | (5) | % | | (6) | % | | Interest expense | (12) | | | (5) | | |
| Other income (expense), net | Other income (expense), net | 6 | % | | 5 | % | | Other income (expense), net | (1) | | | 6 | | |
| Income (loss) from continuing operations before income taxes | 37 | % | | 34 | % | | |
| Income (loss) before income taxes | | Income (loss) before income taxes | 24 | | | 37 | | |
| Income tax expense (benefit) | Income tax expense (benefit) | 7 | % | | 7 | % | | Income tax expense (benefit) | (16) | | | 7 | | |
| Income (loss) from continuing operations | 30 | % | | 27 | % | | |
| Income (loss) from discontinued operations | — | % | | (6) | % | | |
| | Net income (loss) | Net income (loss) | 30 | % | | 22 | % | | Net income (loss) | 40 | % | | 30 | % | |
Note: The percentages may not add due to rounding.
Net revenues
| | | Fiscal Year | | % Change | | Fiscal Year | | | % Change |
| (In millions, except for percentages) | (In millions, except for percentages) | 2022 | | 2021 | | | 2022 vs. 2021 | | (In millions, except for percentages) | 2023 | | 2022 | | | 2023 vs. 2022 | |
| Net revenues | Net revenues | $ | 2,796 | | | $ | 2,551 | | | | 10 | % | | Net revenues | $ | 3,338 | | | $ | 2,796 | | | | 19 | % | |
Fiscal 20222023 compared to fiscal 20212022
Net revenues increased $245$542 million, primarily due to a $156$406 million increase in sales of our consumer security products and a $89$117 million increase in sales of our identity and protection products. This was driven by the increaseinclusive of $113 million of foreign exchange headwinds, primarily in our direct customer count year-over-year and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.
consumer security products. Performance Metrics
We regularly monitor a number of metrics in order to measure our current performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.
The following table summarizes supplemental key performance metrics for our solutions:
| | | Fiscal Year | | Fiscal Year (2) |
| (In millions, except for per user amounts and percentages) | (In millions, except for per user amounts and percentages) | 2022 | | 2021 | | (In millions, except for per user amounts and percentages) | 2023 (3) | | 2022 | |
Direct customer revenue (1) | Direct customer revenue (1) | $ | 2,476 | | | $ | 2,286 | | | Direct customer revenue (1) | $ | 2,933 | | | $ | 2,488 | | |
| Partner revenues | Partner revenues | $ | 331 | | | $ | 270 | | | Partner revenues | $ | 341 | | | $ | 269 | | |
Average direct customer count (2) | 23.3 | | | 21.2 | | | |
| Total Cyber Safety revenues | | Total Cyber Safety revenues | $ | 3,274 | | | $ | 2,757 | | |
| Legacy revenues | | Legacy revenues | $ | 66 | | | $ | 50 | | |
| Direct customer count (at quarter-end) | Direct customer count (at quarter-end) | 23.5 | | | 23.0 | | | Direct customer count (at quarter-end) | 38.2 | | | 24.4 | | |
| Direct average revenue per user (ARPU) | Direct average revenue per user (ARPU) | $ | 8.87 | | | $ | 9.01 | | | Direct average revenue per user (ARPU) | $ | 7.10 | | | $ | 8.63 | | |
| Annual retention rate | 85 | % | | 85 | % | | |
Annual retention rate (4) | | Annual retention rate (4) | 76 | % | | 84 | % | |
(1) Non-GAAP Direct customer revenuesrevenue differs from GAAP direct customer revenue in fiscal 2023 and 2022 and 2021because it excludes a $11$2 million and $5$11 million, respectively, reduction of revenue from a contract liability purchase accounting adjustment, which was recognized in the fourth quarter of fiscal 2021.adjustments. We believe that eliminating the impact of this adjustment improves the comparability of revenues between periods. In addition, 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.
(2) From time to time, changes in our product hierarchy cause changes to the revenue channels above. When changes occur, we recast historical amounts to match the current revenue channels. Direct customer revenue currently includes Mobile App Store customers, and legacy revenues includes revenues from products or solutions from markets that we have exited and in which we no longer operate, have been discontinued or identified to be discontinued, or remain in maintenance mode as a result of integration and product portfolio decisions. As such, prior period performance metrics have been recast to conform to the current period presentation for all periods presented above.
(3) The performance metrics for fiscal 2023 include the revenues earned and customers acquired through our Merger with Avast. ARPU is based on average direct customer count and assumes full quarter of revenue for both companies. Due to the fourth fiscalclose of the Merger with Avast in the second quarter of fiscal 2021 was pro-rated to include 1.6 million customers from2023, the Avira acquisition.fiscal 2023 ARPU is based on the average ARPU for the second, third, and fourth quarter of fiscal 2023, but excludes the first quarter of fiscal 2023.
(4) The annual retention rate for fiscal 2023 includes the customer portfolio acquired through our Merger with Avast.
We define direct customer revenues as revenues from sales of our consumer solutions to direct customers, which we definecount as active paid users of our products and solutions who have a direct billing and/or registration relationship with us at the end of the reported period. Average direct customer count presents the average of the total number of direct customers at the beginning and end of the applicable period. We exclude users on free trials and promotions and usersfrom our direct customer count. Users who have indirectly purchased and/or registered for our productproducts or servicessolutions through partners are excluded unless such users convert or renew their subscriptionssubscription directly with us or sign up for a paid membership through our web store.
stores or third-party app stores. The methodologies used to measure these metrics require judgment and are subject to change due to improvements or revisions to our methodology. From time to time, we review our metrics and may discover inaccuracies or make adjustments to improve their accuracy, which can result in adjustments to our historical metrics. Our ability to recalculate our historical metrics may be impacted by data limitations or other factors that require us to apply different methodologies for such adjustments. We generally do not intend to update our methodology due to changes in the business. In fiscal 2021, the average direct customer count calculation was refined primarily to pro-ratepreviously disclosed metrics for acquisitionsany such inaccuracies or adjustments that happen during a quarter, such as Avira, which was acquired in January 2021. The full year average direct customer count is calculated as an average across the quarters.are deemed not material.
ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure. Non-GAAP estimated direct customer revenues and ARPU have limitations as analytical tools and should not be considered in isolation or as a substitute for GAAP estimated direct customer revenues or other GAAP measures. We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer customer base.
Annual retention rate is defined as the number of direct customers who have more than a one-year tenure as of the end of the most recently completed fiscal period divided by the total number of direct customers as of the end of the period from one year ago. We monitor annual retention rate to evaluate the effectiveness of our strategies to improve renewals of subscriptions.
Net revenues by geographic region
Percentage of revenue by geographic region as presented below is based on the billing location of the customer.
| | | Fiscal Year | | Fiscal Year |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
| Americas | Americas | 70 | % | | 72 | % | | Americas | 68 | % | | 70 | % | |
| EMEA | EMEA | 18 | % | | 16 | % | | EMEA | 21 | % | | 18 | % | |
| APJ | APJ | 12 | % | | 12 | % | | APJ | 11 | % | | 12 | % | |
The Americas include U.S., Canada, and Latin America; EMEA includes Europe, Middle East, and Africa; APJ includes Asia Pacific and Japan.
PercentageWhile the percentage of revenue by geographic region remained consistent in fiscal 2022 and 2021.2023 remains primarily in the Americas, our Merger with Avast has expanded our presence in countries in the EMEA region.
Cost of revenues
| | | Fiscal Year | | % Change | | Fiscal Year | | | % Change |
| (In millions, except for percentages) | (In millions, except for percentages) | 2022 | | 2021 | | | 2022 vs. 2021 | | (In millions, except for percentages) | 2023 | | 2022 | | | 2023 vs. 2022 | |
| Cost of revenues | Cost of revenues | $ | 408 | | | $ | 362 | | | | 13 | % | | Cost of revenues | $ | 589 | | | $ | 408 | | | | 44 | % | |
Fiscal 20222023 compared to fiscal 20212022
Our cost of revenues increased $46$181 million, primarily due to highera $97 million increase in the amortization of acquired intangible assets as a result of our Merger with Avast, $52 million increase in payment processing fees, $27 million increase in revenue share costs payment processing fees and royalty charges, and $10 million increase in cloud hosting cost, offset by $6 million decrease in technical support costs associated with year-over-year business growth and costs attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.costs.
Operating expenses
| | | Fiscal Year | | % Change | | Fiscal Year | | | % Change |
| (In millions, except for percentages) | (In millions, except for percentages) | 2022 | | 2021 | | | 2022 vs. 2021 | | (In millions, except for percentages) | 2023 | | 2022 | | | 2023 vs. 2022 | |
| Sales and marketing | Sales and marketing | $ | 622 | | | $ | 576 | | | | 8 | % | | Sales and marketing | $ | 682 | | | $ | 622 | | | | 10 | % | |
| Research and development | Research and development | 253 | | | 267 | | | | (5) | % | | Research and development | 313 | | | 253 | | | | 24 | % | |
| General and administrative | General and administrative | 392 | | | 215 | | | | 82 | % | | General and administrative | 286 | | | 392 | | | | (27) | % | |
| Amortization of intangible assets | Amortization of intangible assets | 85 | | | 74 | | | | 15 | % | | Amortization of intangible assets | 172 | | | 85 | | | | 102 | % | |
| Restructuring and other costs | Restructuring and other costs | 31 | | | 161 | | | | (81) | % | | Restructuring and other costs | 69 | | | 31 | | | | 123 | % | |
| Total | Total | $ | 1,383 | | | $ | 1,293 | | | | 7 | % | | Total | $ | 1,522 | | | $ | 1,383 | | | | 10 | % | |
Fiscal 2022Our operating expenses increased in fiscal 2023 compared to fiscal 20212022 primarily due to increased headcount, stock-based compensation and restructuring costs, in connection with the Merger which was completed during the second quarter of fiscal 2023.
Fiscal 2023 compared to fiscal 2022
Sales and marketing expense increased $46$60 million, primarily due to a $70$36 million increase in advertisingheadcount and promotionalIT costs, a $23 million increase in outside services and software expenses, asand a result$15 million increase of increased investment in advertising.stock-based compensation expense. This iswas partially offset by a $20$17 million decrease in ITsales and related support costs from corporate restructuring and cost reduction efforts in fiscal 2021.marketing efficiencies.
Research and development expense decreased $14increased $60 million, primarily due to a $13$39 million decrease in shared facilityincrease of headcount and IT costs.costs, a $12 million increase of stock-based compensation expense and a $10 million increase in outside services and software expense.
General and administrative expense increased $177decreased $106 million, primarily due to the absence of a $185 million legal accrual in fiscal 2022 relating to an ongoing patent infringement lawsuit and the corresponding legal fees. This was partially offset by a decrease$40 million increase in outside services due to the Merger with Avast, $25 million increase of stock-based compensation expense and benefits.a $16 million increase in headcount costs.
Amortization of intangible assets increased $11$87 million as a result of the Avira acquisition.Merger with Avast.
Restructuring and other costs decreased $130increased $38 million, primarily due to severance and termination benefit costs in connection with the November 2019 Plan, which was substantially completed in the second quarter of fiscal 2021.September 2022 Plan. See Note 12 of the Notes to the Consolidated Financial Statements for details of the fiscal 20222023 restructuring activities.
Non-operating income (expense), net
| | | Fiscal Year | | $ Change | | Fiscal Year | | | $ Change |
| (In millions) | (In millions) | 2022 | | 2021 | | | 2022 vs. 2021 | | (In millions) | 2023 | | 2022 | | | 2023 vs. 2022 | |
| Interest expense | Interest expense | $ | (126) | | | $ | (144) | | | | $ | 18 | | | Interest expense | $ | (401) | | | $ | (126) | | | | $ | (275) | | |
| Interest income | Interest income | — | | | 4 | | | | (4) | | | Interest income | 15 | | | — | | | | 15 | | |
| | Foreign exchange gain (loss) | Foreign exchange gain (loss) | (2) | | | 1 | | | | (3) | | | Foreign exchange gain (loss) | (8) | | | (2) | | | | (6) | | |
| | (Loss) gain on early extinguishment of debt | (Loss) gain on early extinguishment of debt | (3) | | | 20 | | | | (23) | | | (Loss) gain on early extinguishment of debt | (9) | | | (3) | | | | (6) | | |
| Gain on sale of properties | Gain on sale of properties | 175 | | | 98 | | | | 77 | | | Gain on sale of properties | — | | | 175 | | | | (175) | | |
| Transition service expense, net | — | | | (9) | | | | 9 | | | |
| | Other | Other | (7) | | | 6 | | | | (13) | | | Other | (20) | | | (7) | | | | (13) | | |
| Non-operating income (expense), net | Non-operating income (expense), net | $ | 37 | | | $ | (24) | | | | $ | 61 | | | Non-operating income (expense), net | $ | (423) | | | $ | 37 | | | | $ | (460) | | |
Fiscal 20222023 compared to fiscal 20212022
Non-operating income (expense), net, increased $61decreased $460 million in income, primarily due to athe absence of the $175 million gain on the sale of certain land and buildings in Mountain View, California during fiscal 2022 compared to an aggregate $98 million gain on the sale of two properties during fiscal 2021. This is partially offset by the absence of a $20 million gain on early extinguishment of debt during the firstsecond quarter of fiscal 2021, as well as a $7 million impairment of long-term assets primarily2022 and an increase in interest expense associated with oneborrowings under our senior credit facilities (as defined below) and two senior notes, which were issued during the second quarter of our equity investments, which is measured at cost minus impairment.fiscal 2023.
Provision for income taxes
We are a U.S.-based multinational company dual headquartered in the U.S. and Czech Republic, although our principal executive offices remain in Tempe, Arizona, and we are subject to tax in multiple U.S. and international tax jurisdictions. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Our results can also be impacted by the costs incurred and the potential deductibility of the expenses. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.
| | | | | | | | | | | | | |
| Fiscal Year |
| (In millions, except for percentages) | 2022 | | 2021 | | |
| Income (loss) from continuing operations before income taxes | $ | 1,042 | | | $ | 872 | | | |
| Provision for income taxes | $ | 206 | | | $ | 176 | | | |
| Effective tax rate on income (loss) from continuing operations | 20 | % | | 20 | % | | |
Fiscal 2022 compared to fiscal 2021
Our effective tax rate is consistent with prior year.
Discontinued operations | | | | | | | | | | | | | |
| | | Fiscal Year | | |
(In millions, except for percentages) | | | 2021 | | | | | | |
Net revenues | | | $ | 1 | | | | | | | |
Gross profit | | | $ | 1 | | | | | | | |
Operating income (loss) | | | $ | (177) | | | | | | | |
| | | | | | | | | |
Income (loss) before income taxes | | | $ | (176) | | | | | | | |
Income tax expense (benefit) | | | $ | (34) | | | | | | | |
Income (loss) from discontinued operations, net of taxes | | | $ | (142) | | | | | | | |
| | | | | | | | | | | | | |
| Fiscal Year |
| (In millions, except for percentages) | 2023 | | 2022 | | |
| Income (loss) from continuing operations before income taxes | $ | 804 | | | $ | 1,042 | | | |
| Provision for income taxes | $ | (545) | | | $ | 206 | | | |
| Effective tax rate on income (loss) from continuing operations | (68) | % | | 20 | % | | |
Fiscal 20222023 compared to fiscal 20212022
Income (loss) from discontinued operations, net ofOur effective tax rate decreased primarily due to a decrease in income taxes as a result of a tax capital loss, and releases in uncertain tax positions related to the completionclosure of federal and state income tax audits. See Note 13 of the discontinued operations activitiesNotes to the Consolidated Financial Statements included in fiscal 2021. There was no discontinued operations activity duringthis Annual Report on Form 10-K for information about the year ended April 1, 2022.tax capital loss.
LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS
Liquidity and Capital Resources
We have historically relied on cash generated from operations, borrowings under credit facilities, issuances of debt and proceeds from divestitures for our liquidity needs.
Our capital allocation strategy is to balance driving stockholder returns, managing financial risk and preserving our flexibility to pursue strategic options, including acquisitions and mergers. Historically, this has included a quarterly cash dividend, the repayment of debt and the repurchase of shares of our common stock.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our Revolving Facility (as defined below), will be sufficient to meet our working capital needs, support on-going business activities and finance the expected synergy costs related to the Merger through at least the next 12 months and to meet our known long-term contractual obligations. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. However, our future liquidity and capital requirements may vary materially from those as of March 31, 2023 depending on several factors, including, but not limited to, economic conditions; political climate; the expansion of sales and marketing activities; the costs to acquire or invest in businesses; and the risks and uncertainties discussed in “Risk Factors” in Item 1A.
Cash flows
The following table summarizes our cash flow activities in fiscal 20222023 and 2021:2022:
| | | Fiscal Year | | Fiscal Year |
| (In millions) | (In millions) | 2022 | | 2021 | | (In millions) | 2023 | | 2022 | |
| Net cash provided by (used in): | Net cash provided by (used in): | | | | | Net cash provided by (used in): | | | | |
| Operating activities | Operating activities | $ | 974 | | | $ | 706 | | | Operating activities | $ | 757 | | | $ | 974 | | |
| Investing activities | Investing activities | $ | 326 | | | $ | (69) | | | Investing activities | $ | (6,547) | | | $ | 326 | | |
| Financing activities | Financing activities | $ | (333) | | | $ | (1,903) | | | Financing activities | $ | 4,681 | | | $ | (333) | | |
| Increase (decrease) in cash and cash equivalents | Increase (decrease) in cash and cash equivalents | $ | 954 | | | $ | (1,244) | | | Increase (decrease) in cash and cash equivalents | $ | (1,137) | | | $ | 954 | | |
See Note 7 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for our supplemental cash flow information.
Cash from operating activities
Our cash flows provided by operating activities in fiscal 2022 increased $2682023 decreased $217 million, primarily due to higher profit beforean increase in cash payments in fiscal 2023, including payments of income taxes, adjusted by non-cash items compared to fiscal 2021.debt interest, and transaction costs and other regulatory closing fees in connection with the Merger.
Cash from investing activities
Our cash flows provided by investing activities in fiscal 2022 increased $3952023 decreased $6,873 million, primarily due to higherthe $6,547 million total cash consideration paid for the Merger with Avast, net of $363 million cash acquired and $2,141 million non-cash consideration transferred, as well as the absence of $355 million in proceeds from the sale of certain Mountain View, California properties and fewer payments for business acquisitions, partially offset by a decrease in proceeds from the maturities and sales of short-term investments.fiscal 2022.
Cash from financing activities
Our cash flows used inprovided by financing activities in fiscal 2022 decreased $1,5702023 increased $5,014 million, primarily due to a decrease in repaymentsproceeds from the issuance of debt, partially offset by repayment of debt and nothe continuation of our stock repurchase program. Fiscal 2023 reflects $8,954 million of aggregate proceeds: $3,910 million from Term Facility A (as defined below), $3,690 million from Term Facility B (as defined below), $900 million from the 6.75% Senior Notes and $600 million from the 7.125% Senior Notes, net of $146 million of debt issuance costs. This was partially offset by the $400 million repayment of our 3.95% Senior Notes, $1,010 million repayment of our Initial Term Loan, $703 million repayment of our Delayed Draw Term Loan, settlement of the $525 million principal, $250 million prepayment of our Term B Facility, and $59 million mandatory amortization payments of our Term Facility A and B, $100 million equity rights associated with our New 2.0% Convertible Notes, and common stock repurchases of common stock. Fiscal$904
million. In contrast, fiscal 2022 reflects $512 million of proceeds from the issuance of our Initial Term Loan, partially offset by the $364 million settlement of our New 2.5% Convertible Notes of $364 million and partial settlement of our New 2.0% Convertible Notes of $139 million, compared to the settlement of our 2.0% Convertible Notes and repayment of our 4.2% Senior Notes of $1,941 million as well as repurchases of common stock of 304 million during fiscal 2021.Notes.
Cash and cash equivalents
As of April 1, 2022,March 31, 2023, we had cash, cash equivalents and short-term investments of approximately $1,891$750 million, of which $671$572 million was held by our foreign subsidiaries. Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity and generate investment returns. The participation exemption system under current U.S. federal tax regulations generally allows us to make distributions of non-U.S. earnings to the U.S. without incurring additional U.S. federal tax; however, these distributions may be subject to applicable state or non-U.S. taxes.
Debt
We have an undrawn revolving credit facility of $1 billion, which expires in May 2026.
On May 7, 2021,June 1, 2022, we entered intofully repaid the first amendment to our credit agreement (the First Amendment), which provided for an incremental increaseprincipal and accrued interest under the Initial Term Loan,3.95% Senior Notes due June 2022, which had an aggregate principal amount outstanding of $400 million. In addition, we paid $7 million of accrued and extendedunpaid interest through the maturity date of the Initial Term Loan, the Delayed Draw Term Loan, and revolving credit facility from November 2024 to May 2026. We borrowed $525 million under the First Amendment of our Initial Term Loan. For additional discussion on the amendment, see Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.redemption date.
On May 20, 2021,August 15, 2022, we settled the $250$525 million principal and conversion rights of theour New 2.5%2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $364$630 million was based on $24.40$20.41 per underlying share into which the 2.5%New 2.0% Convertible Notes were convertible. In addition, we paid $1$5 million of accrued and unpaid interest through the date of settlement and $1 million of cash dividends that we declared on May 10, 2021.settlement.
On March 18,September 12, 2022, we settled $100 million of principal and conversion rightsupon close of the New 2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $139 million was based on $28.32 per underlying shares into which the 2.0% Convertible Notes were convertible.
Sale of certain assets
On July 14, 2021, we completed the sale of certain land and buildings in Mountain View, California for cash consideration of $355 million, net of selling costs.
Cash Requirements
Our principal cash requirements are primarily to meet our working capital needs and support on-going business activities, including payment of taxes and cash dividends, payment of contractual obligations, funding capital expenditures, servicing existing debt, repurchasing our common stock and investing in business acquisitions and mergers.
Proposed Merger with Avast,
On August 10, 2021, we entered into the Company announced a transaction under which we intend to acquire the entire issuedAmended and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Proposed Merger). Based on our undisturbed closing share price of $27.20 on July 13, 2021, and depending on the Avast shareholder elections, the estimated purchase price range for the Avast shares under the Proposed Merger is $8.1 billion to $8.6 billion. In conjunctionRestated Credit Agreement (Credit Agreement) with the Proposed Merger, we and certain financial institution parties entered into an Interim Facilities Agreement, underinstitutions, in which Bank of America, N.A. and Wells Fargo Bank N.A., as interim lenders,they agreed to provide us with certain(i) a $1,500 million revolving credit facility (Revolving Facility), a $3,910 million term loan A facility (Term A Facility), (iii) a $3,690 million term loan B facility (Term B Facility) and revolving facilities in order(iv) a $750 million tranche A bridge loan (Bridge Loan) (collectively, the senior credit facilities). The Bridge Loan was undrawn and immediately terminated upon the Merger’s close. We drew down the aggregate principal amounts of the Term A Facility and Term B Facility to finance the cash consideration payable for the transaction and based onto fully repay the termsaggregate outstanding principal of $1,703 million and conditions set forth in a commitment letter. The Interim Facilities Agreement includes (i) the Interim Facility B, (ii) the Interim Facility A1aggregate accrued and the Interim Facility A2, and (iii) the Interim Revolving Facility which, on or before the final repayment date, are to be repaid/replaced in full by loans madeunpaid interest of $3 million under the definitive financing documentation for the Definitive Facilities (the Facilities Agreement).Initial Term Loan and Delay Draw Term Loan from then existing credit facilities. The obligations under the FacilitiesCredit Agreement will be guaranteed, jointly and severally, by all of our present and future domestic subsidiaries, with certain exceptions, as applicable. The Facilities Agreement will replacereplaced the existing credit facility agreementfacilities upon the close of the transaction.
Dividends
On May 5, 2022, During fiscal 2023, we announced a cash dividend of $0.125 per share of common stock to be paid in June 2022. We currently expect to continue to pay quarterly cash dividends to stockholders in the future, but such payments will be subject to the approval of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business and market conditions and other investment opportunities.
Share repurchase program
Under our stock repurchase program, we may purchase shares of our outstanding common stock through accelerated stock repurchase transactions, open market transactions (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act) and privately-negotiated transactions. As of April 1, 2022, the remaining balance of our stock repurchase authorization is $1,774 million and does not have an expiration date. We currently expect to repurchase shares in the future, but the timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and other investment opportunities.
Subsequent to April 1, 2022, we executed repurchases of 4 million shares of our common stock for an aggregate amount of $107 million. As a result, we have $1,667 million remaining under our existing share repurchase program.
Contractual obligations
The following is a schedule of our significant contractual obligations and commitments as of April 1, 2022. The expected timing and amount of short-term and long-term payments of the obligations in the following table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for certain obligations.
| | | | | | | | | | | | | | | | | |
| Short-Term Payments | | Long-Term Payments | | Total |
| (In millions) | | | | | |
| Contractual obligations: | | | | | |
Debt (principal payments) (1) | $ | 1,001 | | | $ | 2,746 | | | $ | 3,747 | |
Interest payments on debt (2) | 106 | | | 250 | | | 356 | |
Purchase obligations (3) | 353 | | | 73 | | | 426 | |
Deemed repatriation taxes (4) | 68 | | | 437 | | | 505 | |
Operating leases (5) | 22 | | | 80 | | | 102 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total | $ | 1,550 | | | $ | 3,586 | | | $ | 5,136 | |
(1)As of April 1, 2022, our total outstanding principal amount of indebtedness is comprised of $1,713$145 million in Term Loans, $1,500 million in Senior Notes, $525 million in Convertible Senior Notes and $9 million in Mortgage Loans. See Note 10 ofdebt issuance costs associated with the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about our debt and debt covenants.senior credit facilities.
The credit agreement we entered into in November 2019, which was amended and extended through May 2026 on May 7, 2021,Credit Agreement contains customary representations and warranties non-financial covenants for financial reporting,and affirmative and negative covenants including a covenant that we maintain a consolidated leverage ratio of not more than 5.25 to 1.0, or 5.75 to 1.0 if we acquire assets or business in an aggregate amount greater than $250 million, and restrictions on indebtedness, liens, investments, stock repurchases, and dividends (with exceptions permitting our regular quarterly dividend and other specific capital returns). As of April 1, 2022March 31, 2023, we were in compliance with all debt covenants. As of March 31, 2023, there were no borrowings outstanding under our Revolving Facility.
On September 19, 2022, we issued two series of senior notes, consisting of 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030, for an aggregate principal of $1,500 million. They are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and may be redeemed at any time, subject to the make-whole provisions contained in the applicable indenture relating to such series of notes. Interest on these series of notes is payable semi-annually in arrears on March 31 and September 30 for both the 6.75% Senior Notes and 7.125% Senior Notes, commencing on March 31, 2023. During fiscal 2023, we paid an aggregate $14 million in debt issuance costs associated with the two senior notes.
In connection with the financing provided for Term B Facility, we incurred customary ticking fees with respect to the undrawn commitments that began accruing on the 61st day post-syndication. The ticking fees were accrued at the per annum rate of (i) 50% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans for 61-90 days from January 28, 2022, the syndication date, and (ii) 100% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans on and after 91 days from the syndication date. Ticking fees were payable on the Closing Date of the transaction and capitalized as a portion of debt issuance cost for the Term B Facility. During fiscal 2023, we paid and capitalized $31 million in ticking fees.
On January 19, 2023, we made a voluntary prepayment of $250 million for our senior credit facilities, which was applied exclusively to the Term B Facility.
Subsequent to March 31, 2023, on April 28, 2023, we made a voluntary prepayment of $150 million for our senior credit facilities, which was applied exclusively to the Term B Facility.
Material Cash Requirements
Our principal cash requirements are primarily to meet our working capital needs and support on-going business activities, including payment of taxes and cash dividends, payment of contractual obligations, funding capital expenditures, servicing existing debt, repurchasing shares of our common stock and investing in business acquisitions and mergers.
Dividends
On May 11, 2023, we announced a cash dividend of $0.125 per share of common stock to be paid in June 2023. We currently expect to continue to pay quarterly cash dividends to stockholders in the future, but such payments will be subject to the
approval of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business and market conditions and other investment opportunities.
Share repurchase program
Under our share repurchase program, we may purchase shares of our outstanding common stock through accelerated stock repurchase transactions and open market transactions (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act). As of March 31, 2023, the remaining balance of our stock repurchase authorization is $870 million and does not have an expiration date. We currently expect to repurchase shares in the future, but the timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and other investment opportunities.
Restructuring
In connection with the Merger, our Board of Directors approved a restructuring plan (the September 2022 Plan) to realize cost savings and operational synergies, which became effective upon the close of the Merger on September 12, 2022. We have incurred and expect to incur cash expenditures for severance and termination benefits, contract terminations, facilities closures, and the sale of underutilized facilities as well as stock-based compensation charges for accelerated equity awards for certain terminated employees. We expect that we will incur total costs up to $150 million, with $120 million and $30 million estimated to be incurred within the first and second full years, respectively, following the completion of the Merger. These actions are expected to be completed by fiscal 2024. During fiscal 2023, we made $43 million in cash payments related to the September 2022 Plan. See Note 12of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further cash flow information associated with our restructuring activities.
Significant contractual obligations
The following is a schedule of our significant contractual obligations and commitments as of March 31, 2023. The expected timing and amount of short-term and long-term payments of the obligations in the following table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for certain obligations.
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| (In millions) | Short-Term Payments | | Long-Term Payments | | Total |
| Contractual obligations: | | | | | |
Debt (principal payments) (1) | $ | 233 | | | $ | 9,666 | | | $ | 9,899 | |
Interest payments on debt (2) | 530 | | | 2,372 | | | 2,902 | |
Purchase obligations (3) | 320 | | | 122 | | | 442 | |
Deemed repatriation taxes (4) | 128 | | | 310 | | | 438 | |
Operating leases (5) | 28 | | | 33 | | | 61 | |
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| Total | $ | 1,239 | | | $ | 12,503 | | | $ | 13,742 | |
(1)As of March 31, 2023, our total outstanding principal amount of indebtedness is comprised of $7,292 million in Term Loans, $2,600 million in Senior Notes and $7 million in mortgage loans. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about our debt and debt covenants.
(2)Interest payments calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes and credit facility.debt instruments. Interest on variable rate debt was calculated using the interest rate in effect as of April 1, 2022.March 31, 2023. Interest on variable rate debt may vary based on the performance of our interest rate swaps. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on the Senior Notes, Convertible Senior Notesterm loans and Term loans.senior notes.
(3)Agreements for purchases of goods or services, with terms that are enforceable and legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. These amounts include agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included because management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials.
(4)Transition tax payments on previously untaxed foreign earnings of foreign subsidiaries under the Tax Cuts and Jobs Act, which may be paid through July 2025.
(5)Payments for various non-cancelable operating lease agreements that expire on various dates through fiscal 2029.2028. The amounts in the table above exclude expected sublease income. See Note 9 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on leases.
Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of April 1, 2022,March 31, 2023, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $556$509 million in long-term income taxes payable has been excluded from the contractual obligations table. See Note 13 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.
Under the terms of the Proposed Merger, we expect to pay a purchase price for the Avast shares, ranging from $8.1 billion to $8.6 billion, upon the completion of the transaction in mid-to-late calendar year 2022. In conjunction with the Proposed Merger, we have secured debt under the Interim Facilities which will be available upon the close of the transaction. If the Proposed Merger is completed, our debt obligations will include principal and interest payments related to these credit facilities. See Note 4 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information regarding this business combination and the related debt instruments.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our credit facility, will be sufficient to meet our working capital needs and support on-going business activities through at least the next 12 months and to satisfy our known long-term contractual obligations. We plan to finance the cash consideration payable to Avast primarily with borrowings under our Definitive Facilities. We believe that our existing cash and cash to be generated by operations, along with amounts available under the new credit facility, will satisfy our long-term cash requirements for this transaction. However, our future liquidity and capital requirements may vary materially from those as of April 1, 2022 depending on several factors, including, but not limited to, economic conditions; political climate; the expansion of sales and marketing activities; the costs to acquire or invest in businesses; and the risks and uncertainties discussed in “Risk Factors” in Item 1A.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries, and other parties with respect to certain matters, including, but not limited to, product warranties and losses arising out of our breach of agreements or representations and warranties made by us.us, including claims alleging that our software infringes on the intellectual property rights of a third party. In connection with the sale of Veritas and the sale of our Enterprise Security business to Broadcom, we assigned several leases to Veritas Technologies LLCBroadcom or Broadcom and/or their relatedcertain of its subsidiaries. In addition, our bylaws contain indemnification obligations to our directors, officers, employees and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. Refer to Note 18 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on our indemnifications.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to various market risks related to fluctuations in interest rates and foreign currency exchange rates. We may use derivative and non-derivative financial instruments to mitigate certain risksreduce the volatility of earnings and cash flow that may result from adverse economic conditions and events or changes in accordance with our investmentforeign currency and foreign exchange policies. We do not use derivatives or other financial instruments for trading or speculative purposes.interest rates.
Interest rate risk
Our short-term investments and cash equivalents primarily consist of corporate bonds and certificate of deposits, respectively. A change in interest could have an adverse impact on their market value. As of April 1, 2022, the carrying value and fair value of our short-term investments and cash equivalents was $4 million. A hypothetical change in the yield curve of 100 basis points would not result in a significant reduction in fair value.
As of April 1, 2022,March 31, 2023, we had $2.0 billion$2,607 million in aggregate principal amount of fixed-rate Senior Notes, and convertible debt outstanding, with a carrying amount and a fair value of $2.0 billion,$2,593 million, based on Level 2 inputs. The fair value of these notes fluctuates when interest rates change. Since these notes bear interest at fixed rates, financial statement risk associated with changes in interest rates is limited to future refinancing of current debt obligations. If these notes were refinanced at higher interest rates prior to maturity, our total interest payments could increase by a material amount; however, this risk is mitigated by our strong cash position and expected future cash generated from operations, which will be sufficient to satisfy this increase in obligation.
As of April 1, 2022,March 31, 2023, we also had $1.7 billion$7,292 million outstanding debt with variable interest rates based on the London InterBank OfferedSecured Overnight Financing Rate (LIBOR)(SOFR). A reasonably possible hypothetical adverse100 basis point change of 200 basis points in LIBORSOFR would not resulthave resulted in a significant$73 million increase in interest expense on an annualized basis.
In March 2023, we entered into interest rate swap agreements to mitigate risks associated with the variable interest rate of our Term A Facility. These pay-fixed, receive-floating rate interest rate swaps have the economic effect of hedging the variability of forecasted interest payments until their maturity on March 31, 2026. Pursuant to the agreements, we will effectively convert $1 billion of our variable rate borrowings under Term A Facility to fixed rates, with $500 million at a fixed rate of 3.762% and $500 million at a fixed rate of 3.55%. A hypothetical 100 basis point increase or decrease in interest rates would have resulted in a $26 million increase or $28 million decrease in the fair values of our floating to fixed rate interest swaps at March 31, 2023.
The objective of our interest rate swaps, all of which are designated as cash flow hedges, is to manage the variability of future interest expense.
In addition, we have a $1 billion$1,500 million revolving credit facility that if drawn bears interest at a variable rate based on LIBORSOFR and would be subject to the same risks associated with adverse changes in LIBOR.SOFR.
Foreign currency exchange rate risk
We conduct business in numerous currencies through our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues or incur costs in currencies other than the entity’s functional currency, primarily in Euro, Japanese Yen, Singapore Dollar, British Pound, Australian Dollar, Czech Koruna and AustralianCanadian Dollar. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services we provide.provided. Our cash flow, results of operations and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations, and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities. As a result, we are exposed to foreign exchange gains or losses which impacts our operating results.
We have a foreign exchangeGrowth in our international operations will incrementally increase our exposure management program designed to identify material foreign currency exposures,fluctuations as well as volatile market conditions, including the weakening of foreign currencies relative to USD, which has and may in the future negatively affect our revenue expressed in USD.
We manage these exposures and reduce the potential effects of currency fluctuations on our results of operations, through which we enter intoby executing monthly foreign exchange forward contracts to hedge foreign currency balance sheet exposures. The gains and losses on our assets and liabilities denominatedthese foreign exchange contracts are recorded in currencies other thanOther income (expense), net in the functional currencyConsolidated Statements of our subsidiaries. Operations.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates. The gains and losses on theseAs our international operations grow, we will continue to reassess our approach to managing risks related to fluctuations in foreign exchange contracts are recorded in Other income (expense), net in the Consolidated Statements of Operations.
As of April 1, 2022 and April 2, 2021, we had open foreign currency forward contracts with notional amounts of $346 million and $338 million, respectively, to hedge foreign currency balance sheet exposure, with an insignificant fair value. A hypothetical ten percent depreciation of foreign currency would not result in a significant reduction in fair value of our forward contracts. This analysis disregards the possibilities that the rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.currency.
Additional information with respect to our debt and derivative instruments is included in Note 10 and Note 11, respectively, of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and related disclosures included in Part IV, Item 15 of this Annual Report are incorporated by reference into this Item 8. In addition, there were no material retrospective changes to any quarters in the two most recent fiscal years that would require supplementary disclosure.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
a)(a) Evaluation of Disclosure Controls and Procedures
The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our management (with the participation of our Chief Executive Officer and Chief Financial Officer) has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act).
Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report on Form 10-K.
b)(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for NortonLifeLock.Gen Digital. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 1, 2022,March 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We acquired Avast during September 2022. Management excluded Avast from its assessment of the effectiveness of Gen’s internal control over financial reporting as of March 31, 2023. Total assets (excluding goodwill and intangibles) and total revenues of Avast represent approximately 3%, or $462 million and 16%, or $518 million, respectively, of the Consolidated Financial Statements amounts as of, and for the year ended, March 31, 2023. Management did not assess the effectiveness of internal controls over financial reporting of Avast due to the complexity associated with assessing internal control during integration efforts as well as the limited amount of time between the transaction date and the assessment date of March 31, 2023.
Our management has concluded that, as of April 1, 2022,March 31, 2023, our internal control over financial reporting was effective at the reasonable assurance level based on these criteria.
The effectiveness of our internal control over financial reporting, as of April 1, 2022,March 31, 2023, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in Part IV, Item 15 of this Annual Report on Form 10-K.
c)(c) Changes in Internal Control over Financial Reporting
There wasDuring the quarter ended March 31, 2023, except for changes in connection with our Merger with Avast discussed above, there were no changechanges in our internal controlcontrols over financial reporting or in other factors, that occurred during the quarter ended April 1, 2022, that hashave materially affected, or isare reasonably likely to materially affect, our internal controlcontrols over financial reporting.
d)(d) Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included under the caption “Directors, Executive Officers, and Corporate Governance” in our proxy statement for the 20222023 Annual Meeting to be filed with the SEC within 120 days of the fiscal year ended April 1, 2022March 31, 2023 (the 20222023 Proxy Statement) and is incorporated herein by reference. With regard to the information required by this item regarding compliance with Section 16(a) of the Exchange Act, we will provide disclosure of delinquent Section 16(a) reports, if any, in the 20222023 Proxy Statement, and such disclosure, if any, is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item will be included under the caption “Executive Compensation” in our 20222023 Proxy Statement and is incorporated herein by reference.reference (excluding the information under the subheading “Pay Versus Performance”).
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in our 20222023 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included under the caption “Certain Relationships and Related Transactions, and Director Independence” in our 20222023 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is KPMG, LLC,LLP, Santa Clara, CA, Auditor Firm ID: 185.
The information required by this item will be included under the caption “Principal Accountant Fees and Services” in our 20222023 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
(1). Financial Statements
Upon written request, we will provide, without charge, a copy of this annual report, including the Consolidated Financial Statements and financial statement schedule. All requests should be sent to:
NortonLifeLockGen Digital Inc.
Attn: Investor Relations
60 E. Rio Salado, Suite 1000
Tempe, Arizona 85281
(650) 527-8000
The following documents are filed as part of this report:
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| | Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. | | | Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included. | |
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
NortonLifeLockGen Digital Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of NortonLifeLockGen Digital Inc. and subsidiaries (the Company) as of March 31, 2023 and April 1, 2022, and April 2, 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended April 1, 2022,March 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of April 1, 2022,March 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and April 1, 2022, and April 2, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended April 1, 2022,March 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 1, 2022March 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the consolidated financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit mattermatters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing separate opinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.they relate.
Sufficiency of audit evidence over net revenues
As discussed in Note 1 to the consolidated financial statements, the Company’s net revenues are principally derived from the sale of packaged software products directly to end-user customers through a multi-tiered distribution channel. The processing of customer orders through to the determination of net revenues to be recognized is reliant upon multiple information technology (IT) systems. The Company recorded $3,338 million of net revenues for the year ended March 31, 2023.
We identified the evaluation of sufficiency of audit evidence over net revenues as a critical audit matter. The evaluation of sufficiency of audit evidence over net revenues required a high degree of subjective auditor judgment due to the number of revenue-related IT systems involved. Specifically, judgment was required to evaluate that revenue data was captured and aggregated throughout various IT systems. Additionally, IT professionals with specialized skills and knowledge were required to evaluate the nature and extent of evidence obtained over net revenues.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over net revenues. We evaluated the design and tested the operating effectiveness of certain internal controls related to the revenue process, including IT related controls. We involved IT professionals with specialized skills and knowledge, who assisted in identifying and testing key IT configuration and IT interface controls for the various systems processing and recording revenue transactions. For a sample of transactions, we assessed the recorded revenue by comparing cash receipts to the revenue recognized. We evaluated the sufficiency of audit evidence obtained over net revenues by assessing the results of procedures performed.
Assessment of uncertain tax positions
As discussed in Notes 1 and 13 to the consolidated financial statements, as of April 1, 2022March 31, 2023, the Company recognized uncertain tax positions. The Company recognizes tax benefits fromevaluates uncertain tax positions when thereto determine whether it is more likely than a 50% likelihoodnot that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. As of April 1, 2022,March 31, 2023, the Company has recorded a liability for gross unrecognized tax benefits of $527$710 million.
We identified the assessment of uncertain tax positions as a critical audit matter. Complex auditor judgment, including the involvement of tax professionals with specialized skills and knowledge, was required to evaluate the Company’s determination of uncertain tax positions, which included assessing the Company’s interpretation and application of tax lawlaws globally across its multiple subsidiaries.jurisdictions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s uncertain tax positions process, including controls related to the determination of uncertain tax positions, which included assessing the Company’s interpretation and application of tax law,laws. We evaluated the Company’s ability to identify and determine its application in the liability estimation process, and determination of the final uncertain tax position.positions by comparing historical uncertain tax positions to actual outcomes upon conclusion of tax examinations. We involved tax professionals with specialized skills and knowledge, who assisted in:
● Obtaining an understanding of the Company’s overall tax structure across multiple subsidiariesjurisdictions and assessing the Company’s compliance with tax laws globally,
● Evaluating changes in tax law, and assessing the interpretation under the relevant jurisdictions’ tax law,
● Inspecting settlements with taxing authorities to assess the Company’s determination of its tax positions,
● Inspecting correspondence and having more than a 50% likelihood to be sustained upon examination,agreements with taxing authorities, reading internal meeting minutes, and evaluating the status of income tax audits with relevant tax authorities, and
● Performing an assessment of the Company’s tax positions and comparing to the results toof the Company’s assessment.
In addition, we evaluated the Company’s ability to accurately estimate its gross unrecognized tax benefits by comparing historical gross unrecognized tax benefits to actual outcome upon conclusion of tax examinations.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Santa Clara, California
May 20, 202224, 2023
NORTONLIFELOCKGEN DIGITAL INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except par value per share amounts)
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| April 1, 2022 | | April 2, 2021 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 1,887 | | | $ | 933 | |
| Short-term investments | 4 | | | 18 | |
| Accounts receivable, net | 120 | | | 117 | |
| Other current assets | 193 | | | 237 | |
| Assets held for sale | 56 | | | 233 | |
| Total current assets | 2,260 | | | 1,538 | |
| Property and equipment, net | 60 | | | 78 | |
| Operating lease assets | 74 | | | 76 | |
| Intangible assets, net | 1,023 | | | 1,116 | |
| Goodwill | 2,873 | | | 2,867 | |
| Other long-term assets | 653 | | | 686 | |
| Total assets | $ | 6,943 | | | $ | 6,361 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| Current liabilities: | | | |
| Accounts payable | $ | 63 | | | $ | 52 | |
| Accrued compensation and benefits | 81 | | | 107 | |
| Current portion of long-term debt | 1,000 | | | 313 | |
| Contract liabilities | 1,264 | | | 1,210 | |
| Current operating lease liabilities | 18 | | | 26 | |
| Other current liabilities | 639 | | | 428 | |
| Total current liabilities | 3,065 | | | 2,136 | |
| Long-term debt | 2,736 | | | 3,288 | |
| Long-term contract liabilities | 42 | | | 55 | |
| Deferred income tax liabilities | 75 | | | 137 | |
| Long-term income taxes payable | 996 | | | 1,119 | |
| Long-term operating lease liabilities | 75 | | | 66 | |
| Other long-term liabilities | 47 | | | 60 | |
| Total liabilities | 7,036 | | | 6,861 | |
| Commitments and contingencies (Note 18) | 0 | | 0 |
| Stockholders’ equity (deficit): | | | |
| Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 582 and 580 shares issued and outstanding as of April 1, 2022 and April 2, 2021, respectively | 1,851 | | | 2,229 | |
| Accumulated other comprehensive income | (4) | | | 47 | |
| Retained earnings (accumulated deficit) | (1,940) | | | (2,776) | |
| Total stockholders’ equity (deficit) | (93) | | | (500) | |
| Total liabilities and stockholders’ equity (deficit) | $ | 6,943 | | | $ | 6,361 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
NORTONLIFELOCK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| Net revenues | $ | 2,796 | | | $ | 2,551 | | | $ | 2,490 | |
| Cost of revenues | 408 | | | 362 | | | 393 | |
| Gross profit | 2,388 | | | 2,189 | | | 2,097 | |
| Operating expenses: | | | | | |
| Sales and marketing | 622 | | | 576 | | | 701 | |
| Research and development | 253 | | | 267 | | | 328 | |
| General and administrative | 392 | | | 215 | | | 368 | |
| Amortization of intangible assets | 85 | | | 74 | | | 79 | |
| Restructuring and other costs | 31 | | | 161 | | | 266 | |
| Total operating expenses | 1,383 | | | 1,293 | | | 1,742 | |
| Operating income (loss) | 1,005 | | | 896 | | | 355 | |
| Interest expense | (126) | | | (144) | | | (196) | |
| Other income (expense), net | 163 | | | 120 | | | 660 | |
| Income (loss) from continuing operations before income taxes | 1,042 | | | 872 | | | 819 | |
| Income tax expense (benefit) | 206 | | | 176 | | | 241 | |
| Income (loss) from continuing operations | 836 | | | 696 | | | 578 | |
| Income (loss) from discontinued operations | — | | | (142) | | | 3,309 | |
| Net income (loss) | $ | 836 | | | $ | 554 | | | $ | 3,887 | |
| | | | | |
| Income (loss) per share - basic: | | | | | |
| Continuing operations | $ | 1.44 | | | $ | 1.18 | | | $ | 0.94 | |
| Discontinued operations | $ | — | | | $ | (0.24) | | | $ | 5.38 | |
| Net income per share - basic | $ | 1.44 | | | $ | 0.94 | | | $ | 6.32 | |
| | | | | |
| Income (loss) per share - diluted: | | | | | |
| Continuing operations | $ | 1.41 | | | $ | 1.16 | | | $ | 0.90 | |
| Discontinued operations | $ | — | | | $ | (0.24) | | | $ | 5.15 | |
| Net income per share - diluted | $ | 1.41 | | | $ | 0.92 | | | $ | 6.05 | |
| | | | | |
| Weighted-average shares outstanding: | | | | | |
| Basic | 581 | | | 589 | | | 615 | |
| Diluted | 591 | | | 600 | | | 643 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
NORTONLIFELOCK INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| Net income | $ | 836 | | | $ | 554 | | | $ | 3,887 | |
| Other comprehensive income (loss), net of taxes: | | | | | |
| Foreign currency translation adjustments | (51) | | | 63 | | | (11) | |
| Unrealized gain (loss) on available-for-sale securities | — | | | — | | | 1 | |
| Other comprehensive income (loss) from equity method investee | — | | | — | | | 1 | |
| Other comprehensive income (loss), net of taxes | (51) | | | 63 | | | (9) | |
| Comprehensive income | $ | 785 | | | $ | 617 | | | $ | 3,878 | |
| | | | | | | | | | | |
| March 31, 2023 | | April 1, 2022 |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 750 | | | $ | 1,887 | |
| Short-term investments | — | | | 4 | |
| Accounts receivable, net | 168 | | | 120 | |
| Other current assets | 284 | | | 193 | |
| Assets held for sale | 31 | | | 56 | |
| Total current assets | 1,233 | | | 2,260 | |
| Property and equipment, net | 76 | | | 60 | |
| Operating lease assets | 43 | | | 74 | |
| Intangible assets, net | 3,097 | | | 1,023 | |
| Goodwill | 10,217 | | | 2,873 | |
| Other long-term assets | 1,281 | | | 653 | |
| Total assets | $ | 15,947 | | | $ | 6,943 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| Current liabilities: | | | |
| Accounts payable | $ | 77 | | | $ | 63 | |
| Accrued compensation and benefits | 102 | | | 81 | |
| Current portion of long-term debt | 233 | | | 1,000 | |
| Contract liabilities | 1,708 | | | 1,264 | |
| Current operating lease liabilities | 26 | | | 18 | |
| Other current liabilities | 703 | | | 639 | |
| Total current liabilities | 2,849 | | | 3,065 | |
| Long-term debt | 9,529 | | | 2,736 | |
| Long-term contract liabilities | 80 | | | 42 | |
| Deferred income tax liabilities | 395 | | | 75 | |
| Long-term income taxes payable | 820 | | | 996 | |
| Long-term operating lease liabilities | 31 | | | 75 | |
| Other long-term liabilities | 43 | | | 47 | |
| Total liabilities | 13,747 | | | 7,036 | |
| Commitments and contingencies (Note 18) | | | |
| Stockholders’ equity (deficit): | | | |
| Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 640 and 582 shares issued and outstanding as of March 31, 2023 and April 1, 2022, respectively | 2,800 | | | 1,851 | |
| Accumulated other comprehensive income (loss) | (15) | | | (4) | |
| Retained earnings (accumulated deficit) | (585) | | | (1,940) | |
| Total stockholders’ equity (deficit) | 2,200 | | | (93) | |
| Total liabilities and stockholders’ equity (deficit) | $ | 15,947 | | | $ | 6,943 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
NORTONLIFELOCKGEN DIGITAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)OPERATIONS
(In millions, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock and Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount |
| Balance as of March 29, 2019 | 630 | | | $ | 4,812 | | | $ | (7) | | | $ | 933 | | | $ | 5,738 | |
| Net income | — | | | — | | | — | | | 3,887 | | | 3,887 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | (9) | | | — | | | (9) | |
| Common stock issued under employee stock incentive plans | 32 | | | 123 | | | — | | | — | | | 123 | |
| Shares withheld for taxes related to vesting of restricted stock units | (4) | | | (86) | | | — | | | — | | | (86) | |
| Repurchases of common stock | (69) | | | (902) | | | — | | | (661) | | | (1,563) | |
| Cash dividends declared ($12.40 per share of common stock) and dividend equivalents accrued | — | | | (76) | | | — | | | (7,489) | | | (7,565) | |
| Stock-based compensation | — | | | 338 | | | — | | | — | | | 338 | |
| Short-swing profit disgorgement | — | | | 9 | | | — | | | — | | | 9 | |
| Exchange and extinguishment of convertible debt | — | | | (862) | | | — | | | — | | | (862) | |
| Balance as of April 3, 2020 | 589 | | | 3,356 | | | (16) | | | (3,330) | | | 10 | |
| Net income | — | | | — | | | — | | | 554 | | | 554 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | 63 | | | — | | | 63 | |
| Common stock issued under employee stock incentive plans | 8 | | | 24 | | | — | | | — | | | 24 | |
| Shares withheld for taxes related to vesting of restricted stock units | (2) | | | (49) | | | — | | | — | | | (49) | |
| Repurchases of common stock | (15) | | | (304) | | | — | | | — | | | (304) | |
| Cash dividends declared ($0.50 per share of common stock) and dividend equivalents accrued | — | | | (301) | | | — | | | — | | | (301) | |
| Stock-based compensation | — | | | 81 | | | — | | | — | | | 81 | |
| Extinguishment of convertible debt | — | | | (578) | | | — | | | — | | | (578) | |
| Balance as of April 2, 2021 | 580 | | | 2,229 | | | 47 | | | (2,776) | | | (500) | |
| Net income | — | | | — | | | — | | | 836 | | | 836 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | (51) | | | — | | | (51) | |
| Common stock issued under employee stock incentive plans | 3 | | | 14 | | | — | | | — | | | 14 | |
| Shares withheld for taxes related to vesting of restricted stock units | (1) | | | (16) | | | — | | | — | | | (16) | |
| | | | | | | | | |
| Cash dividends declared ($0.50 per share of common stock) and dividend equivalents accrued | — | | | (294) | | | — | | | — | | | (294) | |
| Stock-based compensation | — | | | 70 | | | — | | | — | | | 70 | |
| Extinguishment of convertible debt | — | | | (152) | | | — | | | — | | | (152) | |
| Balance as of April 1, 2022 | 582 | | | $ | 1,851 | | | $ | (4) | | | $ | (1,940) | | | $ | (93) | |
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Net revenues | $ | 3,338 | | | $ | 2,796 | | | $ | 2,551 | |
| Cost of revenues | 589 | | | 408 | | | 362 | |
| Gross profit | 2,749 | | | 2,388 | | | 2,189 | |
| Operating expenses: | | | | | |
| Sales and marketing | 682 | | | 622 | | | 576 | |
| Research and development | 313 | | | 253 | | | 267 | |
| General and administrative | 286 | | | 392 | | | 215 | |
| Amortization of intangible assets | 172 | | | 85 | | | 74 | |
| Restructuring and other costs | 69 | | | 31 | | | 161 | |
| Total operating expenses | 1,522 | | | 1,383 | | | 1,293 | |
| Operating income (loss) | 1,227 | | | 1,005 | | | 896 | |
| Interest expense | (401) | | | (126) | | | (144) | |
| Other income (expense), net | (22) | | | 163 | | | 120 | |
| Income (loss) from continuing operations before income taxes | 804 | | | 1,042 | | | 872 | |
| Income tax expense (benefit) | (545) | | | 206 | | | 176 | |
| Income (loss) from continuing operations | 1,349 | | | 836 | | | 696 | |
| Income (loss) from discontinued operations | — | | | — | | | (142) | |
| Net income (loss) | $ | 1,349 | | | $ | 836 | | | $ | 554 | |
| | | | | |
| Income (loss) per share - basic: | | | | | |
| Continuing operations | $ | 2.20 | | | $ | 1.44 | | | $ | 1.18 | |
| Discontinued operations | $ | — | | | $ | — | | | $ | (0.24) | |
| Net income per share - basic | $ | 2.20 | | | $ | 1.44 | | | $ | 0.94 | |
| | | | | |
| Income (loss) per share - diluted: | | | | | |
| Continuing operations | $ | 2.16 | | | $ | 1.41 | | | $ | 1.16 | |
| Discontinued operations | $ | — | | | $ | — | | | $ | (0.24) | |
| Net income per share - diluted | $ | 2.16 | | | $ | 1.41 | | | $ | 0.92 | |
| | | | | |
| Weighted-average shares outstanding: | | | | | |
| Basic | 614 | | | 581 | | | 589 | |
| Diluted | 624 | | | 591 | | | 600 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
NORTONLIFELOCKGEN DIGITAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME (LOSS)
(In millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 836 | | | $ | 554 | | | $ | 3,887 | |
| Adjustments: | | | | | |
| Amortization and depreciation | 140 | | | 150 | | | 361 | |
| Impairments and write-offs of current and long-lived assets | 13 | | | 90 | | | 74 | |
| Stock-based compensation expense | 70 | | | 81 | | | 312 | |
| Deferred income taxes | (81) | | | 42 | | | 16 | |
| Loss (gain) on extinguishment of debt | 3 | | | (20) | | | — | |
| Loss from equity interest | — | | | — | | | 31 | |
| Gain on divestitures | — | | | — | | | (5,684) | |
| Gain on sale of equity method investment | — | | | — | | | (379) | |
| Gain on sale of property | (175) | | | (98) | | | — | |
| Non-cash operating lease expense | 20 | | | 22 | | | 40 | |
| Other | 1 | | | 52 | | | (4) | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable, net | (9) | | | 3 | | | 583 | |
| Accounts payable | 10 | | | (44) | | | (61) | |
| Accrued compensation and benefits | (26) | | | (10) | | | (117) | |
| Contract liabilities | 67 | | | 118 | | | (121) | |
| Income taxes payable | (78) | | | (299) | | | 383 | |
| Other assets | (7) | | | 144 | | | (81) | |
| Other liabilities | 190 | | | (79) | | | (101) | |
| Net cash provided by (used in) operating activities | 974 | | | 706 | | | (861) | |
| INVESTING ACTIVITIES: | | | | | |
| Purchases of property and equipment | (6) | | | (6) | | | (89) | |
| Payments for acquisitions, net of cash acquired | (39) | | | (344) | | | — | |
| Proceeds from divestitures, net of cash contributed and transaction costs | — | | | — | | | 10,918 | |
| Proceeds from the maturities and sales of short-term investments | 15 | | | 68 | | | 167 | |
| Proceeds from the sale of property | 355 | | | 218 | | | — | |
| Proceeds from sale of equity method investment | — | | | — | | | 380 | |
| Other | 1 | | | (5) | | | 3 | |
| Net cash provided by (used in) investing activities | 326 | | | (69) | | | 11,379 | |
| FINANCING ACTIVITIES: | | | | | |
| Repayments of debt and related equity component | (541) | | | (1,941) | | | (868) | |
| Proceeds from issuance of debt, net of issuance costs | 512 | | | 750 | | | 300 | |
| Net proceeds from sales of common stock under employee stock incentive plans | 14 | | | 24 | | | 123 | |
| Tax payments related to restricted stock units | (15) | | | (58) | | | (78) | |
| Dividends and dividend equivalents paid | (303) | | | (373) | | | (7,481) | |
| Repurchases of common stock | — | | | (304) | | | (1,581) | |
| Cash consideration paid in exchange of convertible debt | — | | | — | | | (546) | |
| Short-swing profit disgorgement | — | | | — | | | 9 | |
| Other | — | | | (1) | | | (1) | |
| Net cash provided by (used in) financing activities | (333) | | | (1,903) | | | (10,123) | |
| Effect of exchange rate fluctuations on cash and cash equivalents | (13) | | | 22 | | | (9) | |
| Change in cash and cash equivalents | 954 | | | (1,244) | | | 386 | |
| Beginning cash and cash equivalents | 933 | | | 2,177 | | | 1,791 | |
| Ending cash and cash equivalents | $ | 1,887 | | | $ | 933 | | | $ | 2,177 | |
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Net income (loss) | $ | 1,349 | | | $ | 836 | | | $ | 554 | |
| Other comprehensive income (loss), net of taxes: | | | | | |
| Foreign currency translation adjustments | (11) | | | (51) | | | 63 | |
| | | | | |
| | | | | |
| Other comprehensive income (loss), net of taxes | (11) | | | (51) | | | 63 | |
| Comprehensive income (loss) | $ | 1,338 | | | $ | 785 | | | $ | 617 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
NORTONLIFELOCKGEN DIGITAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In millions, except share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock and Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Accumulated Deficit) | | Total Stockholders’ Equity (Deficit) |
| Shares | | Amount |
| Balance as of April 3, 2020 | 589 | | | $ | 3,356 | | | $ | (16) | | | $ | (3,330) | | | $ | 10 | |
| Net income (loss) | — | | | — | | | — | | | 554 | | | 554 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | 63 | | | — | | | 63 | |
| Common stock issued under employee stock incentive plans | 8 | | | 24 | | | — | | | — | | | 24 | |
| Shares withheld for taxes related to vesting of stock units | (2) | | | (49) | | | — | | | — | | | (49) | |
| Repurchases of common stock | (15) | | | (304) | | | — | | | — | | | (304) | |
| Cash dividends declared ($0.50 per share of common stock) and dividend equivalents accrued | — | | | (301) | | | — | | | — | | | (301) | |
| Stock-based compensation | — | | | 81 | | | — | | | — | | | 81 | |
| Exchange and extinguishment of convertible debt | — | | | (578) | | | — | | | — | | | (578) | |
| Balance as of April 2, 2021 | 580 | | | 2,229 | | | 47 | | | (2,776) | | | (500) | |
| Net income (loss) | — | | | — | | | — | | | 836 | | | 836 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | (51) | | | — | | | (51) | |
| Common stock issued under employee stock incentive plans | 3 | | | 14 | | | — | | | — | | | 14 | |
| Shares withheld for taxes related to vesting of stock units | (1) | | | (16) | | | — | | | — | | | (16) | |
| Cash dividends declared ($0.50 per share of common stock) and dividend equivalents accrued | — | | | (294) | | | — | | | — | | | (294) | |
| Stock-based compensation | — | | | 70 | | | — | | | — | | | 70 | |
| Extinguishment of convertible debt | — | | | (152) | | | — | | | — | | | (152) | |
| Balance as of April 1, 2022 | 582 | | | 1,851 | | | (4) | | | (1,940) | | | (93) | |
| Net income (loss) | — | | | — | | | — | | | 1,349 | | | 1,349 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | (11) | | | — | | | (11) | |
| Common stock issued under employee stock incentive plans | 5 | | | 12 | | | — | | | — | | | 12 | |
| Shares withheld for taxes related to vesting of stock units | (1) | | | (19) | | | — | | | — | | | (19) | |
| Repurchases of common stock | (40) | | | (904) | | | — | | | — | | | (904) | |
| Cash dividends declared ($0.50 per share of common stock) and dividend equivalents accrued | — | | | (308) | | | — | | | — | | | (308) | |
| Stock-based compensation | — | | | 134 | | | — | | | — | | | 134 | |
| Extinguishment of convertible debt | — | | | (100) | | | — | | | — | | | (100) | |
Cumulative effect adjustment from adoption of ASU 2020-06 (1) | — | | | (7) | | | — | | | 6 | | | (1) | |
| Merger consideration | 94 | | | 2,141 | | | — | | | — | | | 2,141 | |
| Balance as of March 31, 2023 | 640 | | | $ | 2,800 | | | $ | (15) | | | $ | (585) | | | $ | 2,200 | |
(1) Effective on April 2, 2022, the Company adopted ASU 2020-06 (Debt with Conversion and Other Options, ASC 470-20) using a modified retrospective method. See Note 2 for further information about this recently adopted guidance.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
GEN DIGITAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 1,349 | | | $ | 836 | | | $ | 554 | |
| Adjustments: | | | | | |
| Amortization and depreciation | 329 | | | 140 | | | 150 | |
| Impairments and write-offs of current and long-lived assets | 25 | | | 13 | | | 90 | |
| Stock-based compensation expense | 134 | | | 70 | | | 81 | |
| Deferred income taxes | (145) | | | (81) | | | 42 | |
| Loss (gain) on extinguishment of debt | 9 | | | 3 | | | (20) | |
| Gain on sale of properties | — | | | (175) | | | (98) | |
| Non-cash operating lease expense | 23 | | | 20 | | | 22 | |
| Other | 2 | | | 1 | | | 52 | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable, net | 11 | | | (9) | | | 3 | |
| Accounts payable | (8) | | | 10 | | | (44) | |
| Accrued compensation and benefits | (6) | | | (26) | | | (10) | |
| Contract liabilities | (5) | | | 67 | | | 118 | |
| Income taxes payable | (128) | | | (78) | | | (299) | |
| Other assets | (696) | | | (7) | | | 144 | |
| Other liabilities | (137) | | | 190 | | | (79) | |
| Net cash provided by (used in) operating activities | 757 | | | 974 | | | 706 | |
| INVESTING ACTIVITIES: | | | | | |
| Purchases of property and equipment | (6) | | | (6) | | | (6) | |
| Payments for acquisitions, net of cash acquired | (6,547) | | | (39) | | | (344) | |
| Proceeds from the maturities and sales of short-term investments | 4 | | | 15 | | | 68 | |
| Proceeds from the sale of properties | — | | | 355 | | | 218 | |
| Other | 2 | | | 1 | | | (5) | |
| Net cash provided by (used in) investing activities | (6,547) | | | 326 | | | (69) | |
| FINANCING ACTIVITIES: | | | | | |
| Repayments of debt and related equity component | (3,047) | | | (541) | | | (1,941) | |
| Proceeds from issuance of debt, net of issuance costs | 8,954 | | | 512 | | | 750 | |
| Net proceeds from sales of common stock under employee stock incentive plans | 12 | | | 14 | | | 24 | |
| Tax payments related to vesting of stock units | (20) | | | (15) | | | (58) | |
| Dividends and dividend equivalents paid | (314) | | | (303) | | | (373) | |
| Repurchases of common stock | (904) | | | — | | | (304) | |
| Other | — | | | — | | | (1) | |
| Net cash provided by (used in) financing activities | 4,681 | | | (333) | | | (1,903) | |
| Effect of exchange rate fluctuations on cash and cash equivalents | (28) | | | (13) | | | 22 | |
| Change in cash and cash equivalents | (1,137) | | | 954 | | | (1,244) | |
| Beginning cash and cash equivalents | 1,887 | | | 933 | | | 2,177 | |
| Ending cash and cash equivalents | $ | 750 | | | $ | 1,887 | | | $ | 933 | |
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
GEN DIGITAL INC.
Notes to the Consolidated Financial Statements
Note 1. Description of Business and Significant Accounting Policies
Business
On August 10, 2021, we announced a transaction under which we intended to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Merger). On September 12, 2022, we completed the Merger with Avast, and its results of operations have been included in our Consolidated Statements of Operations beginning September 12, 2022. See Note 4 for further information about this business combination.
In connection with the Merger, effective November 7, 2022, we changed our corporate name from NortonLifeLock Inc. to Gen Digital Inc. (Gen).
Gen is a global leading providercompany powering Digital Freedom with a family of trusted consumer brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. Our Cyber Safety solutions. Our portfolio provides protection across three Cyber Safety categories,multiple channels and geographies, including security and performance, identity protection, and online privacy. Our technology platforms bring together software and service capabilities into comprehensive and easy-to-use products and solutions across our brands. We help customers protect their computer and mobile devices from online threats, safeguard theirhave also evolved beyond traditional Cyber Safety to offer adjacent trust-based solutions, including digital identity and personal informationaccess management, digital reputation, and strengthen online privacy capabilities and functionalities.restoration support services.
Basis of presentation
The accompanying Consolidated Financial Statements of NortonLifeLockGen Digital Inc. and our wholly-owned subsidiaries are prepared in conformity with generally accepted accounting principles in the United States (GAAP). All significant intercompany accounts and transactions have been eliminated in consolidation.
Fiscal calendar
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Fiscal 2023, 2022 2021 and 20202021 in this report refers to fiscal years ended March 31, 2023, April 1, 2022, and April 2, 2021, and April 3, 2020, respectively. Fiscal 2020respectively, each of which was a 53-week year, whereas fiscal 2022 and 2021 each consisted of 52 weeks.52-week year.
Use of estimates
The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. Such estimates include, but are not limited to, valuation of business combinations including acquired intangible assets and goodwill, loss contingencies, the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, and valuation of assets and liabilities and results of operations of our discontinued operations.liabilities. On an ongoing basis, management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Third-party valuation specialists are also utilized for certain estimates. Actual results could differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment dueas a result of macroeconomic factors such as inflation, fluctuations in foreign currency exchange rates relative to the U.S. dollars, our reporting currency, changes in interest rates, the COVID-19 pandemic and Russia’s invasion of Ukraine, and such differences may be material to the Consolidated Financial Statements.
Significant Accounting Policies
With the exception of those discussed in Note 2, there were no material changes in accounting pronouncements issued by the Financial Accounting Standards Board (FASB) that were applicable or adopted by us during fiscal 2022.2023.
Revenue recognition
We sell products and services directly to end-users and packaged software products through a multi-tiered distribution channel. We recognize revenue when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for such products or services. Performance periods are generally one year or less, and payments are generally collected up front. Revenue is recognized net of allowances for partner incentives and rebates, and any taxes collected from customers and subsequently remitted to governmental authorities. Revenue from e-commerce partners is recognized on a gross basis before the deduction of partner incentive and fees. Taxes will be collected by our e-commerce partners and subsequently remitted to governmental authorities.
We offer various channel rebates for our products. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ performance compared to the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for rebates are estimated based on the terms and conditions of the promotional program, actual sales during the promotion, the amount of redemptions received, historical redemption trends by product and by type of promotional program and the value of the rebate. We record estimated reserves for rebates as an offset to revenue or contract liabilities. Reserves for rebates, recorded in Other current liabilities, were $5$4 million and $6$5 million as of March 31, 2023 and April 1, 2022, and April 2, 2021, respectively. For products that include content updates and services, rebates are recognized as a ratable offset to revenue or contract liabilities over the term of the subscription.
Performance obligations
At contract inception, we assess the products and services promised in the contract to identify each performance obligation and evaluate whether the performance obligations are capable of being distinct and are distinct within the context of the contract. Performance obligations that are not both capable of being distinct and are distinct within the context of the contract are combined and treated as a single performance obligation in determining the allocation and recognition of revenue. Our software solutions typically consist of a term-based subscription as well as when-and-if available software updates and upgrades. We have determined that our promises to transfer the software license subscription and the related support and maintenance are not separately identifiable because:
•the licensed software and the software updates and upgrades are highly interdependent and highly interrelated, working together to deliver continuously updated protection to customers;
•by identifying and addressing new threats, the software updates and upgrades significantly modify the licensed software and are integral to maintaining its utility; and
•given the rapid pace with which new threats are identified, the value of the licensed software diminishes rapidly without the software updates and upgrades.
We therefore consider the software license and related support obligations a single, combined performance obligation with revenue recognized over time as our solutions are delivered.
Fair value measurements
For assets and liabilities measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability.
The three levels of inputs that may be used to measure fair value are:
•Level 1: Quoted prices in active markets for identical assets or liabilities.
•Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.
•Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Assets measured and recorded at fair value:
Cash equivalents. We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are carried at amounts that approximate fair value due to the short period of time to maturity.
Short-term investments. Short-term investments consist primarily of corporate bonds. They are classified as available-for-sale and recognized at fair value using Level 1 and Level 2 inputs, which are quoted using market prices, independent pricing vendors or other sources, to determine the fair value. Unrealized gains and losses, net of tax, are included in Accumulated other comprehensive income (loss) (AOCI). We regularly review our investment portfolio to identify and evaluate investments that have indications of impairment. Available-for-sale debt securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of that difference, if any, is caused by expected credit losses. Factors considered in determining if a credit loss exists include: the extent to which the fair value has been lower than the cost basis, any changes to the rating of the security by a rating agency and any adverse financial conditions specifically related to the security. Expected credit losses on available-for-sale debt securities are recognized in Other income (expense), net in our Consolidated Statements of Operations, and any remaining unrealized losses, net of taxes, are included in AOCI in our Consolidated Statements of Stockholders’ Equity (Deficit).
Non-marketable investments
Our non-marketable investments consist of equity investments in privately-held companies without a readily determinable fair value. We primarily measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. We may elect to measure certain investments at fair value, for which we utilize third-party valuation specialists at least annually in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate a change in the fair value of the investment. Gains and losses on these investments, whether realized or unrealized, are recognized in Other income (expense), net in our Consolidated Statements of Operations.
We assess the recoverability of our non-marketable investments by reviewing various indicators of impairment. If indicators are present, a fair value measurement is made by performing a discounted cash flow analysis of the investment. We immediately recognize the impairment to our non-marketable equity investments if the carrying value exceeds the fair value. For our equity method investment, if a decline in value is determined to be other than temporary, impairment is recognized and included in Other income (expense), net in our Consolidated Statements
Accounts receivable
Accounts receivable are recorded at the invoiced amount and are not interest bearing. We maintain an allowance for doubtful accounts or expected credit losses to reserve for potentiallyexpected uncollectible receivables. We review our accounts receivables by aging category to identify specific customers with known disputes or collectability issues. In addition, we maintain an allowance for all other receivables not included in the specific reserve by applying specific percentages of projected uncollectible receivables to the various aging categories. In determining these percentages, we use judgment based on our historical collection experience and current economic trends as well as reasonable and supportable forecasts of future economic conditions.
Assets held for sale
Long-lived assets held for sale are recorded asat the lower of its carrying value or fair value less costs to sell. Fair value is determined based on discounted cash flows, appraised values or management’s estimates, depending upon the nature of the assets and external data available.
Property and equipment
Property, equipment, and leasehold improvements are stated at cost, net of accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives. Estimated useful lives for financial reporting purposes are as follows: buildings, 20 to 30 years; building improvements, 7 to 20 years; leasehold improvements, the lesser of the life of the improvement or the initial lease term, and computer hardware and software and office furniture and equipment, 3 to 5 years.
Software development costs
The costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized in accordance with the accounting guidance for software. Because our current process for developing software is essentially completed concurrently with the establishment of technological feasibility, which occurs upon the completion of a working model, no costs have been capitalized for any of the periods presented.
Internal-use software development costs
We capitalize qualifying costs incurred during the application development stage related to software developed for internal-use and amortize them over the estimated useful life of 3 years. We expense costs incurred related to the planning and post-implementation phases of development as incurred. As of March 31, 2023 and April 1, 2022, and April 2, 2021, capitalized costs, net of amortization, were $6 million and $9$6 million, respectively.
Leases
We determine if an arrangement is a lease at inception. We have elected to not recognize a lease liability or right-of-use (ROU) asset for short-term leases (leases with a term of twelve months or less that do not include an option to purchase the underlying asset). Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The interest rate we use to determine the present value of future payments is our incremental borrowing rate because the rate implicit in our leases is not readily determinable. Our incremental borrowing rate is a hypothetical rate for collateralized borrowings in economic environments where the leased asset is located based on credit rating factors. Our operating lease assets also include adjustments for prepaid lease payments, lease incentives and initial direct costs.
Certain lease contracts include obligations to pay for other services, such as operations and maintenance. We elected the practical expedient whereby we record all lease components and the related minimum non-lease components as a single lease component. Cash payments made for variable lease costs are not included in the measurement of our operating lease assets and liabilities. Many of our lease terms include 1one or more options to renew. We do not assume renewals in our determination of the lease term unless it is reasonably certain that we will exercise that option. Lease costs for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term. Our lease agreements do not contain any residual value guarantees.
Business combinations
We use the acquisition method of accounting under the authoritative guidance on business combinations. We allocate the purchase price of our acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. Each acquired company’s operating results are included in our Consolidated Financial Statements starting on the date of acquisition.
Goodwill
Goodwill is recorded when consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired.
We perform an impairment assessment of goodwill at the reporting unit level at least annually in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The accounting guidance gives us the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit’s fair value is less than
its carrying amount. If it is determined, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed.
In fiscal 2022,2023, based on our qualitative assessments, we concluded that it is more likely than not that the fair values are more than their carrying values. Accordingly, there was no indication of impairment of goodwill, and further quantitative testing was not required.
Long-lived assets
In connection with our acquisitions, we generally recognize assets for customer relationships, developed technology, finite-lived trade names, patents and indefinite-lived trade names. Finite-lived intangible assets are carried at cost less accumulated amortization. Such amortization is provided on a straight-line basis over the estimated useful lives of the respective assets, generally from 1 to 89 years. Amortization for developed technology is recognized in cost of revenue. Amortization for customer relationships and certain trade names is recognized in operating expenses. Indefinite-lived intangible assets are not subject to amortization but instead tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Long-lived assets, including finite-lived intangible assets and property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss is recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount. Measurement of an impairment loss is based on the excess of the carrying amount of the asset group over its fair value.
In fiscal 2022,2023, based on our qualitative and quantitative assessments, we concluded that it is more likely than not that the fair values are more than their carrying values. Accordingly, there was no indication of impairment of long-lived assets, and further quantitative testing was not required.
Contract liabilities
Contract liabilities consist of deferred revenue and customer deposit liabilities and represent cash payments received or due in advance of fulfilling our performance obligations. Deferred revenue represents billings under non-cancelable contracts before the related product or service is transferred to the customer. Certain arrangements include terms that allow the customer to terminate the contract and receive a pro-rata refund for a period of time. In these arrangements, we have concluded there are no enforceable rights and obligations during the period in which the option to cancel is exercisable by the customer, and therefore the consideration received or due from the customer is recorded as a customer deposit liability.
Debt
Our debt includes senior unsecured notes, senior term loans convertible senior notes and a senior unsecuredsecured revolving credit facility. Our senior unsecured notes are recorded at par value at issuance less a discount representing the amount by which the face value exceeds the fair value at the date of issuance and an amount which represents issuance costs. Our senior term loans are recorded at par value less debt issuance costs, which are recorded as a reduction in the carrying value of the debt. Our convertible senior notes are recorded at par value less the fair value of the equity component of the notes, at their issuance date, determined using Level 2 inputs and less any issuance costs. The discount and issuance costs associated with the various notes are amortized using the effective interest rate method over the term of the debt as a non-cash charge to interest expense. Borrowings under our revolving credit facility, if any, are recognized at principal balance plus accrued interest based upon stated interest rates. Debt maturities are classified as current liabilities on our Consolidated Balance Sheets if we are contractually obligated to repay them in the next twelve months or, prior to the balance sheet date, we have the authorization and intent to repay them prior to their contractual maturities and within the next twelve months.
Treasury stock
We account for treasury stock under the cost method. Shares repurchased under our share repurchase program are retired. Upon retirement, we allocate the value of treasury stock between Additional paid-in capital and Retained earnings.
Restructuring
Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs and assets write-offs.asset write-offs and impairments. Employee-related severance charges are largely based upon substantive severance plans, while some charges result from mandated requirements in certain foreign jurisdictions. These charges are reflected in the period when both the actions are probable and the amounts are estimable. Contract termination costs reflect costs that will continue to be incurred under a contract for its remaining term without future economic benefit. These charges are reflected in the period when a contract is terminated. Asset write-offs and impairments, including those related to ROU lease assets, are recognized in the period that an asset is decommissioned or a facility ceases to be used.
Income taxes
We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities and for operating losses and tax credit carryforwards in each jurisdiction in which we operate. We measure deferred tax assets and liabilities using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.
We also assess the likelihood that deferred tax assets will be realized from future taxable income and based on weighting positive and negative evidence, we will assess and determine the need for a valuation allowance, if required. The determination of our valuation allowance involves assumptions, judgments and estimates, including forecasted earnings, future taxable income
and the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax expense.
We record accruals for uncertain tax positions when we believe that it is not more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We adjust these accruals when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of adjustments for uncertain tax positions as well as any related interest and penalties.
Stock-based compensation
We measure and recognize stock-based compensation for all stock-based awards, including restricted stock units (RSU), performance-based restricted stock units (PRU), stock options and rights to purchase shares under our employee stock purchase plan (ESPP), based on their estimated fair value on the grant date. We recognize the costs in our Consolidated Financial Statements on a straight-line basis over the award’s requisite service period except for PRUs with graded vesting, for which we recognize the costs on a graded basis. For awards with performance conditions, the amount of compensation cost we recognize over the requisite service period is based on the actual or estimated achievement of the performance condition. We estimate the number of stock-based awards that will be forfeited due to employee turnover.
The fair value of each RSU and PRU that does not contain a market condition is equal to the market value of our common stock on the date of grant. The fair value of each PRU that contains a market condition is estimated using the Monte Carlo simulation model. The fair values of RSUs and PRUs are not discounted by the dividend yield because our RSUs and PRUs include dividend-equivalent rights.rights, except for the $4 million unvested RSUs assumed as part of the Merger with Avast. We use the Black-Scholes model to determine the fair value of stock options and the fair value of rights to acquire shares of common stock under our ESPP. The Black-Scholes valuation model incorporates a number of variables, including our expected stock price volatility over the expected life of the awards, actual and projected employee exercise and forfeiture behaviors, risk-free interest rates and expected dividends. If the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected life, we estimate the expected life of the stock option awards granted based on its expected term using the simplified method available under U.S. GAAP.
Foreign currency
For foreign subsidiaries whose functional currency is the local currency, assets and liabilities are translated to U.S. dollars at exchange rates in effect at the balance sheet date. Gains and losses resulting from translation of these foreign currency financial statements into U.S. dollars are recorded in AOCI. Remeasurement adjustments are recorded in Other income (expense), net in our Consolidated Statements of Operations.
Concentrations of risk
A significant portion of our revenue is derived from international sales. Fluctuations of the U.S. dollar against foreign currencies, changes in local regulatory or economic conditions, or piracy could adversely affect our operating results.
Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents, short-term investments and trade accounts receivable. Our investment policy limits the amount of credit risk exposure to any one issuer and to any one country. A majority of our trade receivables are derived from sales to distributors and retailers. The credit risk in our trade accounts receivable is substantially mitigated by our credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions. Customers which are distributorsDistributors that accounted for over 10% of our nettotal billed and unbilled accounts receivable, are as follows:
| | | | | | | | | | | |
| April 1, 2022 | | April 2, 2021 |
| Customer A | 41 | % | | 46 | % |
| Customer B | 13 | % | | 9 | % |
| | | | | | | | | | | |
| March 31, 2023 | | April 1, 2022 |
| Distributor A | 13 | % | | 23 | % |
| Distributor B | 14 | % | | N/A |
Advertising and other promotional costs
Advertising and other promotional costs are charged to operations as incurred and included in sales and marketing expenses. These costs totaled $405 million, $423 million, $353 million, and $343$353 million for fiscal 2023, 2022 2021 and 2020,2021, respectively.
Contingencies
We evaluate contingent liabilities including threatened or pending litigation in accordance with the authoritative guidance on contingencies. We assess the likelihood of any adverse judgments or outcomes from potential claims or proceedings, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of an accrual required, if any, for these contingencies is made after the analysis of each separate matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time of our assessment. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates.
Note 2. Recent Accounting Standards
Recently adopted authoritative guidance
Income Taxes. In December 2019, the FASB issued new guidance that simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also clarifies and amends existing guidance to improve consistent application. On April 3, 2021, the first day of fiscal 2022, we adopted this guidance prospectively. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements and disclosures.
Business Combinations, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In October 2021, the FASB issued new guidance which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. This new guidance results in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. On October 2, 2021, the first day of the third quarter of fiscal 2022, we elected to early adopt this guidance retrospectively for all acquisitions in fiscal 2022 and going forward. The adoption of this guidance did not have a material impact on our quarterly fiscal periods prior to adoption or our Consolidated Financial Statements and disclosures.
Recently issued authoritative guidance not yet adopted
Debt with Conversion and Other Options. In August 2020, the FASB issued new guidance thatAccounting Standards Update 2020-06 (ASU 2020-06) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The new guidance removes from GAAP the separation models for convertible debt with embedded conversion features. As a result, after adopting the guidance, entities will no longer separately present embedded conversion features in equity. Instead, they will account for theA convertible debt instrument will be accounted for wholly as debt.debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. In addition, the debt discount, which is equal to the carry value of the embedded conversion feature upon issuance, will no longer be amortized as interest expense over the life of the instrument. The new guidance also requires the use of the if-converted method when calculatingto calculate the dilutive impact of convertible debtinstruments on diluted earnings per share. Theshare and include the effect of share settlement for instruments that may be settled in cash or shares. See Note 16 for further information related to the diluted earnings per share calculation.
We adopted this standard will be effective during ouras of April 2, 2022, the first quarterday of fiscal 2023. It may be2023, using a modified retrospective method of transition, under which, financial results and earnings per share amounts reported in prior periods were not adjusted or restated in our Consolidated Financial Statements. As such, the new guidance was applied retrospectively to each prior period presented or retrospectivelythe convertible debt instruments outstanding as of the beginning of this fiscal year, with the cumulative effect of adoption recognized through an adjustment to the opening balance of retained earnings. We increased the carrying amount of the New 2.0% Convertible Notes (as defined in Note 10) by approximately $1 million and reduced additional paid-in capital by approximately $7 million, net of tax. The net effect of these adjustments was recorded as an increase to retained earnings as of the date of adoption. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements and disclosures.April 2, 2022.
Reference Rate Reform. In March 2020, the FASB issued new guidance providing temporary optional expedients and exceptions to ease the financial reporting burden of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate.Rate (SOFR). The standard was effective upon issuance and may generally be applied through December 31, 2022,2024, to any new or amended contracts, hedging relationships and other transactions that reference LIBOR. We continueDuring fiscal 2023, we fully transitioned to evaluate ourSOFR and no longer use LIBOR on any debt or material contractual arrangements andthat are outstanding. Any future contracts, hedging relationships that reference LIBOR.and other transactions will be SOFR denominated.
Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our Consolidated Financial Statements or disclosures.
Note 3. Divestitures, Discontinued Operations and Assets Held for Sale
Divestitures
Enterprise Security assets
On November 4, 2019, we completed the sale of certain of our Enterprise Security assets and certain liabilities to Broadcom Inc. (the Broadcom(Broadcom sale) for a purchase price of $10.7 billion. As a result of the sale, the majority of the results of our Enterprise Security business and certain related costs were classified as discontinued operations in our Consolidated Statements of Operations and thus excluded from both continuing operations and segment results for all periods presented. During fiscal 2020, we recognized a gain on sale of $5,434 million, which was included in Income (loss) from discontinued operations in our Consolidated Statements of Operations. Total net assets sold was $5,211 million, consisting of goodwill, net intangible assets and other assets of $7,121 million, net of contract and other liabilities of $1,910 million. During fiscal 2021, in connection with the Broadcom sale, we recognized costs for severance and termination benefits as part of our November 2019 restructuring plan.plan, which was included in Income (loss) from discontinued operations in our Consolidated Statements of Operations. These activities were completed during fiscal 2021. See Note 12 for information associated with our restructuring activities.
On October 1, 2020, we entered into multiple agreements with Broadcom for an aggregate amount of $200 million. We licensed Broadcom’s enterprise software, multiple security engines and related telemetry for 5.6 years, which will be amortized to continuing operations over the term of the license. In addition, we resolved all outstanding payments and certain claims related to the asset purchase and transition services agreements, which were included in discontinued operations.
In connection with the Broadcom sale, we entered into a transition services agreement under which we provided assistance to Broadcom including, but not limited to, business support services and information technology services. During fiscal 2021, the transition services were completed. Dedicated direct costs, net of charges to Broadcom, for these transition services were $9 million and $19 million during fiscal 2021 and 2020, respectively.2021. These direct costs were presented as part of Other income (expense), net in the Consolidated Statements of Operations.
ID Analytics solutions
On January 31, 2020, we completed the sale of our ID Analytics solutions for $375 million in net cash proceeds. We recognized a gain on sale of $250 million, which was included in Other income (expense), net in our Consolidated Statements of Operations. Total net assets sold was $125 million, consisting of goodwill and net intangible assets of $114 million and net other assets, net of other liabilities, of $11 million. We incurred tax expense of $86 million related to the gain.
Discontinued Operations
The following table presents information regarding certain components of income (loss) from discontinued operations, net of income taxes during the yearsyear ended April 2, 2021 and April 3, 2020.2021. There was no discontinued operations activity during the yearyears ended March 31, 2023 and April 1, 2022.
| | | | | | | | | | | | | |
| | | Year Ended |
| (In millions) | | | April 2, 2021 | | April 3, 2020 |
| Net revenues | | | $ | 1 | | | $ | 1,368 | |
| Gross profit | | | $ | 1 | | | $ | 1,035 | |
| Operating income (loss) | | | $ | (177) | | | $ | 4 | |
| Gain on sale | | | $ | — | | | $ | 5,434 | |
| Income (loss) before income taxes | | | $ | (176) | | | $ | 5,431 | |
| Income tax expense (benefit) | | | $ | (34) | | | $ | 2,122 | |
| Income (loss) from discontinued operations, net of taxes | | | $ | (142) | | | $ | 3,309 | |
The following table presents significant non-cash items and capital expenditures of discontinued operations during the years ended April 2, 2021 and April 3, 2020. There was no discontinued operations activity during the year ended April 1, 2022.
| | | | | | | | | | | | | |
| | | Year Ended |
| (In millions) | | | April 2, 2021 | | April 3, 2020 |
| Amortization and depreciation | | | $ | — | | | $ | 130 | |
| Stock-based compensation expense | | | $ | 1 | | | $ | 172 | |
| Purchases of property and equipment | | | $ | — | | | $ | 43 | |
| | | | | | | | | |
| | | | | Year Ended |
| (In millions) | | | | | April 2, 2021 |
| Net revenues | | | | | $ | 1 | |
| Gross profit | | | | | $ | 1 | |
| Operating income (loss) | | | | | $ | (177) | |
| | | | | |
| Income (loss) before income taxes | | | | | $ | (176) | |
| Income tax expense (benefit) | | | | | $ | (34) | |
| Income (loss) from discontinued operations, net of taxes | | | | | $ | (142) | |
Assets Held for Sale
During fiscal 2020, we reclassified certain land and buildings previously reported as property and equipment to assets held for sale when the properties were approved for immediate sale in their present condition and the sale was expected to be completed within one year. As a result, we recognized an impairmentHowever, the commercial real estate market was adversely affected by the COVID-19 pandemic, which delayed the expected timing of $24 million in fiscal 2020, which was included in restructuring costs, representing the difference between the estimated net sales price and the carrying value of 1 of our properties.such sales.
On July 27, 2020, we completed the sale of our Culver City, California property, which was previously classified as held for sale during the first quarter of fiscal 2021, for cash consideration of $118 million, net of selling costs, and recognized a gain on sale of $35 million.
On April 1, 2021, we completed the sale of certain land and buildings in Mountain View, California, which was previously classified as held for sale as of April 3, 2020, for cash consideration of $100 million, net of selling costs, and recognized a gain on sale of $63 million.
On July 14, 2021, we completed the sale of certain land and buildings in Mountain View, California for cash consideration of $355 million, net of selling costs. Wecosts, and recognized a gain of $175 million on the sale. In conjunction with
During the second quarter of fiscal 2023, we determined certain land and buildings in Mountain View, California, which were previously reported as assets held for sale as of April 1, 2022, no longer qualified as held for sale classification. As a result, we signedreclassified the aggregate $26 million carrying value from assets held for sale to property and equipment, net, in our Consolidated Balance Sheets and recorded an immaterial catch-up depreciation adjustment, which is included in our Consolidated Statements of Operations.
During the fourth quarter of fiscal 2023, we determined certain land and buildings in Dublin, Ireland, which were previously reported as property and equipment, net as of April 1, 2022, now qualifies as held for sale classification. As a 7-year leaseback agreementresult, we reclassified the aggregate $23 million carrying value from property and equipment, net to assets held for a portion of the property. See Note 9 for further information related to the sale leaseback.in our Consolidated Balance Sheets.
We continue to actively market the remaining properties for sale; however, during fiscal 2022, the commercial real estate market continues to be adversely affected by the COVID-19 pandemic, which delayed the expected timing of sale. As of April 1, 2022, these assets are classified as assets held for sale. We have taken into consideration the current real estate values and demand and continue to execute plans to sell these properties. As a result, we recognized an impairment of $2$23 million which was included in restructuring costs, representing the difference between the estimated net sales price and the carrying value of one of our properties. As of March 31, 2023, this property remains classified as assets held for sale. During fiscal 2022,2023, there were no other impairments because the fair value of the other properties less costs to sell either equals or exceeds their carrying value.
Note 4. Business Combinations
Proposed Merger with Avast
On August 10, 2021, we announced a transaction under which we intendintended to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Proposed Merger). The Proposed Merger will bewas implemented by means of a court-sanctioned scheme of arrangement under Part 26 of the UK Companies Act 2006 as amended (the Scheme), and remains subject to a certain number of conditions.. Under the terms of the Proposed Merger, Avast shareholders will bewere entitled to elect to receive, for each ordinary share of Avast held, in respect of their entire holding of Avast shares, either: (i) $7.61 in cash and 0.0302 of a new share of our common stock (such option, the Majority Cash Option); or (ii) $2.37 in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option). Based on our undisturbed closing share price of $27.20 on July 13, 2021, and depending on theEach Avast shareholder elections, the estimated purchase price range for theDirector who held Avast shares under the Proposed Merger is $8.1 billion to $8.6 billion. Each of the directors of Avast who holds shares has undertaken to electelected for the Majority Stock Option in respect ofto their entire beneficial holdings of Avast shares. We plan to finance the Proposed Merger with existing cash, cash to be generated by operations and new debt financing.
In conjunction with the Proposed Merger, on August 10, 2021, we entered into an agreement (as amended, the Interim Facilities Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $3,600 million term loan interim facility B (the Interim Facility B), (ii) $750 million term loan interim facility A1 (the Interim Facility A1) and $3,500 million term loan interim facility A2 (the Interim Facility A2), and (iii) a $1,500 million interim revolving facility (the Interim Revolving Facility) (collectively, the Interim Facilities) and a commitment letter (as amended, the Commitment Letter) with certain financial institutions, in which they agreed to provide us with financing no less than the financing available under the Interim Facilities (the Definitive Facilities and, together with the Interim Facilities, the Facilities) to finance the cash consideration payable in connection with the Proposed Merger. The Definitive Facilities will be financed by a syndicate of lenders led by Bank of America, N.A. and Wells Fargo Bank N.A. On January 28, 2022, Bank of America N.A. and Wells Fargo Bank N.A. agreed to arrange, on a best efforts basis, additional term loans under the Definitive Facilities in an amount up to $500 million. The Interim Facilities Agreement contains, and any definitive financing documentation for the Definitive Facilities entered into in connection with the Commitment Letter (the Facilities Agreement) will contain, customary representations and warranties, events of default and covenants for transactions of this type. The Facilities Agreement will replace the existing credit facility agreement upon the close of the transaction.
In conjunction with the Proposed Merger, on August 10, 2021, we entered into a Co-operation Agreement (the Co-operation Agreement) with Nitro Bidco Limited, our wholly-owned subsidiary (Bidco), and Avast, pursuant to which we and Bidco agreed to, among other things, use all reasonable endeavors for the purposes of obtaining any regulatory authorizations which are required to implement the Proposed Merger, and we, Bidco and Avast agreed to cooperate with each other in preparing required transaction documents and certain other matters in connection with the Proposed Merger. The Co-operation Agreement also contains certain termination rights. The Co-operation Agreement also provides that, subject to certain exceptions, if we fail to receive approval from the U.K Competition and Markets Authority and cannot consummate the Proposed Merger, we may be required to pay Avast a break fee of up to $200 million.
The Proposed Merger was approved by our Board of Directors and by our shareholders, the Board of Directors and shareholders of Avast, and regulators including the Federal Trade Commission under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR”HSR Act) and in Europe, the German Federal Cartel Office, and the Spanish National Markets and Competition Commission. On March 25, 2022,Commission and the U.KU.K. Competition and Markets Authority referredAuthority.
Closing of Merger with Avast
On September 12, 2022 (Closing Date), we completed the Proposed Merger with Avast, and as a result, we have changed our corporate name to Gen Digital Inc. and have become dual headquartered in Tempe, Arizona and Prague, Czech Republic, although our principal executive offices remain in Tempe, Arizona. Prior to the Merger, Avast was a global leader in consumer cybersecurity, offering a comprehensive range of digital security and privacy products and services that protected and enhanced users’ online experiences. With this Merger, we are positioned to provide a broad and complementary consumer product portfolio with greater geographic diversification and access to a Phase 2 review investigation. The Proposed Merger is currently expected to close mid-to-late calendar year 2022, subject to regulatory approvals and the satisfaction or waiver of other customary closing conditions.larger user base.
Upon completion of the Merger, we acquired all of the outstanding common stock of Avast. Based on the election of the Avast shareholders, we paid cash consideration of approximately $6,910 million and issued 94,201,223 shares of our common stock to Avast shareholders. As a result, immediately following the closing of the Merger, Avast shareholders owned approximately 14% of our outstanding common stock. The fair value of our common stock provided on September 12, 2022 in exchange for all outstanding ordinary shares of Avast was approximately $2,141 million.
Consideration transferred
The total consideration for the Merger with Avast was approximately $8,688 million, net of cash acquired, and consisted of the following:
| | | | | |
| (In millions) | September 12, 2022 |
Cash and equity consideration for outstanding Avast common shares (1) | $ | 8,109 | |
Repayment of outstanding Avast debt (2) | 942 | |
| Total consideration | 9,051 | |
| Cash acquired | 363 | |
| Net consideration transferred | $ | 8,688 | |
(1) Represents the total value of cash paid and our common stock issued to Avast shareholders pursuant to the Majority Cash/Stock Option in the Scheme.
(2) Represents the cash consideration paid concurrent with the close of the Merger to retire certain Avast debt, including repayment of the associated principal, accrued interest, premiums and other costs.
Fair value of assets acquired and liabilities assumed
We accounted for the Merger as a business combination. The identifiable assets acquired and liabilities assumed of Avast were recorded at their estimated fair values as of the acquisition date and consolidated with those of our company. The allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed, especially with respect to intangible assets. Third-party valuation specialists were also utilized for certain estimates.
Our preliminary allocation of the aggregate purchase price, based on the estimated fair values of the assets acquired and liabilities assumed, as of the acquisition date, inclusive of measurement period adjustments, is as follows:
| | | | | |
| (In millions) | September 12, 2022 |
| Assets: | |
| Accounts receivable | $ | 63 | |
| Other current assets | 17 | |
| Property and equipment | 33 | |
| Operating lease assets | 18 | |
| Intangible assets | 2,383 | |
| Goodwill | 7,349 | |
| Other long-term assets | 11 | |
| Total assets acquired | 9,874 | |
| Liabilities: | |
| Current liabilities | 180 | |
| Contract liabilities | 509 | |
| Operating lease liabilities | 18 | |
| Long-term deferred tax liabilities | 433 | |
| Other long-term obligations | 46 | |
| Total liabilities assumed | 1,186 | |
| Total purchase price | $ | 8,688 | |
The allocation of the purchase price is based upon a preliminary valuation, and as additional information becomes available, our estimates and assumptions may be subject to refinement within the measurement period, which may be up to one year from the acquisition date. Adjustments to the purchase price may require adjustments to goodwill prospectively. The primary areas of preliminary purchase price allocation that are not yet finalized include certain tax and litigation matters. During the fourth quarter of fiscal 2023, we recorded measurement period adjustments resulting in a net increase to goodwill of $84 million, primarily related to updated information regarding long-term deferred tax liabilities, which resulted in an increase of $88 million of long-term deferred tax liabilities, offset by other immaterial adjustments.
The preliminary goodwill of $7,349 million represents the excess of the consideration transferred over the fair values of the assets acquired and liabilities assumed. It is attributable to the expected synergies of the Merger, including future cost savings from planned integration of infrastructure, facilities, personnel and systems, and other benefits that are anticipated to be generated by combining both companies. Goodwill is allocated to our single reportable segment. Substantially all of the goodwill recognized is expected to be deductible for U.S. tax purposes. See Note 6 for further information on goodwill.
Preliminary identified intangible assets and their respective useful lives, as of September 12, 2022, are as follows:
| | | | | | | | | | | |
| (In millions, except for useful lives) | Fair Value | | Weighted-Average Estimated Useful Life
(Years) |
Customer relationships (1) | $ | 1,055 | | | 7 years |
Developed technology (2) | 1,244 | | | 6 years |
Finite-lived trade names (2) | 84 | | | 10 years |
| Total identified intangible assets | $ | 2,383 | | | |
(1) Customer relationships were valued using the multi-period excess earnings method, which is a form of the income approach that primarily considers customer retention rate.
(2) Developed technology and finite-lived trade names were valued using the relief-from-royalty method, which is a form of the income approach that primarily considers technology migration and probability of use, respectively.
Financing
In connection with the Merger, on September 12, 2022, we entered into the Amended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $1,500 million revolving credit facility (Revolving Facility), a $3,910 million term loan A facility (Term A Facility), (iii) a $3,690 million term loan B facility (Term B Facility) and (iv) a $750 million tranche A bridge loan (Bridge Loan) (collectively, the senior credit facilities). The Bridge Loan was undrawn and immediately terminated upon the Merger’s close. The proceeds were or will be used (i) to finance the cash consideration payable for the Merger, (ii) to repay in full and terminate all commitments under Avast’s credit facility, (iii) to pay expenses relating to the Merger, (iv) to add cash to the balance sheet and (v) for general corporate purposes and on-going business activities. See Note 10 for further information about these debt instruments and the related debt covenants.
In connection with the financing provided by the Term B Facility, we incurred customary ticking fees with respect to the undrawn commitments that began accruing on the 61st day post-syndication. The ticking fees were payable at the per annum rate of (i) 50% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans for 61-90 days from January 28, 2022, the syndication date, and (ii) 100% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans on and after 91 days from the syndication date. Ticking fees were payable on the Closing Date of the Merger and capitalized as a portion of debt issuance cost for the Term B Facility. During the year ended March 31, 2023, we paid $31 million in ticking fees.
Impact on operating results
The operating results of Avast have been included in our Consolidated Statements of Operations beginning September 12, 2022. Our results of operations for fiscal 2023 include $518 million of net revenues of Avast. This total post-acquisition revenue is not comparable to pre-acquisition results due to our product integration strategy, cross-selling activities and the reallocation of performance marketing spend deployed to maximize total Gen revenue and not revenue by brand. It is impracticable to provide income before income taxes attributable to Avast subsequent to the Merger due to the integration of our operations. The Company does not consider it to be a separate operating unit or separate reporting segment, but rather an integrated brand, selling and marketing strategy, and is in the advanced stages of completing the full integration of Avast with our ongoing operations.
We recognized transaction and integration costs of $77 million and $35 million for the years ended March 31, 2023 and April 1, 2022, respectively. These costs were primarily associated with legal and professional services and other regulatory closing fees, which were expensed as incurred and included in general and administrative expenses in our Consolidated Statements of Operations.
On the Closing Date of the Merger, we incurred $145 million of debt issuance costs associated with the senior credit facilities, of which $132 million was capitalized and recorded as a reduction of outstanding debt balances and $10 million was capitalized and included in Other long-term assets in our Consolidated Balance Sheets. The remaining $3 million was capitalized but immediately extinguished in conjunction with the termination of the Bridge Loan.
Unaudited pro forma information
The following unaudited pro forma financial information represents the combined historical results for the year ended March 31, 2023 and April 1, 2022, as if the Merger had been completed on April 3, 2021, the first day of fiscal 2022. The results presented below include adjustments to conform Avast financial information, prepared in accordance with International Financial Reporting Standards (IFRS), to U.S. GAAP as well as the impacts of material, nonrecurring pro forma adjustments, including amortization of acquired intangible assets, interest on debt issued to finance the Merger, and acquisition-related transaction costs, and the income tax effect of the other pro forma adjustments. The unaudited pro forma results do not include any anticipated synergies or other expected benefits of the Merger. The following table summarizes the unaudited pro forma financial information:
| | | | | | | | | | | |
| Year Ended |
| (In millions) | March 31, 2023 | | April 1, 2022 |
| Net revenues | $ | 3,804 | | | $ | 3,737 | |
| Net income (loss) | $ | 1,133 | | | $ | 242 | |
The unaudited pro forma financial information is provided for informational purposes only and are not indicative of future operations or results that would have been achieved had the Merger been completed as of the beginning of fiscal 2022.
Fiscal 2022 acquisition
On September 15, 2021, we completed an acquisition of an online reputation management and digital privacy solutions company for total aggregate consideration of $39 million, net of $1 million cash acquired. The purchase price was primarily allocated to intangible assets and goodwillgoodwill. Our estimates and assumptions were subject to refinement within the measurement period, which is up to one year from the acquisition date. Adjustments to the purchase price during the yearmeasurement period required adjustments to be made to goodwill. The measurement period ended April 1,on September 14, 2022.
Fiscal 2021 acquisition
On January 8, 2021, we completed our acquisition of Avira. Avira providesprovided a consumer-focused portfolio of cybersecurity and privacy solutions primarily in Europe and key emerging markets. The total aggregate consideration for the acquisition was $344 million, net of $32 million cash acquired.
Our final allocation of the aggregate purchase price for the acquisition as of January 8, 2021, iswas as follows:
| | | | | |
| (In millions) | January 8, 2021 |
| Assets: | |
| Current assets | $ | 12 | |
| Intangible assets | 162 | |
| Goodwill | 261 | |
| Other long-term asset | 21 | |
| Total assets acquired | 456 | |
| Liabilities: | |
| Current liabilities | 29 | |
| Contract liabilities | 54 | |
| Other long-term obligations | 29 | |
| Total liabilities assumed | 112 | |
| Total purchase price | $ | 344 | |
The allocation of the purchase price reflects adjustments during the year ended April 1, 2022. Our estimates and assumptions were subject to refinement within the measurement period, which was up to one year from the acquisition date. Adjustments to the purchase price during the measurement period required adjustments to be made to goodwill. The measurement period ended on January 7, 2022.
Note 5. Revenues
Contract liabilities
During fiscal 20222023 and 2021,2022, we recognized $1,187$1,213 million and $1,050$1,187 million of revenue, respectively, from the contract liabilities balance at the beginning of the respective fiscal years.
Remaining performance obligations
Remaining performance obligations represent contracted revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of April 1, 2022,March 31, 2023, we had $785$1,233 million of remaining performance obligations, excluding customer deposit liabilities of $521$555 million, of which we expect to recognize approximately 94% as revenue over the next 12 months.
See Note 1 for a description of our revenue recognition policy and Note 17 for tabular disclosures of disaggregated revenue by solution and geographic region.
Note 6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill are as follows:
| | | | | |
| (In millions) | |
Balance as of April 3, 20202, 2021 | $ | 2,585 | |
Acquisitions | 269 | |
Translation adjustments | 13 | |
Balance as of April 2, 2021 | 2,867 | |
| Acquisitions | 25 | |
| Purchase accounting adjustments | (7) | |
| Translation adjustments | (12) | |
| Balance as of April 1, 2022 | 2,873 | |
| Merger with Avast | 7,265 | |
| Purchase accounting adjustments | 84 | |
| Translation adjustments | (5) | |
| Balance as of March 31, 2023 | $ | 2,87310,217 | |
Intangible assets, net
| | | | April 1, 2022 | | April 2, 2021 | | March 31, 2023 | | April 1, 2022 |
| (In millions) | (In millions) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | (In millions) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| Customer relationships | Customer relationships | $ | 583 | | | $ | (382) | | | $ | 201 | | | $ | 556 | | | $ | (299) | | | $ | 257 | | Customer relationships | $ | 1,641 | | | $ | (549) | | | $ | 1,092 | | | $ | 583 | | | $ | (382) | | | $ | 201 | |
| Developed technology | Developed technology | 217 | | | (143) | | | 74 | | | 210 | | | (104) | | | 106 | | Developed technology | 1,462 | | | (279) | | | 1,183 | | | 217 | | | (143) | | | 74 | |
| Other | Other | 8 | | | (3) | | | 5 | | | 7 | | | (1) | | | 6 | | Other | 91 | | | (8) | | | 83 | | | 8 | | | (3) | | | 5 | |
| Total finite-lived intangible assets | Total finite-lived intangible assets | 808 | | | (528) | | | 280 | | | 773 | | | (404) | | | 369 | | Total finite-lived intangible assets | 3,194 | | | (836) | | | 2,358 | | | 808 | | | (528) | | | 280 | |
| Indefinite-lived trade names | Indefinite-lived trade names | 743 | | | — | | | 743 | | | 747 | | | — | | | 747 | | Indefinite-lived trade names | 739 | | | — | | | 739 | | | 743 | | | — | | | 743 | |
| Total intangible assets | Total intangible assets | $ | 1,551 | | | $ | (528) | | | $ | 1,023 | | | $ | 1,520 | | | $ | (404) | | | $ | 1,116 | | Total intangible assets | $ | 3,933 | | | $ | (836) | | | $ | 3,097 | | | $ | 1,551 | | | $ | (528) | | | $ | 1,023 | |
As a result of the Merger with Avast, we recorded $2,383 million of acquired intangible assets during the second quarter of fiscal 2023. See Note 4 for further information about this business combination.
Amortization expense for purchased intangible assets is summarized below:
| | | Year Ended | | Consolidated Statements of Operations Classification | | Year Ended | | Consolidated Statements of Operations Classification |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 | |
| Customer relationships and other | Customer relationships and other | $ | 85 | | | $ | 74 | | | $ | 79 | | | Operating expenses | Customer relationships and other | $ | 172 | | | $ | 85 | | | $ | 74 | | | Operating expenses |
| Developed technology | Developed technology | 39 | | | 31 | | | 30 | | | Cost of revenues | Developed technology | 136 | | | 39 | | | 31 | | | Cost of revenues |
| Total | Total | $ | 124 | | | $ | 105 | | | $ | 109 | | | Total | $ | 308 | | | $ | 124 | | | $ | 105 | | |
As of April 1, 2022,March 31, 2023, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:
| | (In millions) | (In millions) | April 1, 2022 | (In millions) | March 31, 2023 |
| 2023 | $ | 105 | | |
| 2024 | 2024 | 93 | | 2024 | $ | 462 | |
| 2025 | 2025 | 32 | | 2025 | 401 | |
| 2026 | 2026 | 26 | | 2026 | 395 | |
| 2027 | 2027 | 12 | | 2027 | 381 | |
| 2028 | | 2028 | 378 | |
| Thereafter | Thereafter | 12 | | Thereafter | 341 | |
| Total | Total | $ | 280 | | Total | $ | 2,358 | |
Note 7. Supplementary Information
Cash and cash equivalents:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Cash | Cash | $ | 609 | | | $ | 650 | | Cash | $ | 576 | | | $ | 609 | |
| Cash equivalents | Cash equivalents | 1,278 | | | 283 | | Cash equivalents | 174 | | | 1,278 | |
| Total cash and cash equivalents | Total cash and cash equivalents | $ | 1,887 | | | $ | 933 | | Total cash and cash equivalents | $ | 750 | | | $ | 1,887 | |
Accounts receivable, net:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Accounts receivable | Accounts receivable | $ | 121 | | | $ | 118 | | Accounts receivable | $ | 169 | | | $ | 121 | |
| Allowance for doubtful accounts | Allowance for doubtful accounts | (1) | | | (1) | | Allowance for doubtful accounts | (1) | | | (1) | |
| Accounts receivable, net | Accounts receivable, net | $ | 120 | | | $ | 117 | | Accounts receivable, net | $ | 168 | | | $ | 120 | |
Other current assets:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Prepaid expenses | Prepaid expenses | $ | 107 | | | $ | 95 | | Prepaid expenses | $ | 122 | | | $ | 107 | |
| Income tax receivable and prepaid income taxes | Income tax receivable and prepaid income taxes | 35 | | | 96 | | Income tax receivable and prepaid income taxes | 123 | | | 35 | |
| Other tax receivable | Other tax receivable | 27 | | | 31 | | Other tax receivable | 16 | | | 27 | |
| Other | Other | 24 | | | 15 | | Other | 23 | | | 24 | |
| Total other current assets | Total other current assets | $ | 193 | | | $ | 237 | | Total other current assets | $ | 284 | | | $ | 193 | |
Property and equipment, net:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Land | Land | $ | 2 | | | $ | 3 | | Land | $ | 13 | | | $ | 2 | |
| Computer hardware and software | Computer hardware and software | 462 | | | 479 | | Computer hardware and software | 498 | | | 462 | |
| Office furniture and equipment | Office furniture and equipment | 27 | | | 63 | | Office furniture and equipment | 17 | | | 27 | |
| Buildings | Buildings | 27 | | | 29 | | Buildings | 28 | | | 27 | |
| Leasehold improvements | Leasehold improvements | 56 | | | 58 | | Leasehold improvements | 28 | | | 56 | |
| Construction in progress | Construction in progress | 1 | | | 1 | | Construction in progress | 1 | | | 1 | |
| Total property and equipment, gross | Total property and equipment, gross | 575 | | | 633 | | Total property and equipment, gross | 585 | | | 575 | |
| Accumulated depreciation and amortization | Accumulated depreciation and amortization | (515) | | | (555) | | Accumulated depreciation and amortization | (509) | | | (515) | |
| Total property and equipment, net | Total property and equipment, net | $ | 60 | | | $ | 78 | | Total property and equipment, net | $ | 76 | | | $ | 60 | |
During the second quarter of fiscal 2023, we reclassified $26 million of buildings and leasehold improvements, which were previously reported as held for sale as of April 1, 2022, to property and equipment, net. Adjustments associated with catch-up depreciation were immaterial.
During the fourth quarter of fiscal 2023, we determined certain land and buildings in Dublin, Ireland, which were previously reported as property and equipment, net as of April 1, 2022, now qualifies as held for sale classification. As a result, we reclassified the aggregate $23 million carrying value from property and equipment, net to assets held for sale in our Consolidated Balance Sheets. Refer to Note 3 for further information about our assets held for sale.
Depreciation and amortization expense of property and equipment was $21 million, $16 million, $45 million, and $122$45 million in fiscal 2023, 2022 2021 and 2020,2021, respectively.
Other long-term assets:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Non-marketable equity investments | Non-marketable equity investments | $ | 178 | | | $ | 185 | | Non-marketable equity investments | $ | 176 | | | $ | 178 | |
| Long-term income tax receivable and prepaid income taxes | Long-term income tax receivable and prepaid income taxes | 25 | | | 30 | | Long-term income tax receivable and prepaid income taxes | 669 | | | 25 | |
| Deferred income tax assets | Deferred income tax assets | 351 | | | 355 | | Deferred income tax assets | 353 | | | 351 | |
| Long-term prepaid royalty | Long-term prepaid royalty | 53 | | | 70 | | Long-term prepaid royalty | 36 | | | 53 | |
| Other | Other | 46 | | | 46 | | Other | 47 | | | 46 | |
| Total other long-term assets | Total other long-term assets | $ | 653 | | | $ | 686 | | Total other long-term assets | $ | 1,281 | | | $ | 653 | |
Short-term contract liabilities:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Deferred revenue | Deferred revenue | $ | 743 | | | $ | 795 | | Deferred revenue | $ | 1,153 | | | $ | 743 | |
| Customer deposit liabilities | Customer deposit liabilities | 521 | | | 415 | | Customer deposit liabilities | 555 | | | 521 | |
| Total short-term contract liabilities | Total short-term contract liabilities | $ | 1,264 | | | $ | 1,210 | | Total short-term contract liabilities | $ | 1,708 | | | $ | 1,264 | |
Other current liabilities:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Income taxes payable | Income taxes payable | $ | 109 | | | $ | 111 | | Income taxes payable | $ | 172 | | | $ | 109 | |
| Other taxes payable | Other taxes payable | 87 | | | 82 | | Other taxes payable | 76 | | | 87 | |
| Accrued legal fees | Accrued legal fees | 273 | | | 66 | | Accrued legal fees | 284 | | | 273 | |
| Accrued royalties | Accrued royalties | 49 | | | 46 | | Accrued royalties | 48 | | | 49 | |
| Accrued interest | | Accrued interest | 27 | | | 32 | |
| Other accrued liabilities | Other accrued liabilities | 121 | | | 123 | | Other accrued liabilities | 96 | | | 89 | |
| Total other current liabilities | Total other current liabilities | $ | 639 | | | $ | 428 | | Total other current liabilities | $ | 703 | | | $ | 639 | |
Long-term income taxes payable:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Deemed repatriation tax payable | Deemed repatriation tax payable | $ | 437 | | | $ | 525 | | Deemed repatriation tax payable | $ | 310 | | | $ | 437 | |
| Other long-term income taxes | Other long-term income taxes | 3 | | | 29 | | Other long-term income taxes | 1 | | | 3 | |
| Uncertain tax positions (including interest and penalties) | Uncertain tax positions (including interest and penalties) | 556 | | | 565 | | Uncertain tax positions (including interest and penalties) | 509 | | | 556 | |
| Total long-term income taxes payable | Total long-term income taxes payable | $ | 996 | | | $ | 1,119 | | Total long-term income taxes payable | $ | 820 | | | $ | 996 | |
Other income (expense), net:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Interest income | Interest income | $ | — | | | $ | 4 | | | $ | 80 | | Interest income | $ | 15 | | | $ | — | | | $ | 4 | |
| Loss from equity interest | — | | | — | | | (31) | | |
| Foreign exchange gain (loss) | Foreign exchange gain (loss) | (2) | | | 1 | | | (6) | | Foreign exchange gain (loss) | (8) | | | (2) | | | 1 | |
| Gain on divestitures | — | | | — | | | 250 | | |
| Gain on sale of equity method investment | — | | | — | | | 379 | | |
| (Loss) gain on early extinguishment of debt | (Loss) gain on early extinguishment of debt | (3) | | | 20 | | | — | | (Loss) gain on early extinguishment of debt | (9) | | | (3) | | | 20 | |
| Gain on sale of properties | Gain on sale of properties | 175 | | | 98 | | | — | | Gain on sale of properties | — | | | 175 | | | 98 | |
| Transition service expense, net | Transition service expense, net | — | | | (9) | | | (19) | | Transition service expense, net | — | | | — | | | (9) | |
| Other | Other | (7) | | | 6 | | | 7 | | Other | (20) | | | (7) | | | 6 | |
| Total other income (expense), net | Total other income (expense), net | $ | 163 | | | $ | 120 | | | $ | 660 | | Total other income (expense), net | $ | (22) | | | $ | 163 | | | $ | 120 | |
Supplemental cash flow information:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Income taxes paid, net of refunds | Income taxes paid, net of refunds | $ | 356 | | | $ | 341 | | | $ | 1,985 | | Income taxes paid, net of refunds | $ | 456 | | | $ | 356 | | | $ | 341 | |
| Interest expense paid | Interest expense paid | $ | 120 | | | $ | 139 | | | $ | 179 | | Interest expense paid | $ | 390 | | | $ | 120 | | | $ | 139 | |
| Cash paid for amounts included in the measurement of operating lease liabilities | Cash paid for amounts included in the measurement of operating lease liabilities | $ | 27 | | | $ | 34 | | | $ | 51 | | Cash paid for amounts included in the measurement of operating lease liabilities | $ | 26 | | | $ | 27 | | | $ | 34 | |
| Non-cash operating activities: | Non-cash operating activities: | | Non-cash operating activities: | |
| Operating lease assets obtained in exchange for operating lease liabilities | Operating lease assets obtained in exchange for operating lease liabilities | $ | 35 | | | $ | 34 | | | $ | 15 | | Operating lease assets obtained in exchange for operating lease liabilities | $ | 23 | | | $ | 35 | | | $ | 34 | |
| Reduction of operating lease assets as a result of lease terminations and modifications | Reduction of operating lease assets as a result of lease terminations and modifications | $ | 17 | | | $ | 26 | | | $ | 34 | | Reduction of operating lease assets as a result of lease terminations and modifications | $ | 31 | | | $ | 17 | | | $ | 26 | |
| Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | |
| Purchases of property and equipment in current liabilities | Purchases of property and equipment in current liabilities | $ | 1 | | | $ | — | | | $ | — | | Purchases of property and equipment in current liabilities | $ | 1 | | | $ | 1 | | | $ | — | |
| Extinguishment of debt with borrowings from same creditors | Extinguishment of debt with borrowings from same creditors | $ | 494 | | | $ | — | | | $ | 1,073 | | Extinguishment of debt with borrowings from same creditors | $ | — | | | $ | 494 | | | $ | — | |
| Non-cash consideration for the Merger with Avast | | Non-cash consideration for the Merger with Avast | $ | 2,141 | | | $ | — | | | $ | — | |
Note 8. Financial Instruments and Fair Value Measurements
The following table summarizes our financial instruments measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 1, 2022 | | April 2, 2021 |
| (In millions) | Fair Value | | Level 1 | | Level 2 | | Fair Value | | Level 1 | | Level 2 |
| Assets: | | | | | | | | | | | |
| Money market funds | $ | 1,278 | | | $ | 1,278 | | | $ | — | | | $ | 284 | | | $ | 284 | | | $ | — | |
| Certificates of deposit | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Corporate bonds | 4 | | | — | | | 4 | | | 17 | | | — | | | 17 | |
| Total | $ | 1,282 | | | $ | 1,278 | | | $ | 4 | | | $ | 302 | | | $ | 284 | | | $ | 18 | |
The following table presents the contractual maturities of our investments in debt securities as of April 1, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | April 1, 2022 |
| (In millions) | Fair Value | | Level 1 | | Level 2 | | Fair Value | | Level 1 | | Level 2 |
| Assets: | | | | | | | | | | | |
| Money market funds | $ | 174 | | | $ | 174 | | | $ | — | | | $ | 1,278 | | | $ | 1,278 | | | $ | — | |
| | | | | | | | | | | |
| Corporate bonds | — | | | — | | | — | | | 4 | | | — | | | 4 | |
Interest rate swaps (1) | — | | | — | | | — | | | — | | | — | | | — | |
| Total | $ | 174 | | | $ | 174 | | | $ | — | | | $ | 1,282 | | | $ | 1,278 | | | $ | 4 | |
| | | | | |
(In millions) | Fair Value |
Due in one year or less | $ | 4 | |
| |
Total | $ | 4 | |
Actual maturities may differ from the contractual maturities because borrowers may(1) The fair value of our interest rate swaps is less than $1 million as of March 31, 2023. We did not have the right to call or prepay certain obligations.any interest rate swaps as of April 1, 2022.
Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments equity method investment, and our long-term debt.
Non-marketable equity investments
As of March 31, 2023 and April 1, 2022, and April 2, 2021, the carrying value of our non-marketable equity investments was $176 million and $178 million, and $185 million, respectively.
Equity method investment
Our investment in equity securities that was accounted for using the equity method was divested during fiscal 2020 and consisted of our equity investment in DigiCert. On October 16, 2019, Clearlake Capital Group, L.P, a private investment firm, and TA Associates, an investor of DigiCert and private equity firm, completed a joint investment in DigiCert. As a result, we sold our equity investment in DigiCert for $380 million in cash and recognized a gain on sale of $379 million in fiscal 2020.
We recorded a loss from our equity interest of $31 million during fiscal 2020 in Other income (expense), net in our Consolidated Statements of Operations. This loss was reflected as a reduction in the carrying amount of our investment in equity interests in our Consolidated Balance Sheets.
DigiCert’s results were reported on a three month lag prior to our divestiture of our investment. The following table summarizes DigiCert’s results of operations through October 16, 2019, the date of our investment sale.
| | | | | |
(In millions) | Period from January 1, 2019 to October 16, 2019 (unaudited) |
Revenue | $ | 350 | |
Gross profit | $ | 293 | |
Net loss | $ | (102) | |
Current and long-term debt
As of March 31, 2023 and April 1, 2022, and April 2, 2021, the total fair value of our current and long-term fixed rate debt was $2,021$2,593 million and $2,400$2,021 million, respectively. The fair value of our variable rate debt approximated their carrying value. The fair values of all our debt obligations were based on Level 2 inputs.
Note 9. Leases
We lease certain of our facilities, equipment, and data center co-locations under operating leases that expire on various dates through fiscal 2029.2028. Our leases generally have terms that range from 1 year to 8 years for our facilities, 1 year to 3 years for equipment and 1 year to 65 years for data center co-locations. Some of our leases contain renewal options, escalation clauses, rent concessions and leasehold improvement incentives.
On July 14, 2021, we completed the sale
The following summarizes our lease costs for fiscal 2023, 2022 2021 and 2020:2021:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Operating lease costs | Operating lease costs | $ | 16 | | | $ | 17 | | | $ | 34 | | Operating lease costs | $ | 16 | | | $ | 16 | | | $ | 17 | |
| Short-term lease costs | Short-term lease costs | 2 | | | 4 | | | 8 | | Short-term lease costs | 2 | | | 2 | | | 4 | |
| Variable lease costs | Variable lease costs | 6 | | | 6 | | | 21 | | Variable lease costs | 8 | | | 6 | | | 6 | |
| Total lease costs | Total lease costs | $ | 24 | | | $ | 27 | | | $ | 63 | | Total lease costs | $ | 26 | | | $ | 24 | | | $ | 27 | |
Other information related to our operating leases for fiscal 2023, 2022 2021 and 20202021 was as follows:
| | | Year Ended | | Year Ended |
| | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Weighted-average remaining lease term | Weighted-average remaining lease term | 4.7 years | | 4.4 years | | 4.5 years | Weighted-average remaining lease term | 2.8 years | | 4.7 years | | 4.4 years |
| Weighted-average discount rate | Weighted-average discount rate | 4.04 | % | | 4.07 | % | | 4.05 | % | Weighted-average discount rate | 4.38 | % | | 4.04 | % | | 4.07 | % |
See Note 7 for cash flow information related to our operating leases.
As of April 1, 2022,March 31, 2023, the maturities of our lease liabilities by fiscal year are as follows:
| | (In millions) | (In millions) | | (In millions) | |
| 2023 | $ | 22 | | |
| 2024 | 2024 | 26 | | 2024 | $ | 28 | |
| 2025 | 2025 | 21 | | 2025 | 17 | |
| 2026 | 2026 | 15 | | 2026 | 9 | |
| 2027 | 2027 | 15 | | 2027 | 6 | |
| Thereafter | 3 | | |
| 2028 | | 2028 | 1 | |
| | Total lease payments | Total lease payments | 102 | | Total lease payments | 61 | |
| Less: Imputed interest | Less: Imputed interest | (9) | | Less: Imputed interest | (4) | |
| Present value of lease liabilities | Present value of lease liabilities | $ | 93 | | Present value of lease liabilities | $ | 57 | |
Note 10. Debt
The following table summarizes components of our debt:
| | | April 1, 2022 | | April 2, 2021 | | March 31, 2023 | | April 1, 2022 |
| (In millions, except percentages) | (In millions, except percentages) | Amount | | Effective
Interest Rate | | Amount | | Effective
Interest Rate | (In millions, except percentages) | Amount | | Effective
Interest Rate | | Amount | | Effective
Interest Rate |
| New 2.50% Convertible Senior Notes due April 1, 2022 | $ | — | | | 2.63 | % | | $ | 250 | | | 2.63 | % | |
| 3.95% Senior Notes due June 15, 2022 | 3.95% Senior Notes due June 15, 2022 | 400 | | | 4.05 | % | | 400 | | | 4.05 | % | 3.95% Senior Notes due June 15, 2022 | — | | | N/A | | 400 | | | 4.05 | % |
| New 2.00% Convertible Unsecured Notes due August 15, 2022 | New 2.00% Convertible Unsecured Notes due August 15, 2022 | 525 | | | 2.62 | % | | 625 | | | 2.62 | % | New 2.00% Convertible Unsecured Notes due August 15, 2022 | — | | | N/A | | 525 | | | 2.62 | % |
| 5.0% Senior Notes due April 15, 2025 | 5.0% Senior Notes due April 15, 2025 | 1,100 | | | 5.00 | % | | 1,100 | | | 5.00 | % | 5.0% Senior Notes due April 15, 2025 | 1,100 | | | 5.00 | % | | 1,100 | | | 5.00 | % |
| Initial Term Loan due May 7, 2026 | Initial Term Loan due May 7, 2026 | 1,010 | | | LIBOR plus (1) | | 494 | | | LIBOR plus (1) | Initial Term Loan due May 7, 2026 | — | | | N/A | | 1,010 | | | LIBOR plus (2) |
| Delayed Term Loan due May 7, 2026 | Delayed Term Loan due May 7, 2026 | 703 | | | LIBOR plus (1) | | 741 | | | LIBOR plus (1) | Delayed Term Loan due May 7, 2026 | — | | | N/A | | 703 | | | LIBOR plus (2) |
| 0.95% Avira Mortgage due December 30, 2030 | 4 | | | 0.95 | % | | 5 | | | 0.95 | % | |
| 1.29% Avira Mortgage due December 30, 2029 | 5 | | | 1.29 | % | | 5 | | | 1.29 | % | |
| Term A Facility due September 12, 2027 | | Term A Facility due September 12, 2027 | 3,861 | | | SOFR + % (3) | | — | | | N/A |
| 6.75% Senior Notes due September 30, 2027 | | 6.75% Senior Notes due September 30, 2027 | 900 | | | 6.75 | % | | — | | | N/A |
| Term B Facility due September 12, 2029 | | Term B Facility due September 12, 2029 | 3,431 | | | SOFR + % (4) | | — | | | N/A |
1.29% Avira Mortgage due December 30, 2029 (1) | | 1.29% Avira Mortgage due December 30, 2029 (1) | 4 | | | 1.29 | % | | 5 | | | 1.29 | % |
| 7.125% Senior Notes due September 30, 2030 | | 7.125% Senior Notes due September 30, 2030 | 600 | | | 7.13 | % | | — | | | N/A |
0.95% Avira Mortgage due December 30, 2030 (1) | | 0.95% Avira Mortgage due December 30, 2030 (1) | 3 | | | 0.95 | % | | 4 | | | 0.95 | % |
| Total principal amount | Total principal amount | 3,747 | | | 3,620 | | | Total principal amount | 9,899 | | | 3,747 | | |
| Less: unamortized discount and issuance costs | Less: unamortized discount and issuance costs | (11) | | | (19) | | | Less: unamortized discount and issuance costs | (137) | | | (11) | | |
| Total debt | Total debt | 3,736 | | | 3,601 | | | Total debt | 9,762 | | | 3,736 | | |
| Less: current portion | Less: current portion | (1,000) | | | (313) | | | Less: current portion | (233) | | | (1,000) | | |
| Total long-term portion | Total long-term portion | $ | 2,736 | | | $ | 3,288 | | | Total long-term portion | $ | 9,529 | | | $ | 2,736 | | |
(1) The Avira Mortgages are denominated in a foreign currency so the balances of these mortgages may fluctuate based on changes in foreign currency exchange rates.
(2) The term loans bear interest at a rate equal to the LIBOR plus a margin based either on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt and ouror consolidated adjusted leverage as defined in the underlying loan agreements. agreement.
(3) Term A Facility due 2027 bears interest at a rate equal to Term SOFR plus a credit spread adjustment (CSA) plus a margin based either on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt or consolidated adjusted leverage as defined in the underlying loan agreement.
(4) Term B Facility due 2029 bears interest at a rate equal to Term SOFR plus CSA plus 2.00%.
The interest rates for the outstanding term loans are as follows:
| | | | | | | | | | | |
| April 1, 2022 | | April 2, 2021 |
| Initial Term Loan due May 7, 2026 | 1.75 | % | | 1.50 | % |
| Delayed Term Loan due May 7, 2026 | 1.75 | % | | 1.50 | % |
| | | | | | | | | | | |
| March 31, 2023 | | April 1, 2022 |
| Term A Facility due September 12, 2027 | 6.66 | % | | N/A |
| Term B Facility due September 12, 2029 | 6.91 | % | | N/A |
| Initial Term Loan due May 7, 2026 | N/A | | 1.75 | % |
| Delayed Term Loan due May 7, 2026 | N/A | | 1.75 | % |
As of April 1, 2022,March 31, 2023, the future contractual maturities of debt by fiscal year are as follows:
| | (In millions) | (In millions) | | (In millions) | |
| 2023 | $ | 1,001 | | |
| 2024 | 2024 | 89 | | 2024 | $ | 233 | |
| 2025 | 2025 | 89 | | 2025 | 234 | |
| 2026 | 2026 | 1,189 | | 2026 | 1,333 | |
| 2027 | 2027 | 1,376 | | 2027 | 233 | |
| 2028 | | 2028 | 4,017 | |
| Thereafter | Thereafter | 3 | | Thereafter | 3,849 | |
| Total future maturities of debt | Total future maturities of debt | $ | 3,747 | | Total future maturities of debt | $ | 9,899 | |
Credit Facility
On November 4, 2019, we entered intoWe had a credit agreement with financial institutions, which providesprovided a revolving line of credit of $1 billion, a 5-year term loan of $500 million (the Initial Term Loan), and a delayed draw 5-year term loan commitment of $750 million (the Delayed Draw Term Loan). On September 14, 2020, we drew $750 million on the Delayed Draw Term Loan.
On May 7, 2021, we entered into the firstAn amendment to the credit agreement with financial institutions (the First Amendment), which extends the maturity of all term loan and revolver credit facilities from November 2024 to May 2026. The First Amendment also provided for an incremental increase under the Initial Term Loan of $525 million. This transaction was accounted for as a debt extinguishment of the Initial Term LoanAll term loans and resulted in accelerated recognition of interest expense for unamortized debt issuance costs, which was immaterial. At the closing of the First Amendment, we did not borrow any funds under the revolving line of credit and fully borrowed the First Amendment under the Initial Term Loan, such that loans in an aggregate principal amount of $1,741 million were outstanding. Therevolver credit facilities remainwere to mature in May 2026, and the credit facilities remained senior secured.
The principal amount of the Initial Term Loan and the additional borrowings under the First Amendment mustwere to be repaid in quarterly installments on the last business day of each calendar quarter commencing with the quarter ended September 30, 2022 in an amount equal to 1.25% of the aggregate principal amount as of the date of the first amendment.First Amendment. The principal amount of the Delayed Draw Term Loan mustwere to be repaid in quarterly installments on the last business day of each calendar quarter commencing with the later of (i) the quarter ended March 31, 2021 and (ii) the first full fiscal quarter ended following the Borrowing of the Delayed Draw Term Loans in an amount equal to 1.25% of aggregate principal amount that are outstanding immediately afteras of the borrowing date of the Delayed Draw Term Loan. We may voluntarily repay outstanding principal balances without penalty. As of April 1, 2022, there were no borrowings outstanding under our revolving credit facilities.
Interest on borrowings under the credit agreement can bewere based on a base rate or athe LIBOR at our election. Based on our debt ratings and our consolidated leverage ratios as determined in accordance with the credit agreement, loans borrowed bearbore interest, in the case of base rate loans, at a per annum rate equal to the applicable base rate plus a margin ranging from 0.125% to 0.75%, and in the case of LIBOR loans, LIBOR, as adjusted for statutory reserves, plus a margin ranging from 1.125% to 1.75%. The unused revolving line of credit iswas subject to a commitment fee ranging from 0.125% to 0.30% per annum.
The credit agreement contains customary representationsOn September 12, 2022, we fully repaid the outstanding principal and warranties, non-financial covenants for financial reporting, affirmativeaccrued interest under the Initial Term Loan and negative covenants, including a covenant that we maintain a consolidated leverage ratio of not more than 5.25 to 1.0, or 5.75 to 1.0 if we acquire assets or business inDelay Draw Term Loan, which had an aggregate principal amount greater than $250outstanding of $1,703 million. In addition, we paid $3 million of accrued and restrictionsunpaid interest through the redemption date. The repayments resulted in a loss on indebtedness, liens, investments, stock repurchases, and dividends (with exceptions permittingextinguishment of $2 million. We also terminated our regular quarterly dividend and other specific capital returns). Asundrawn revolving line of April 1,credit of $1,000 million, resulting in a loss on extinguishment of $4 million.
Senior credit facilities
Upon the close of the Merger, on September 12, 2022, we were in compliance with all debt covenants.
Interim Facilities
On August 10, 2021, in conjunction with the Proposed Merger, we entered into the Interim FacilitiesAmended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a 7-year term loan interim$1,500 million revolving credit facility B of $3,600 million (the Interim Facility B)(Revolving Facility), (ii) a 60-day$3,910 million term loan interimA facility A1 of(Term A Facility), (iii) a $3,690 million term loan B facility (Term B Facility) and (iv) a $750 million (the Interim Facility A1) and 5-year termtranche A bridge loan interim facility A2 of $3,500 million (the Interim Facility A2), and (iii) a 5-year interim revolving facility of $1,500 million (the Interim Revolving Facility)(Bridge Loan) (collectively, the Interim Facilities)senior credit facilities). The Bridge Loan was undrawn and immediately terminated upon the Merger’s close, resulting in a commitment letter (as amended,loss on extinguishment of $3 million. The Credit Agreement provides that we have the Commitment Letter) withright at any time, subject to customary conditions, to request incremental revolving commitments and incremental term loans up to an unlimited amount, subject to certain financial institutions, in which they agreedcustomary conditions precedent and other provisions. The lenders under these facilities will not be under any obligation to provide us with financing no less thanany such incremental loans or commitments. We drew down the financing available underaggregate principal amounts of the Interim Facilities (the Definitive FacilitiesTerm A Facility and together with the Interim Facilities, the Facilities)Term B Facility to finance the cash consideration payable in connection with the Proposed Merger. The Definitive Facilities will be financed by a syndicate of lenders led by Bank of America, N.A. and Wells Fargo Bank N.A. On January 28, 2022, Bank of America N.A. and Wells Fargo Bank N.A. agreed to arrange, on a best efforts basis, additional term loans under the Definitive Facilities in an amount up to $500 million. The Interim Facilities Agreement contains, and any definitive financing documentation for the Definitive Facilities entered into in connection withtransaction and to fully repay the Commitment Letter (the Facilities Agreement) will contain, customary representationsoutstanding principal and warranties, eventsaccrued interest of default and covenants for transactions of this type. The Facilities Agreement will replace the existing credit facility agreementfacilities. The Credit Agreement replaced the existing credit facilities upon the close of the transaction. The Revolving Facility and Term A Facility will mature in September 2027, and the Term Facility B will mature in September 2029; the senior credit facilities remain senior secured.
The principal amounts of Term A Facility must be repaid in quarterly installments on the last business day of each calendar quarter equal to 1.25% of the aggregate principal amount as of the date of the Credit Agreement. The principal amounts of Term Facility B must be repaid in quarterly installments on the last business day of each calendar quarter equal to 0.25% of the aggregate principal amount as of the date of the Credit Agreement. Quarterly installment payments commence on March 31, 2023. We may voluntarily repay outstanding principal balances under the Revolving Facility and both Term Loan facilities without penalty. As of March 31, 2023, there were no borrowings outstanding under our Revolving Facility; however, from time to time we utilize letters of credits as part of our ordinary course of business. Letters of credit reduce our Revolving Facility commitment amounts.
Interest on borrowings under the Credit Agreement can be based on a base rate or the SOFR at our election. Based on our debt ratings and our consolidated leverage ratios as determined in accordance with the Credit Agreement, loans borrowed bear interest, in the case of base rate loans, at a per annum rate equal to the applicable base rate plus CSA plus a margin ranging from 0.125% to 0.75%, and in the case of the SOFR loans, SOFR, as adjusted for statutory reserves, plus a margin ranging from 1.125% to 1.75%.
On January 19, 2023 and April 28, 2023, we made a voluntary prepayment of $250 million and $150 million, respectively, pursuant to Section 2.05(a) of the Credit Agreement dated September 12, 2022. The prepayment amount was applied exclusively to the Term B Facility.
Debt covenant compliance
The Credit Agreement contains customary representations and warranties, affirmative and negative covenants. Each of the Revolving Facility and Term A Facility will be subject to a covenant that we maintain a consolidated leverage ratio less than or equal to (i) 6.0 to 1.0 from the Closing Date through the last day of the fourth full fiscal quarter following the Closing Date, (ii) 5.75 to 1.0 following the last day of the fourth fiscal quarter after the Closing Date through the last day of the eighth full fiscal quarter following the Closing Date and (iii) 5.25 to 1.0 for each fiscal quarter thereafter; provided that such maximum consolidated leverage ratio will increase to 5.75 to 1.0 for the four fiscal quarters ending immediately should we acquire property, business or assets in an aggregate amount greater than $250 million.
In addition, the Credit Agreement contains customary events of default under which our payment obligations may be accelerated, including, among others, non-payment of principal, interest or other amounts when due, inaccuracy of representations and warranties, violation of certain covenants, payment and acceleration cross defaults with certain other indebtedness, certain undischarged judgments, bankruptcy, insolvency or inability to pay debts, change of control, the occurrence of certain events related to the Employee Retirement Income Security Act of 1974 (ERISA), and the Company experiencing a change of control. As of March 31, 2023 we were in compliance with all debt covenants.
Senior Notes
On February 9, 2017, we issued $1.1 billion aggregate principal amount of our 5.0% Senior Notes due April 15, 2025 (the 5.0% Senior Notes). The 5.0% Senior Notes bear interest at a rate of 5.00% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2017.
On or after April 15, 2020, we may redeem some or all of the 5.0% Senior Notes at the applicable redemption prices set forth in the supplemental indenture, plus accrued and unpaid interest.
In addition, we had 2two series of senior notes, the 4.2% Senior Notes and 3.95% Senior Notes, that are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and may be redeemed at any time, subject to the make-whole provisions contained in the applicable indenture relating to such series of notes. Interest on each series of these notes is payable semi-annually in arrears, on September 15 and March 15 for the 4.2% Senior Notes, and June 15 and December 15 for the 3.95% Senior Notes.
On September 15, 2020, we fully repaid the principal and accrued interest under the 4.2% Senior Notes due September 2020, which had an aggregate principal amount outstanding of $750 million.
59On June 1, 2022, we fully repaid the principal and accrued interest under the 3.95% Senior Notes due June 2022, which had an aggregate principal amount outstanding of $400 million. In addition, we paid $7 million of accrued and unpaid interest through the redemption date.
TableOn September 19, 2022, we issued two series of Contentssenior notes, consisting of 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030, for an aggregate principal of $1,500 million. They are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and may be redeemed at any time, subject to the make-whole provisions contained in the applicable indenture relating to such series of notes. Interest on these series of notes is payable semi-annually in arrears on March 31 and September 30 for both the 6.75% Senior Notes and 7.125% Senior Notes, commencing on March 31, 2023. We may redeem some or all of the 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030 at any time, subject to a prepayment penalty that expires one year prior to the maturity of each respective note. The First Call Dates of the 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030 are September 30, 2024 and September 30, 2025, respectively.Convertible Senior Notes
On March 4, 2016, we issued $500 million of convertible notes which would mature on April 1, 2021 and bear interest at an annual rate of 2.5% (2.5% Convertible Notes). On August 1, 2016, we issued an additional $1.25 billion of convertible notes which would mature on August 15, 2021 and bear interest at an annual rate of 2.0% (2.0% Convertible Notes and collectively, Convertible Senior Notes). As of March 29, 2019, the principal amount and associated unamortized discount and issuance costs of the 2.5% Convertible Notes were classified as current because upon the four year anniversary of the issuance of the notes, holders of thereof had the option to require us to repurchase the notes, in cash, equal to the principal amount and accrued and unpaid interest of the 2.5% Convertible Notes (the Repurchase Right).
On November 11, 2019, we amended the Convertible Senior Notes agreements to provide that, if and when we pay a special dividend of $12 to our stockholders, we would exchange $250 million of the principal amount underlying the 2.5% Convertible Notes for new notes to be issued pursuant to a new indenture (the New 2.5% Convertible Notes) and would also pay cash consideration of $12 for each share underlying the New 2.5% Convertible Notes, and exchange $625 million of the principal amount underlying the 2.0% Convertible Notes for new notes to be issued pursuant to a new indenture (the New 2.0% Convertible Notes) and would also pay cash consideration of $12 for each share underlying the New 2.0% Convertible Notes, in each case in lieu of conversion price adjustments (the Cash Note Payments). The remaining principal of the Convertible Senior Notes would receive a conversion price adjustment with respect to such special dividend.
The special dividend was payable to stockholders on January 31, 2020. On February 4, 2020, we issued the New 2.5% Convertible Notes, maturing on April 1, 2022, and the New 2.0% Convertible Notes, which mature on August 15, 2022, pursuant to two new indentures, and made the Cash Note Payments. The new Notes are convertible into cash, shares of common stock or a combination of cash and common stock, at the Company’s option, at an initial conversion rate for the New 2.50% Convertible Notes of 59.6341 per $1,000 principal amount of the New 2.50% Convertible Notes (which represents an initial conversion price of approximately $16.77 per share) and an initial conversion rate for the New 2.00% Convertible Notes of 48.9860 per $1,000 principal amount of the New 2.00% Convertible Notes (which represents an initial conversion price of approximately $20.41 per share), in each case subject to certain limitations and certain adjustments. The Cash Note Payments consisted of $179 million with respect to holders of the New 2.5% Convertible Notes and $367 million with respect to holders of the New 2.0% Convertible Notes. The exchange of the convertible notes was accounted for as extinguishment of debt and the consideration comprising the Cash Note Payments were recorded as charges to paid in capital. We recognized a gain of $2 million related to the exchange.
After giving effect to the conversion rate adjustment that was made in connection with the payment of the special dividend on January 31, 2020, the conversion rate for the remaining $250 million of the 2.5% Convertible Notes was 118.9814 shares of common stock per $1,000 principal amount of the notes, which represents an adjusted conversion price of approximately $8.40 per share and the conversion rate for the remaining $625 million of the 2.0% Convertible Notes was 97.7364 shares of common stock per $1,000 principal amount of the notes, which represented an adjusted conversion price of approximately $10.23 per share.
In addition, in connection with the amendments, the maturity dates of the 2.5% Convertible Notes and the 2.0% Convertible Notes were extended to April 1, 2022 and August 15, 2022, respectively. Holders of the Convertible Senior Notes would only be able to convert the notes in a period of six months prior to the extended maturity dates; and the Redemption Right and Repurchase Right were removed.
On March 5, 2020, we entered into an agreement to repay the full $250 million of principal and conversion rights of the 2.5% Convertible Notes for an aggregate amount of $566 million in cash. The payment was based on $19 per underlying share into which the 2.5% Convertible Notes were convertible. In addition, we paid $2 million of accrued and unpaid interest through the date of settlement, and $1 million in lieu of a proration of the cash dividend declared on February 6, 2020. The extinguishment was settled on March 10, 2020 and resulted in an adjustment to stockholders’ equity of $316 million and a loss on extinguishment of $1 million.
On May 26, 2020, we settled the $625 million principal and conversion rights of the 2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $1,176 million was based on $19.25 per underlying share into which the 2.0% Convertible Notes were convertible. In addition, we paid $3 million of accrued and unpaid interest through the date of settlement. The extinguishment resulted in an adjustment to stockholders’ equity of $578 million and a gain on extinguishment of $20 million.
On May 20, 2021, we settled the $250 million principal and conversion rights of the New 2.5% Convertible Senior Notes in cash. The aggregate settlement amount of $364 million was based on $24.40 per underlying share into which the 2.5% Convertible Notes were convertible. In addition, we paid $1 million of accrued and unpaid interest through the date of settlement and $1 million of cash dividends that we declared on May 10, 2021. The extinguishment resulted in an adjustment to stockholders’ equity of $112 million and a loss on extinguishment of $2 million.
On March 18, 2022, we settled $100 million of principal and conversion rights of the New 2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $139 million was based on $28.32 per underlying share into which the New 2.0% Convertible Notes were convertible. The extinguishment resulted in an adjustment to stockholders’ equity of $40 million and a gain on extinguishment of $1 million.
TableAs described in Note 2, on April 2, 2022, we adopted ASU 2020-06 using the modified retrospective method. Prior to the adoption of Contentsthis guidance, we accounted for our convertible debt instruments under the cash conversion model, requiring the convertible notes to be separated into an equity and liability component. We recognized $56 million in equity, net of tax, which consisted of $9 million in debt discount, representing the difference between the fair value of the liability component and par value, and $47 million in substantial premium due to the fiscal year 2020 amendment, which was accounted for as a debt extinguishment and resulted in the recognition of the New 2.0% Convertible Notes.Upon adoption of ASU 2020-06, the cash conversion model was eliminated. We de-recognized the remaining unamortized debt discount of $1 million on the New 2.0% Convertible Notes and therefore no longer recognized the related amortization as interest expense. Additionally, we recorded a cumulative adjustment to retained earnings of $6 million, net of tax, for the debt discount amortization incurred from issuance through April 2, 2022. The remaining $47 million of substantial premium remained in equity, as the new guidance did not eliminate the substantial premium model for convertible instruments.
On August 15, 2022, we settled the $525 million principal and conversion rights of our New 2.0% Convertible Notes in cash. The aggregate settlement amount of $630 million was based on $20.41 per underlying share into which the New 2.0% Convertible Notes were convertible. In addition, we paid $5 million of accrued and unpaid interest through the date of settlement. The repayments resulted in an adjustment to stockholders’ equity of $100 million. As of March 31, 2023, we have extinguished all remaining convertible debt instruments.
As of April 1, 2022, and April 2, 2021, the Convertible Senior Notes consisted of the following:
| | | | | | | | | | | | | | | | | |
| April 1, 2022 | | April 2, 2021 |
| (In millions) | New 2.0% Convertible Notes | | New 2.5% Convertible Notes | | New 2.0% Convertible Notes |
| Liability component: | | | | | |
| Principal | $ | 525 | | | $ | 250 | | | $ | 625 | |
| Unamortized discount and issuance costs | (1) | | | — | | | (5) | |
| Net carrying amount | $ | 524 | | | $ | 250 | | | $ | 620 | |
| | | | | |
| Equity component, net of tax | $ | 56 | | | $ | 43 | | | $ | 56 | |
| | | | | |
| April 1, 2022 |
| (In millions) | New 2.0% Convertible Notes |
| Liability component: | |
| Principal | $ | 525 | |
| Unamortized discount and issuance costs | (1) | |
| Net carrying amount | $ | 524 | |
| |
| Equity component, net of tax | $ | 56 | |
Based on the closing price
The following table sets forth total interest expense recognized related to our convertible notes:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Contractual interest expense | Contractual interest expense | $ | 12 | | | $ | 20 | | | $ | 37 | | Contractual interest expense | $ | 4 | | | $ | 12 | | | $ | 20 | |
| Amortization of debt discount and issuance costs | Amortization of debt discount and issuance costs | $ | 4 | | | $ | 4 | | | $ | 13 | | Amortization of debt discount and issuance costs | $ | — | | | $ | 4 | | | $ | 4 | |
Payments in lieu of conversion price adjustments (1) | Payments in lieu of conversion price adjustments (1) | $ | 8 | | | $ | 12 | | | $ | 11 | | Payments in lieu of conversion price adjustments (1) | $ | 1 | | | $ | 8 | | | $ | 12 | |
(1) Payments in lieu of conversion price adjustments consist of amounts paid to holders of the Convertible Senior Notes when our quarterly dividend to our common stockholders exceeds the amounts defined in the Convertible Senior Notes agreements.
Note 11. Derivatives
Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flow associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use our derivative instruments for speculative trading purposes. By using derivative financial instruments to hedge exposures to changes in foreign exchange and interest rates, we are exposed to credit risk; however, we mitigate this risk by entering into hedging instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts.
Foreign currency exchange forward contracts
We conduct business in numerous currencies throughout our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues, or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses which impacts our operating results. As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts.contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as hedging instruments. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates.
We enterInterest rate swap
In March 2023, we entered into foreign currency forward contractsinterest rate swap agreements to hedge foreign currency balance sheet exposure.mitigate risks associated with the variable interest rate of our Term A Facility. These forward contractspay-fixed, receive-floating rate interest rate swaps have the economic effect of hedging the variability of forecasted interest payments until their maturity on March 31, 2026. Pursuant to the agreements, we will effectively convert $1 billion of our variable rate borrowings under Term A Facility to fixed rates, with $500 million at a fixed rate of 3.762% and $500 million at a fixed rate of 3.55%.
These arrangements are not designated as hedging instruments. As of April 1, 2022cash flow hedges for accounting purposes and April 2, 2021,as such, we will recognize the changes in the fair value of these interest rate swaps in Accumulated other comprehensive income (loss) (AOCI), and the periodic settlements or accrued settlements of the swap will be recognized within or against interest expense in our Consolidated Statements of Operations. Cash flows related to these hedges are classified under operating activities in our Consolidated Statement of Cash Flows.
The effect of our interest rate swaps on AOCI was immaterial during fiscal 2023. The related gain (loss) recognized within or against interest expense in our Consolidated Statement of Operations was immaterial during fiscal 2023. We did not have any interest rate swaps during fiscal 2022 and 2021. As of March 31, 2023, we estimate that $9 million of net deferred gains related to our interest rate hedges will be recognized in earnings over the next 12 months.
Summary of derivative instruments
The following table summarizes our outstanding derivative instruments as of March 31, 2023 and April 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Notional Amount | | Fair Value of Derivative Assets | | Fair Value of Derivative Liabilities |
| (In millions) | March 31, 2023 | | April 1, 2022 | | March 31, 2023 | | April 1, 2022 | | March 31, 2023 | | April 1, 2022 |
Foreign exchange contracts not designated as hedging instrument (1) | $ | 291 | | | $ | 346 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Interest rate swap contract designed as cash flow hedge | 1,000 | | | — | | | 1 | | | — | | | 2 | | | — | |
| Total | $ | 1,291 | | | $ | 346 | | | $ | 1 | | | $ | — | | | $ | 2 | | | $ | — | |
(1) The fair values of the foreign exchange contracts was immaterial. are less than $1 million as of March 31, 2023 and April 1, 2022.
The following table summarizes the related gain (loss) recognized in Other income (expense), net in our Consolidated Statements of Operations was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| Foreign exchange forward contracts gain (loss) | $ | (7) | | | $ | 15 | | | $ | (22) | |
The fair value of our foreign exchange forward contracts is presented on a gross basis in our Consolidated Balance Sheets. To mitigate losses induring the event of nonperformance by counterparties, we have entered into master netting arrangements with our counterparties that allow us to settle payments on a net basis. The effect of netting on our derivative assets and liabilities was not material as of April 1, 2022 and April 2, 2021.
The notional amount of our outstanding foreign exchange forward contracts in U.S. dollar equivalent was as follows:
| | | | | | | | | | | |
| (In millions) | April 1, 2022 | | April 2, 2021 |
| Foreign exchange forward contracts purchased | $ | 155 | | | $ | 270 | |
| Foreign exchange forward contracts sold | $ | 191 | | | $ | 68 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Foreign exchange contracts not designated as hedging instrument | $ | (7) | | | $ | (7) | | | $ | 15 | |
Note 12. Restructuring and Other Costs
Our restructuring and other costs consist primarily of severance and termination benefits, contract cancellations, separationcancellation charges, asset write-offs and impairments and other relatedexit and disposal costs. Severance costs generally include severance payments, outplacement services, health insurance coverage and legal costs. Contract cancellation charges primarily include penalties for early termination of contracts and write-offs of related prepaid assets. Other exit and disposal costs include costs to exit and consolidate facilities and advisory fees incurred in connection with restructuring events. Separation costs primarily consist of consulting costs incurred in connection with our divestitures.
September 2022 Plan
Directors approved a restructuring plan (the September 2022 Plan) to realize cost savings and operational synergies, which became effective upon the close of the Merger on September 12, 2022. Actions under this plan include the reduction of our workforce, contract terminations, facilities closures, and the sale of underutilized facilities as well as stock-based compensation charges for accelerated equity awards to certain terminated employees. We expect that we will incur total costs up to $150 million, with $120 million and $30 million estimated to be incurred within the first and second full years, respectively, following the completion of the Merger. These actions are expected to be completed by fiscal 2024. As of March 31, 2023, we have incurred costs of $69 million related to the September 2022 Plan. December 2020 Plan
In December 2020, our Board of Directors approved a restructuring plan (the December 2020 Plan) to consolidate facilities and reduce operating costs in connection with our acquisition of Avira. These actions were completed in fiscal 2022. Any remaining costs or adjustments are immaterial. We incurred total costs of $24 million under the December 2020 Plan.
November 2019 Plan
In November 2019, our Board of Directors approved a restructuring plan (the November 2019 Plan) in connection with the strategic decision to divest our Enterprise Security business. Actions under this plan included the reduction of our workforce as well as asset write-offs and impairments, contract terminations, facilities closures and the sale of underutilized facilities. These actions were completed in fiscal 2021. Any remaining costs or adjustments are immaterial. We incurred total costs of $528 million, excluding stock-based compensation expense, under the November 2019 Plan.
In connection with the Broadcom sale, our Board of Directors approved an equity-based severance program under which certain equity awards to certain terminated employees were accelerated. As of April 1, 2022, we haveWe incurred $127 million of stock-based compensation related to our equity-based severance program. See Note 15 for further information on the impact of this program.
August 2019 Plan
On August 6, 2019, our Board of Directors approved a restructuring plan (the August 2019 Plan) to improve productivity and reduce complexity in the way we manage the business. Under the August 2019 Plan, we reduced our global headcount and closed certain facilities. These actions were completed in fiscal 2020, and we incurred total costs of $53 million, primarily consisting of severance and termination benefits.
Restructuring and other costs summary
Our restructuring and other costs attributable to continuing operations are presented in the table below:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Severance and termination benefit costs | Severance and termination benefit costs | $ | 5 | | | $ | 31 | | | $ | 90 | | Severance and termination benefit costs | $ | 40 | | | $ | 5 | | | $ | 31 | |
| Contract cancellation charges | Contract cancellation charges | 3 | | | 51 | | | 101 | | Contract cancellation charges | 2 | | | 3 | | | 51 | |
| Stock-based compensation charges | Stock-based compensation charges | — | | | 10 | | | 20 | | Stock-based compensation charges | 11 | | | — | | | 10 | |
| Asset write-offs and impairments | Asset write-offs and impairments | 5 | | | 58 | | | 47 | | Asset write-offs and impairments | 4 | | | 5 | | | 58 | |
| Other exit and disposal costs | Other exit and disposal costs | 18 | | | 11 | | | 7 | | Other exit and disposal costs | 12 | | | 18 | | | 11 | |
| Separation costs | — | | | — | | | 1 | | |
| | | Total restructuring and other | Total restructuring and other | $ | 31 | | | $ | 161 | | | $ | 266 | | Total restructuring and other | $ | 69 | | | $ | 31 | | | $ | 161 | |
In connection with the agreement to sell certain assets of our Enterprise Security business, a portion of our restructuring and other costs were classified to discontinued operations for all periods presented.fiscal 2021. Our restructuring and other costs attributable to discontinued operations are presented in the table below. There was no discontinued operations activity during the yearyears ended March 31, 2023 and April 1, 2022.
| | | | | | | | | | | | | |
| | | Year Ended |
| (In millions) | | | April 2, 2021 | | April 3, 2020 |
| Severance and termination benefit costs | | | $ | 64 | | | $ | 121 | |
| Contract cancellation charges | | | — | | | 5 | |
| Stock-based compensation charges | | | — | | | 97 | |
| Asset write-offs and impairments | | | — | | | 13 | |
| | | | | |
| Separation costs | | | 2 | | | 25 | |
| | | | | |
| Total restructuring and other | | | $ | 66 | | | $ | 261 | |
| | | | | | | | | |
| | | | | Year Ended |
| (In millions) | | | | | April 2, 2021 |
| Severance and termination benefit costs | | | | | $ | 64 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Separation costs | | | | | 2 | |
| | | | | |
| Total restructuring and other | | | | | $ | 66 | |
Restructuring summary
Our activities and liability balances related to our December 2020September 2022 Plan are presented in the tables below:
| | (In millions) | (In millions) | Liability Balance as of April 2, 2021 | | Net Charges | | Cash Payments | | Non-Cash Items | | Liability Balance as of April 1, 2022 | (In millions) | Liability Balance as of April 1, 2022 | | Net Charges | | Cash Payments | | Non-Cash Items | | Liability Balance as of March 31, 2023 |
| Severance and termination benefit costs | Severance and termination benefit costs | $ | 3 | | | $ | 5 | | | $ | (8) | | | $ | — | | | $ | — | | Severance and termination benefit costs | $ | — | | | $ | 40 | | | $ | (33) | | | $ | — | | | $ | 7 | |
| | Stock-based compensation charges | | Stock-based compensation charges | — | | | 11 | | | — | | | (11) | | | — | |
| Asset write-offs | | Asset write-offs | — | | | 4 | | | — | | | (4) | | | — | |
| Other exit and disposal costs | Other exit and disposal costs | — | | | 7 | | | (1) | | | (6) | | | — | | Other exit and disposal costs | — | | | 12 | | | (10) | | | (2) | | | — | |
| Total | Total | $ | 3 | | | $ | 12 | | | $ | (9) | | | $ | (6) | | | $ | — | | Total | $ | — | | | $ | 69 | | | $ | (43) | | | $ | (19) | | | $ | 7 | |
The restructuring liabilities are included in Other current liabilities in our Consolidated Balance Sheets.
Note 13. Income Taxes
The components of our income (loss) from continuing operations before income taxes are as follows:
| | | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Domestic | Domestic | $ | 791 | | | $ | 607 | | | $ | 667 | | Domestic | $ | 350 | | | $ | 791 | | | $ | 607 | |
| International | International | 251 | | | 265 | | | 152 | | International | 454 | | | 251 | | | 265 | |
| Income (loss) before income taxes | Income (loss) before income taxes | $ | 1,042 | | | $ | 872 | | | $ | 819 | | Income (loss) before income taxes | $ | 804 | | | $ | 1,042 | | | $ | 872 | |
The components of income tax expense (benefit) from continuing operations are as follows:
| | | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Current: | Current: | | | | | | Current: | | | | | |
| Federal | Federal | $ | 217 | | | $ | 133 | | | $ | 208 | | Federal | $ | (479) | | | $ | 217 | | | $ | 133 | |
| State | State | 50 | | | 36 | | | 33 | | State | (28) | | | 50 | | | 36 | |
| International | International | 20 | | | (13) | | | 3 | | International | 99 | | | 20 | | | (13) | |
| Total | Total | 287 | | | 156 | | | 244 | | Total | (408) | | | 287 | | | 156 | |
| Deferred: | Deferred: | | | | | | Deferred: | | | | | |
| Federal | Federal | (42) | | | (6) | | | (23) | | Federal | (111) | | | (42) | | | (6) | |
| State | State | (6) | | | (5) | | | 3 | | State | (10) | | | (6) | | | (5) | |
| International | International | (33) | | | 31 | | | 17 | | International | (16) | | | (33) | | | 31 | |
| Total | Total | (81) | | | 20 | | | (3) | | Total | (137) | | | (81) | | | 20 | |
| Income tax expense | $ | 206 | | | $ | 176 | | | $ | 241 | | |
| Income tax expense (benefit) | | Income tax expense (benefit) | $ | (545) | | | $ | 206 | | | $ | 176 | |
The U.S. federal statutory income tax rates we have applied for fiscal 2023, 2022 2021 and 20202021 are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| U.S. federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| U.S. federal statutory income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
The difference between our effective income tax and the federal statutory income tax is as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| Federal statutory tax expense (benefit) | $ | 219 | | | $ | 183 | | | $ | 172 | |
| State taxes, net of federal benefit | 33 | | | 25 | | | 22 | |
| Foreign earnings taxed at other than the federal rate | (47) | | | (10) | | | (2) | |
| Federal research and development credit | (4) | | | (1) | | | (2) | |
| Valuation allowance increase (decrease) | 2 | | | 1 | | | (57) | |
| Change in uncertain tax positions | 11 | | | 3 | | | 60 | |
| Stock-based compensation | 7 | | | 5 | | | 5 | |
| Nondeductible goodwill | — | | | — | | | 18 | |
| Favorable ruling on foreign withholding tax | — | | | (35) | | | — | |
| US tax on foreign earnings | 12 | | | (15) | | | (4) | |
| Return to provision adjustment | (8) | | | 1 | | | 12 | |
| Other, net | — | | | 2 | | | 17 | |
| Irish FX remeasurement | (19) | | | 17 | | | — | |
| Income tax expense | $ | 206 | | | $ | 176 | | | $ | 241 | |
| | | | | | | | | | | | | | | | | |
| | Year Ended |
| (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Federal statutory tax expense (benefit) | $ | 169 | | | $ | 219 | | | $ | 183 | |
| State taxes, net of federal benefit | 1 | | | 33 | | | 25 | |
| Foreign earnings taxed at other than the federal rate | 44 | | | (47) | | | (10) | |
| Federal research and development credit | (5) | | | (4) | | | (1) | |
| Valuation allowance increase (decrease) | (33) | | | 2 | | | 1 | |
| Change in uncertain tax positions | 176 | | | 11 | | | 3 | |
| Stock-based compensation | 9 | | | 7 | | | 5 | |
| | | | | |
| Favorable ruling on foreign withholding tax | 19 | | | — | | | (35) | |
| US tax on foreign earnings | (1) | | | 12 | | | (15) | |
| Return to provision adjustment | 1 | | | (8) | | | 1 | |
| Irish FX remeasurement | (17) | | | (19) | | | 17 | |
| Capital loss | (910) | | | — | | | — | |
| Other, net | 2 | | | — | | | 2 | |
| Income tax expense (benefit) | $ | (545) | | | $ | 206 | | | $ | 176 | |
The principal components of deferred tax assets and liabilities are as follows:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| Deferred tax assets: | Deferred tax assets: | | | | Deferred tax assets: | | | |
| Tax credit carryforwards | Tax credit carryforwards | $ | 7 | | | $ | 2 | | Tax credit carryforwards | $ | 24 | | | $ | 7 | |
| Net operating loss carryforwards of acquired companies | Net operating loss carryforwards of acquired companies | 16 | | | 23 | | Net operating loss carryforwards of acquired companies | 60 | | | 16 | |
| Interest | | Interest | 37 | | | — | |
| Other accruals and reserves not currently tax deductible | Other accruals and reserves not currently tax deductible | 84 | | | 54 | | Other accruals and reserves not currently tax deductible | 95 | | | 84 | |
| Operating lease liabilities | Operating lease liabilities | 28 | | | 29 | | Operating lease liabilities | 11 | | | 28 | |
| Deferred revenue | | Deferred revenue | 16 | | | — | |
| Property and equipment | Property and equipment | 13 | | | 17 | | Property and equipment | 16 | | | 13 | |
| Intangible assets | Intangible assets | 123 | | | 103 | | Intangible assets | — | | | 123 | |
| Capitalized research and experimental expenditures | | Capitalized research and experimental expenditures | 46 | | | — | |
| Loss on investments not currently tax deductible | | Loss on investments not currently tax deductible | 68 | | | — | |
| Stock-based compensation | Stock-based compensation | 8 | | | 7 | | Stock-based compensation | 15 | | | 8 | |
| Other | Other | 54 | | | 36 | | Other | 39 | | | 54 | |
| Gross deferred tax assets | Gross deferred tax assets | 333 | | | 271 | | Gross deferred tax assets | 427 | | | 333 | |
| Valuation allowance | Valuation allowance | (11) | | | (7) | | Valuation allowance | (97) | | | (11) | |
| Deferred tax assets, net of valuation allowance | Deferred tax assets, net of valuation allowance | 322 | | | 264 | | Deferred tax assets, net of valuation allowance | 330 | | | 322 | |
| Deferred tax liabilities: | Deferred tax liabilities: | | | | Deferred tax liabilities: | | | |
| Operating lease assets | Operating lease assets | (21) | | | (25) | | Operating lease assets | (8) | | | (21) | |
| Goodwill | Goodwill | (6) | | | (1) | | Goodwill | (10) | | | (6) | |
| Intangible assets | | Intangible assets | (328) | | | — | |
| Deferred revenue | Deferred revenue | (2) | | | (1) | | Deferred revenue | — | | | (2) | |
| Unremitted earnings of foreign subsidiaries | Unremitted earnings of foreign subsidiaries | (16) | | | (15) | | Unremitted earnings of foreign subsidiaries | (15) | | | (16) | |
| Prepaids and deferred expenses | Prepaids and deferred expenses | (1) | | | (2) | | Prepaids and deferred expenses | (2) | | | (1) | |
| Discount on convertible debt | — | | | (2) | | |
| | Deferred tax liabilities | Deferred tax liabilities | (46) | | | (46) | | Deferred tax liabilities | (363) | | | (46) | |
| Net deferred tax assets (liabilities) | Net deferred tax assets (liabilities) | $ | 276 | | | $ | 218 | | Net deferred tax assets (liabilities) | $ | (33) | | | $ | 276 | |
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their basis for income tax purposes and the tax effects of net operating losses and tax credit carryforwards.
The valuation allowance provided against our deferred tax assets as of April 1, 2022,March 31, 2023, increased primarily due to a valuation allowance on capital loss carryforwards and change in tax credit carryforwards. The ending valuation allowance of $11 $97
million is provided primarily against state and foreign capital loss carryforwards and certain tax attributes.credits. During fiscal 2023, we acquired deferred tax assets through the Merger with Avast that had a valuation allowance provided against the deferred tax assets. Due to a change in facts, we released the valuation allowance provided against some of the deferred tax assets.
As of April 1, 2022,March 31, 2023, we have U.S. federal net operating losses attributable to various acquired companies of approximately $52$193 million, which, if not used, will expire between fiscal 20232024 and 2039. The net operating loss carryforwards are subject to an annual limitation under U.S. federal tax regulations but are expected to be fully realized. Furthermore, we have U.S. state net operating loss carryforwards attributable to various acquired companies of approximately $12$147 million. If not used, our U.S. state net operating losses will expire between fiscal 20232024 and 2038. In addition, we have foreign net operating loss carryforwards attributable to various foreign companies of approximately $14$28 million.
In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the current and prior two years; we have strong, consistent taxpaying history; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. We have concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of April 1, 2022,March 31, 2023, are realizable on a “more likely than not” basis.
In fiscal 2023 as part of Avast integration plan we undertook a legal entity and operational restructuring that resulted in tax capital losses. We plan to carry the entirety of the capital losses back to the fiscal 2020 tax return to offset a capital gain, which is expected to result in a tax refund on our federal and state tax returns for the 2020 tax year. The Company estimates that the tax refund will be $910 million. In order to obtain the refunds, we intend to file claims for refund shortly after filing our fiscal 2023 tax return. As part of this process, we have recorded a net tax receivable in an amount less than the $910 million, due to the complexity of applying evolving tax laws and uncertainties with respect to sustaining the Company’s refunds claims, the success of which we believe is more likely than not. This net amount takes into account the Company’ best estimate of the likely outcome of the refund claim given the information available to us at this time. The Company’s ability to recognize the financial statement benefit of the refund claim is subject to change based on a number of factors, including but not limited to, changes in facts and circumstances, changes in tax laws, correspondence with both IRS and State tax authorities, and the results of tax audits and related proceedings, which may take several years or more to resolve. We intend to vigorously defend our position if challenged by the tax authorities and will contest any proposed adjustments. If we are not able to resolve any proposed adjustments at the examination level, we plan to pursue all available administrative and, if necessary, judicial remedies. If we do not ultimately prevail on some or all of the components of our position, we would be required to pay the IRS and the states some or all of any cash tax refund, along with interest on such amount, and penalties, if assessed. As with all actual and potential tax audits and related proceedings, there can be no assurances on the final outcome. To the extent the final outcome is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our Consolidated Balance Sheets and Statements of Operations.
The aggregate changes in the balance of gross unrecognized tax benefits were as follows:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Balance at beginning of year | Balance at beginning of year | $ | 548 | | | $ | 724 | | | $ | 446 | | Balance at beginning of year | $ | 527 | | | $ | 548 | | | $ | 724 | |
| Settlements with tax authorities | Settlements with tax authorities | — | | | (37) | | | (5) | | Settlements with tax authorities | (2) | | | — | | | (37) | |
| Lapse of statute of limitations | Lapse of statute of limitations | (34) | | | (34) | | | (15) | | Lapse of statute of limitations | (96) | | | (34) | | | (34) | |
| Increase related to prior period tax positions | Increase related to prior period tax positions | 16 | | | 13 | | | 77 | | Increase related to prior period tax positions | 9 | | | 16 | | | 13 | |
| Decrease related to prior period tax positions | Decrease related to prior period tax positions | (11) | | | (129) | | | (11) | | Decrease related to prior period tax positions | (15) | | | (11) | | | (129) | |
| Increase related to current year tax positions | Increase related to current year tax positions | 8 | | | 11 | | | 232 | | Increase related to current year tax positions | 259 | | | 8 | | | 11 | |
| | Increase due to acquisition | | Increase due to acquisition | 28 | | | — | | | — | |
| Balance at end of year | Balance at end of year | $ | 527 | | | $ | 548 | | | $ | 724 | | Balance at end of year | $ | 710 | | | $ | 527 | | | $ | 548 | |
There was a change of $21$183 million in gross unrecognized tax benefits during the year ended April 1, 2022,March 31, 2023, as disclosed above.above, mainly on account of a reserve against the tax receivable. This gross liability does not include offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, interest deductions and state income taxes.
Of the total unrecognized tax benefits at April 1, 2022, $486March 31, 2023, $674 million, if recognized, would affect our effective tax rate.
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. At April 1, 2022,March 31, 2023, before any tax benefits, we had $87$100 million of accrued interest and penalties on unrecognized tax benefits. Interest included in our provision for income taxes was an expense of approximately $19$22 million for fiscal 2022.2023. If the accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced in the period that such determination is made and reflected as a reduction of the overall income tax provision.
We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. Our most significant tax jurisdictions are the U.S., Ireland, and Ireland.Czech Republic. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. OurDuring the fourth quarter of fiscal 2023, we closed our fiscal years 2014 through 20212017 IRS audit. Our fiscal years prior to 2018 have been settled and closed with the IRS. Our fiscal years 2018 through 2022 remain subject to examination by the IRS for U.S. federal tax purposes andpurposes. Our fiscal years 2014
2018 through 2020 are under audit. Our 2017 through 2021 fiscal years remain subject to examination by the appropriate governmental agencies for Irish tax purposes.
The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months. Depending on the nature of the settlement or expiration of statutes of limitations, it could affect our income tax provision and therefore benefit the resulting effective tax rate.
We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.
We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the U.S. or are exempted from further taxation. As of March 31, 2023, the unrecognized deferred tax liability on the undistributed earnings is approximately $15 million.
Note 14. Stockholders' Equity
Dividends
On May 5, 2022,11, 2023, we announced that our Board of Directors declared a cash dividend of $0.125 per share of common stock to be paid in June 2022.2023. All shares of common stock issued and outstanding and all RSUs and PRUs as of the record date will be entitled to the dividend and dividend equivalent rights (DERs), respectively, which will be paid out if and when the underlying shares are released. However, the $4 million unvested RSUs assumed in connection with the Merger will not be entitled to DERs. See Note 15 for further information about these equity awards. Any future dividends and DERs will be subject to the approval of our Board of Directors.
Stock repurchase program
Under our stock repurchase program, we may purchase shares of our outstanding common stock throughon the open market and through accelerated stock repurchase transactions. On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million. As of April 1, 2022,March 31, 2023, we have $1,774$870 million remaining under the authorization to be completed in future periods with no expiration date. No shares were repurchased during the year ended April 1, 2022.
The following table summarizes activity related to our stock repurchase program during the years ended March 31, 2023 and April 2, 2021 and April 3, 2020:2021:
| | | | | | | | | | | | | |
| | | | Year Ended |
| (In millions, except per share amounts) | | | April 2, 2021 | | April 3, 2020 |
| Number of shares repurchased | | | 15 | | | 68 | |
| Average price per share | | | $ | 20.50 | | | $ | 22.97 | |
| Aggregate purchase price | | | $ | 304 | | | $ | 1,562 | |
Subsequent to April 1, 2022, we executed repurchases of 4 million shares of our common stock for an aggregate amount of $107 million. As a result, we have $1,667 million remaining under our existing share repurchase program. | | | | | | | | | | | | | |
| | Year Ended |
| (In millions, except per share amounts) | March 31, 2023 | | | | April 2, 2021 |
| Number of shares repurchased | 40 | | | | | 15 | |
| Average price per share | $ | 22.63 | | | | | $ | 20.50 | |
| Aggregate purchase price | $ | 904 | | | | | $ | 304 | |
Accumulated other comprehensive income (loss)
Components and activities of AOCI,Accumulated other comprehensive income (loss), net of tax, were as follows:taxes, consisted of foreign currency translation adjustments:
| | | | | | | | | | | |
| (In millions) | Foreign Currency Translation Adjustments | | | | | | |
Balance as of April 3, 20202, 2021 | $ | (16) | | | | | | | |
Other comprehensive income (loss) before reclassifications | 63 | | | | | | | |
Balance as of April 2, 2021 | 47 | | | | | | | |
Other comprehensive income (loss) before reclassifications, net of taxes | (51) | | | | | | | |
| Balance as of April 1, 2022 | (4) | | | | | | | |
| Other comprehensive income (loss), net of taxes | (11) | | | | | | | |
| | | | | | | |
Balance as of April 1, 2022March 31, 2023 | $ | (4)(15) | | | | | | | |
Note 15. Stock-Based Compensation and Benefit Plans
Stock incentive plans
The purpose of our stock incentive plans is to attract, retain and motivate eligible persons whose present and potential contributions are important to our success by offering them an opportunity to participate in our future performance through equity awards. We have 1one primary stock incentive plan: the 2013 Equity Incentive Plan (the 2013 Plan), under which incentive stock options may be granted only to employees (including officers and directors who are also employees), and other awards may be granted to employees, officers, directors, consultants, independent contractors, and advisors. As amended, our stockholders have approved and reserved 82 million shares of common stock for issuance under the 2013 Plan. Stock options granted under the 2013 Plan expire no more than 10 years from the date of grant.
In connection with the Merger, we assumed the outstanding equity awards under two of Avast’s equity incentive plans (the Avast Holding B.V. 2014 Share Option Plan and the Rules of the Avast plc Long Term Incentive Plan (collectively, the Avast Plans)), which consisted of $4 million unvested RSUs. The assumed RSUs generally retain the terms and conditions under which they were originally granted. We intend to grant all additional shares that remain available for issuance under the Avast Plans. Upon vesting, these assumed RSUs and any additional shares granted will settle into shares of our common stock. See Note 4 for further information about this business combination.
As of April 1, 2022, 11March 31, 2023, 9 million shares remained available for future grant, calculated using the maximum potential shares that could be earned and issued at vesting.
In connection with the acquisitions of various companies, we have assumed the equity awards granted under stock incentive plans of the acquired companies or issued equity awards in replacement thereof. No new awards will be granted under our acquired stock plans.
RSUs
| | (In millions, except per share and year data) | (In millions, except per share and year data) | Number of
Shares | | Weighted-
Average
Grant Date Fair Value | (In millions, except per share and year data) | Number of
Shares | | Weighted-
Average
Grant Date Fair Value |
| Outstanding as of April 2, 2021 | 5 | | | $ | 20.62 | | |
| Outstanding as of April 1, 2022 | | Outstanding as of April 1, 2022 | 6 | | | $ | 21.80 | |
| Granted | Granted | 4 | | | $ | 22.53 | | Granted | 7 | | | $ | 22.38 | |
| Vested | Vested | (2) | | | $ | 20.89 | | Vested | (3) | | | $ | 21.12 | |
| Forfeited | Forfeited | (1) | | | $ | 21.07 | | Forfeited | (1) | | | $ | 22.38 | |
| Outstanding as of April 1, 2022 | 6 | | | $ | 21.80 | | |
| Outstanding as of March 31, 2023 | | Outstanding as of March 31, 2023 | 9 | | | $ | 22.45 | |
RSUs generally vest over a three-year period. The weighted-average grant date fair value per share of RSUs granted during fiscal 2023, 2022 and 2021 was $22.38, $22.53, and 2020 was $22.53, $20.70, and $19.65, respectively. The total fair value of RSUs released in fiscal 2023, 2022 and 2021 and 2020 was $74 million, $57 million, $86 million, and $300$86 million, respectively, which represents the market value of our common stock on the date the RSUs were released.
PRUs
| | | | | | | | | | | |
| (In millions, except per share and year data) | Number of
Shares | | Weighted-
Average
Grant Date Fair Value |
| Outstanding and unvested as of April 2, 2021 | 1 | | | $ | 27.50 | |
| Granted | 3 | | | $ | 28.68 | |
| | | |
| | | |
| Forfeited | (1) | | | $ | 28.40 | |
| Unvested at April 1, 2022 | 3 | | | $ | 28.50 | |
| Vested and unreleased as of April 1, 2022 | — | | | |
| Outstanding as of April 1, 2022 | 3 | | | |
| | | | | | | | | | | |
| (In millions, except per share and year data) | Number of
Shares | | Weighted-
Average
Grant Date Fair Value |
| Outstanding and unvested as of April 1, 2022 | 3 | | | $ | 28.50 | |
| Granted | 2 | | | $ | 27.07 | |
Vested (1) | — | | | $ | 31.75 | |
| Forfeited | (1) | | | $ | 26.70 | |
| Unvested at March 31, 2023 | 4 | | | $ | 28.01 | |
| Vested and unreleased as of March 31, 2023 | 1 | | | |
| Outstanding as of March 31, 2023 | 5 | | | |
(1) The number of shares is less than 1 million.
The total fair value of PRUs released in fiscal 2023, 2022 and 2021 and 2020 was $5 million, $0 million, $43 million, and $39$43 million, respectively, which represents the market value of our common stock on the date the PRUs were released.
We have granted PRUs to certain of our executives. Typically, these PRUs have a three-year vest period. PRUs granted in fiscal 2023, 2022 and 2021 contain a combination of our company’s performance and market conditions whereas our fiscal 2020 PRUs only contain market conditions. The performance conditions are based on the achievement of specified one-yeartwo-year non-GAAP financial metrics. The market conditions are based on the achievement of our relative total shareholder return over a twothree- and three-yearfive-year period. Typically, 0% to 200% of target shares are eligible to be earned based on the achievement of the performance and market conditions.
Valuation of PRUs
The fair value of each PRU that does not contain a market condition is equal to the market value of our common stock on the date of grant. The fair value of each PRU that contains a market condition is estimated using the Monte Carlo simulation model. The valuation and the underlying weighted-average assumptions for PRUs are summarized below:
| | | | Year Ended | | Year Ended |
| | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Expected term | Expected term | 3.9 years | | 2.7 years | | 1.9 years | Expected term | 3.3 years | | 3.9 years | | 2.7 years |
| Expected volatility | Expected volatility | 37.6 | % | | 42.5 | % | | 38.1 | % | Expected volatility | 34.8 | % | | 37.6 | % | | 42.5 | % |
| Risk-free interest rate | Risk-free interest rate | 1.0 | % | | 0.2 | % | | 1.7 | % | Risk-free interest rate | 3.4 | % | | 1.0 | % | | 0.2 | % |
| Expected dividend yield | Expected dividend yield | — | % | | — | % | | 1.7 | % | Expected dividend yield | 1.3 | % | | — | % | | — | % |
| Weighted-average grant date fair value of PRUs | Weighted-average grant date fair value of PRUs | $ | 28.68 | | $ | 26.39 | | $ | 21.69 | Weighted-average grant date fair value of PRUs | $ | 27.07 | | $ | 28.68 | | $ | 26.39 |
Stock options
| | (In millions, except per share and year data) | (In millions, except per share and year data) | Number of
Shares | | Weighted-Average Exercise Price | | Weighted-
Average
Remaining Contractual Term
(Years) | | Aggregate Intrinsic
Value | (In millions, except per share and year data) | Number of
Shares | | Weighted-Average Exercise Price | | Weighted-
Average
Remaining Contractual Term
(Years) | | Aggregate Intrinsic
Value |
Outstanding as of April 1, 2021 (1) | — | | | $ | 5.22 | | | | | | |
| Granted | — | | | $ | — | | | |
Outstanding as of April 1, 2022 (1) | | Outstanding as of April 1, 2022 (1) | — | | | $ | 5.51 | | | | | |
| Exercised (1) | Exercised (1) | — | | | $ | 4.73 | | | Exercised (1) | — | | | $ | 4.43 | | |
| Canceled | — | | | $ | — | | | |
| Forfeited and expired (1) | Forfeited and expired (1) | — | | | $ | 7.01 | | | Forfeited and expired (1) | — | | | $ | 2.58 | | |
Outstanding as of April 1, 2022 (1) | — | | | $ | 5.51 | | | |
Exercisable as of April 1, 2022 (1) | — | | | $ | 5.51 | | | 3.8 | | $ | 4 | | |
Outstanding as of March 31, 2023 (1) | | Outstanding as of March 31, 2023 (1) | — | | | $ | 5.97 | | |
Exercisable as of March 31, 2023 (1) | | Exercisable as of March 31, 2023 (1) | — | | | $ | 5.97 | | | 3.84 | | $ | 2 | |
(1) The number of shares is less than 1 million.
The total intrinsic value of options exercised during fiscal 2023, 2022 and 2021 and 2020 was $1 million, $3 million, and $18 million, and $171 million, respectively. The fair value of options granted in fiscal 2020 was $4.76 per share. No options were granted in fiscal 2023, 2022 and 2021.
ESPP
Under our 2008 Employee Stock Purchase Plan, employees may annually contribute up to 10% of their gross compensation, subject to certain limitations, to purchase shares of our common stock at a discounted price. Eligible employees are offered shares through a 12-month offering period, which consists of 2two consecutive 6-month purchase periods, at 85% of the lower of either the fair market value on the purchase date or the fair market value at the beginning of the offering period.
As of April 1, 2022, 38March 31, 2023, 39 million shares have been issued under this plan, and 3231 million shares remained available for future issuance.
The following table summarizes activity related to the purchase rights issued under the ESPP:
| | | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Shares issued under the ESPP | Shares issued under the ESPP | 1 | | | 1 | | | 2 | | Shares issued under the ESPP | 1 | | | 1 | | | 1 | |
| Proceeds from issuance of shares | Proceeds from issuance of shares | $ | 13 | | | $ | 14 | | | $ | 39 | | Proceeds from issuance of shares | $ | 12 | | | $ | 13 | | | $ | 14 | |
The fair value of each stock purchase right under our ESPP is estimated using the Black-Scholes option pricing model. The weighted-average grant date fair value related to rights to acquire shares of common stock under our ESPP in fiscal 2023, 2022 and 2021 and 2020 was $6.04 per share, $6.77 per share, $5.65 per share, and $5.17$5.65 per share, respectively.
Dividend equivalent rights (DERs)
Our RSUs and PRUs, except for the $4 million unvested RSUs assumed under the Avast Plans, contain dividend equivalent rights (DER)DERs that entitles the recipient of an award to receive cash dividend payments when the associated award is released. The amount of DER equals to the cumulated dividends on the issued number of common stock that would have been payable since the date the associated award was granted. As of March 31, 2023 and April 1, 2022, and April 2, 2021, current dividends payable related to DER was $11$5 million and $12$11 million, respectively, recorded as part of Other current liabilities in the Consolidated Balance Sheets, and long-term dividends payable related to DER was $2 million and $10$2 million, respectively, recorded as part of Other long-term liabilities.
Stock-based award modifications
In connection with the Broadcom sale, during fiscal 2021 and 2020, we entered into severance and retention arrangements with certain executives. Pursuant to these agreements, these executives were entitled to receive vesting of 50% of their unvested equity, subject to a service condition, and the remaining unvested equity will be earned at levels of 0% to 150%, subject to market and service conditions. In addition, we entered into severance and retention arrangements with certain other employees in connection with restructuring activities and the Broadcom sale, which accelerated either a portion or all of the vesting of their stock-based awards. All award modifications related to the Broadcom sale were fully expensed by fiscal 2021.
The following table summarizes the stock-based compensation expense recognized as a result of these modifications:
| | | | | | | | | | | | | |
| | | Year Ended |
| (In millions) | | | April 2, 2021 | | April 3, 2020 |
| Sales and marketing | | | $ | 2 | | | $ | 6 | |
| Research and development | | | 9 | | | — | |
| General and administrative | | | 8 | | | 20 | |
| Restructuring and other costs | | | 10 | | | 20 | |
| Discontinued operations | | | 1 | | | 99 | |
| Total stock-based compensation | | | $ | 30 | | | $ | 145 | |
| | | | | | | | | |
| | | | | Year Ended |
| (In millions) | | | | | April 2, 2021 |
| Sales and marketing | | | | | $ | 2 | |
| Research and development | | | | | 9 | |
| General and administrative | | | | | 8 | |
| Restructuring and other costs | | | | | 10 | |
| Discontinued operations | | | | | 1 | |
| Total stock-based compensation | | | | | $ | 30 | |
Stock-based compensation expense
Total stock-based compensation expense and the related income tax benefit recognized for all of our equity incentive plans in our Consolidated Statements of Operations were as follows:
| | | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Cost of revenues | Cost of revenues | $ | 2 | | | $ | 1 | | | $ | 2 | | Cost of revenues | $ | 3 | | | $ | 2 | | | $ | 1 | |
| Sales and marketing | Sales and marketing | 19 | | | 18 | | | 29 | | Sales and marketing | 34 | | | 19 | | | 18 | |
| Research and development | Research and development | 19 | | | 26 | | | 30 | | Research and development | 31 | | | 19 | | | 26 | |
| General and administrative | General and administrative | 30 | | | 26 | | | 58 | | General and administrative | 55 | | | 30 | | | 26 | |
| Restructuring and other costs | Restructuring and other costs | — | | | 10 | | | 20 | | Restructuring and other costs | 11 | | | — | | | 10 | |
| Other income (expense), net | Other income (expense), net | — | | | (1) | | | 1 | | Other income (expense), net | — | | | — | | | (1) | |
| Total stock-based compensation from continuing operations | Total stock-based compensation from continuing operations | 70 | | | 80 | | | 140 | | Total stock-based compensation from continuing operations | 134 | | | 70 | | | 80 | |
| Discontinued operations | Discontinued operations | — | | | 1 | | | 172 | | Discontinued operations | — | | | — | | | 1 | |
| Total stock-based compensation expense | Total stock-based compensation expense | $ | 70 | | | $ | 81 | | | $ | 312 | | Total stock-based compensation expense | $ | 134 | | | $ | 70 | | | $ | 81 | |
| Income tax benefit for stock-based compensation expense | Income tax benefit for stock-based compensation expense | $ | (11) | | | $ | (18) | | | $ | (55) | | Income tax benefit for stock-based compensation expense | $ | (20) | | | $ | (11) | | | $ | (18) | |
As of April 1, 2022,March 31, 2023, the total unrecognized stock-based compensation expense related to our unvested stock-based awards was $160$226 million, which will be recognized over an estimated weighted-average amortization period of 2.22.0 years.
Other employee benefit plans
401(k) plan
We maintain a salary deferral 401(k) plan for all of our U.S. employees. This plan allows employees to contribute their pretax salary up to the maximum dollar limitation prescribed by the Internal Revenue Code. We match the first 3.5% of a participant’s eligible compensation up to $6,000 in a calendar year. Our employer matching contributions to the 401(k) plan were as follows, including contributions to employees of our discontinued operations:
| | | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| 401(k) matching contributions | 401(k) matching contributions | $ | 3 | | | $ | 3 | | | $ | 16 | | 401(k) matching contributions | $ | 4 | | | $ | 3 | | | $ | 3 | |
Note 16. Net Income (Loss) Per Share
Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding during the period using the treasury stock method.outstanding. Dilutive potentially issuable common shares include the dilutive effect of the shares underlying convertible debt and employee equity awards. Our remaining convertible debt was extinguished on August 15, 2022.
The components of basic and diluted net income (loss) per share are as follows:
| | | | Year Ended | | Year Ended |
| (In millions, except per share amounts) | (In millions, except per share amounts) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions, except per share amounts) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Income (loss) from continuing operations | Income (loss) from continuing operations | $ | 836 | | | $ | 696 | | | $ | 578 | | Income (loss) from continuing operations | $ | 1,349 | | | $ | 836 | | | $ | 696 | |
| Income (loss) from discontinued operations | Income (loss) from discontinued operations | — | | | (142) | | | 3,309 | | Income (loss) from discontinued operations | — | | | — | | | (142) | |
| Net income (loss) | Net income (loss) | $ | 836 | | | $ | 554 | | | $ | 3,887 | | Net income (loss) | $ | 1,349 | | | $ | 836 | | | $ | 554 | |
| Income (loss) per share - basic: | | | | | | |
| Net income (loss) per share - basic | | Net income (loss) per share - basic | | | | | |
| Continuing operations | Continuing operations | $ | 1.44 | | | $ | 1.18 | | | $ | 0.94 | | Continuing operations | $ | 2.20 | | | $ | 1.44 | | | $ | 1.18 | |
| Discontinued operations | Discontinued operations | $ | — | | | $ | (0.24) | | | $ | 5.38 | | Discontinued operations | $ | — | | | $ | — | | | $ | (0.24) | |
| Net income per share - basic | Net income per share - basic | $ | 1.44 | | | $ | 0.94 | | | $ | 6.32 | | Net income per share - basic | $ | 2.20 | | | $ | 1.44 | | | $ | 0.94 | |
| Income (loss) per share - diluted: | Income (loss) per share - diluted: | | Income (loss) per share - diluted: | |
| Continuing operations | Continuing operations | $ | 1.41 | | | $ | 1.16 | | | $ | 0.90 | | Continuing operations | $ | 2.16 | | | $ | 1.41 | | | $ | 1.16 | |
| Discontinued operations | Discontinued operations | $ | — | | | $ | (0.24) | | | $ | 5.15 | | Discontinued operations | $ | — | | | $ | — | | | $ | (0.24) | |
| Net income per share - diluted | Net income per share - diluted | $ | 1.41 | | | $ | 0.92 | | | $ | 6.05 | | Net income per share - diluted | $ | 2.16 | | | $ | 1.41 | | | $ | 0.92 | |
| | Weighted-average shares outstanding - basic | Weighted-average shares outstanding - basic | 581 | | | 589 | | | 615 | | Weighted-average shares outstanding - basic | 614 | | | 581 | | | 589 | |
| Dilutive potentially issuable shares: | Dilutive potentially issuable shares: | | Dilutive potentially issuable shares: | |
| Convertible debt | Convertible debt | 7 | | | 8 | | | 20 | | Convertible debt | 6 | | | 7 | | | 8 | |
| Employee equity awards | Employee equity awards | 3 | | | 3 | | | 8 | | Employee equity awards | 4 | | | 3 | | | 3 | |
| Weighted-average shares outstanding - diluted | Weighted-average shares outstanding - diluted | 591 | | | 600 | | | 643 | | Weighted-average shares outstanding - diluted | 624 | | | 591 | | | 600 | |
| | Anti-dilutive shares excluded from diluted net income (loss) per share calculation: | Anti-dilutive shares excluded from diluted net income (loss) per share calculation: | | Anti-dilutive shares excluded from diluted net income (loss) per share calculation: | |
| Convertible debt | Convertible debt | — | | | 8 | | | 5 | | Convertible debt | — | | | — | | | 8 | |
| Employee equity awards | Employee equity awards | 1 | | | — | | | 2 | | Employee equity awards | — | | | 1 | | | — | |
| Total | Total | 1 | | | 8 | | | 7 | | Total | — | | | 1 | | | 8 | |
UnderUpon adoption of ASU 2020-06 under the modified retrospective method, we are required to apply the if-converted method to our calculation of diluted earnings per share. For fiscal 2023, we adjust for the dilutive effect of the maximum number of potential shares to be issued upon settlement of our outstanding convertible debt instruments. Prior period earnings per share amounts are not restated under the modified retrospective method. For fiscal 2022, the dilutive effect of our debt instruments is calculated using the treasury stock method, under which our convertible debt instruments will generally havehad a dilutive impact on net income per share when our average stock price for the period exceeds the conversion prices for the convertible debt instruments. On February 4, 2020,The initial adoption of ASU 2020-06 had a portion of$0.01 impact on dilutive earnings per share, with the 2.5% Convertible Notes were exchanged fordilutive shares underlying the New 2.5% Convertible Notes, and a portion of the 2.0% Convertible Notes were exchanged for the New 2.0% Convertible Notes. convertible debt increasing by $18 million shares.
The remaining Convertible Senior Notes received conversion price adjustments. The 2.5% Convertible Notes andNew 2.0% Convertible Notes were fully repaid on March 10, 2020 and May 26, 2020, respectively.August 15, 2022. The New 2.5% Convertible Notes were fully repaid on May 20, 2021. See Note 10 for further information on our convertible debt instruments. The conversion price of each convertible debt applicable in the periods presented is as follows:
| | | Year Ended | | | Year Ended |
| | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | | | April 1, 2022 | | April 2, 2021 |
| 2.5% Convertible Senior Notes due April 1, 2022 | N/A | | N/A | | $ | 8.40 | | |
| 2.0% Convertible Senior Notes due August 15, 2022 | N/A | | N/A | | $ | 10.23 | | |
| New 2.5% Convertible Senior Notes due April 1, 2022 | New 2.5% Convertible Senior Notes due April 1, 2022 | N/A | | $ | 16.77 | | | $ | 16.77 | | New 2.5% Convertible Senior Notes due April 1, 2022 | | N/A | | $ | 16.77 | |
| New 2.0% Convertible Senior Notes due August 15, 2022 | New 2.0% Convertible Senior Notes due August 15, 2022 | $ | 20.41 | | | $ | 20.41 | | | $ | 20.41 | | New 2.0% Convertible Senior Notes due August 15, 2022 | | $ | 20.41 | | | $ | 20.41 | |
Note 17. Segment and Geographic Information
We operate as 1one reportable segment. Our Chief Operating Decision Maker reviews financial information presented on a consolidated basis to evaluate company performance and to allocate resources.
The following table summarizes net revenues for our major solutions:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 |
| Consumer security | $ | 1,669 | | | $ | 1,513 | | | $ | 1,450 | |
| Identity and information protection | 1,127 | | | 1,038 | | | 994 | |
| ID Analytics | — | | | — | | | 46 | |
| Total net revenues | $ | 2,796 | | | $ | 2,551 | | | $ | 2,490 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Consumer security revenues | $ | 2,029 | | | $ | 1,623 | | | $ | 1,504 | |
| Identity and information protection revenues | 1,244 | | | 1,127 | | | 1,038 | |
| Total Cyber Safety revenues | 3,273 | | | 2,750 | | | 2,542 | |
| Legacy revenues | 65 | | | 46 | | | 9 | |
Total net revenues (1) | $ | 3,338 | | | $ | 2,796 | | | $ | 2,551 | |
(1) During the year ended March 31, 2023, total net revenues include an unfavorable foreign exchange impact of $113 million, consisting of $108 million from our consumer security solutions, $3 million from our identity and information protection solutions and $2 million from our legacy solutions.
From time to time, changes in our product hierarchy cause changes to the product categories above. When changes occur, we recast historical amounts to match the current product hierarchy. The changes have been reflected for all periods presented above. Consumer security products includeincludes revenues from our Norton 360 Security offerings, Norton Security, Avast Security offerings, Norton Secure VPN, Avira Security and other consumer security solutions.and device performance solutions through our direct, partner and small business channels. Identity and information protection products includeincludes revenues from our Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection and privacy solutions. Our ID AnalyticsLegacy includes revenues from products or solutions were divested on January 31, 2020.from markets that we have exited and in which we no longer operate, have been discontinued or identified to be discontinued, or remain in maintenance mode as a result of integration and product portfolio decisions.
Geographic information
Net revenues by geography are based on the billing addresses of our customers. The following table represents net revenues by geographic area for the periods presented:
| | | Year Ended | | Year Ended |
| (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | | April 3, 2020 | (In millions) | March 31, 2023 | | April 1, 2022 | | April 2, 2021 |
| Americas | Americas | $ | 1,963 | | | $ | 1,827 | | | $ | 1,831 | | Americas | $ | 2,282 | | | $ | 1,963 | | | $ | 1,827 | |
| EMEA | EMEA | 506 | | | 419 | | | 376 | | EMEA | 704 | | | 506 | | | 419 | |
| APJ | APJ | 327 | | | 305 | | | 283 | | APJ | 352 | | | 327 | | | 305 | |
Total net revenues | Total net revenues | $ | 2,796 | | | $ | 2,551 | | | $ | 2,490 | | Total net revenues | $ | 3,338 | | | $ | 2,796 | | | $ | 2,551 | |
Note: The Americas include U.S., Canada, and Latin America; EMEA includes Europe, Middle East, and Africa; APJ includes Asia Pacific and JapanJapan.
(1) During the year ended March 31, 2023, total net revenues include an unfavorable foreign exchange impact of $113 million, consisting of $2 million from Americas, $68 million from EMEA and $43 million from APJ.
Revenues from customers inside the U.S. were $2,106 million, $1,860 million, $1,742 million, and $1,747$1,742 million during fiscal 2023, 2022 2021 and 2020,2021, respectively. No other individual country accounted for more than 10% of revenues.
The table below represents cash, cash equivalents and short-term investments held in the U.S. and internationally in various foreign subsidiaries:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| U.S. | U.S. | $ | 1,220 | | | $ | 536 | | U.S. | $ | 178 | | | $ | 1,220 | |
| International | International | 671 | | | 415 | | International | 572 | | | 671 | |
| Total cash, cash equivalents and short-term investments | Total cash, cash equivalents and short-term investments | $ | 1,891 | | | $ | 951 | | Total cash, cash equivalents and short-term investments | $ | 750 | | | $ | 1,891 | |
The table below represents our property and equipment, net of accumulated depreciation and amortization, by geographic area, based on the physical location of the asset, at the end of each period presented:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| U.S. | U.S. | $ | 16 | | | $ | 28 | | U.S. | $ | 38 | | | $ | 16 | |
| Ireland | Ireland | 27 | | | 32 | | Ireland | — | | | 27 | |
| Czech Republic | | Czech Republic | 16 | | | — | |
| Germany | Germany | 13 | | | 14 | | Germany | 13 | | | 13 | |
Other countries (1) | Other countries (1) | 4 | | | 4 | | Other countries (1) | 9 | | | 4 | |
| Total property and equipment, net | Total property and equipment, net | $ | 60 | | | $ | 78 | | Total property and equipment, net | $ | 76 | | | $ | 60 | |
(1) No individual country represented more than 10% of the respective totals.
Our operating lease assets by geographic area, based on the physical location of the asset were as follows:
| | (In millions) | (In millions) | April 1, 2022 | | April 2, 2021 | (In millions) | March 31, 2023 | | April 1, 2022 |
| U.S. | U.S. | $ | 66 | | | $ | 55 | | U.S. | $ | 25 | | | $ | 66 | |
| India | 5 | | | 9 | | |
| Czech Republic | | Czech Republic | 12 | | | — | |
Other countries (1) | Other countries (1) | 3 | | | 12 | | Other countries (1) | 6 | | | 8 | |
| Total operating lease assets | Total operating lease assets | $ | 74 | | | $ | 76 | | Total operating lease assets | $ | 43 | | | $ | 74 | |
(1)No individual country represented more than 10% of the respective totals.
Significant customers and channel partners
In fiscal 2023, 2022 and 2021, and 2020, no individual end-user customer accounted for 10% or more of our net revenues. See Note 1 for customersdistributors that accounted for over 10% of our nettotal accounts receivable.
Note 18. Commitments and Contingencies
Purchase obligations
We have purchase obligations that are associated with agreements for purchases of goods or services. Management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms.
The following reflects estimated future payments for purchase obligations by fiscal year. The amount of purchase obligations reflects estimated future payments as of April 1, 2022.March 31, 2023.
| | (In millions) | (In millions) | April 1, 2022 | (In millions) | March 31, 2023 |
| 2023 | $ | 353 | | |
| 2024 | 2024 | 51 | | 2024 | $ | 320 | |
| 2025 | 2025 | 9 | | 2025 | 79 | |
| 2026 | 2026 | 6 | | 2026 | 31 | |
| 2027 | 2027 | 3 | | 2027 | 11 | |
| Thereafter | 4 | | |
| 2028 | | 2028 | 1 | |
| | Total purchase obligations | Total purchase obligations | $ | 426 | | Total purchase obligations | $ | 442 | |
Deemed repatriation taxes
Under the Tax Cuts and Jobs Act (H.R.1), we are required to pay a one-time transition tax on untaxed earnings of our foreign subsidiaries through July 2025. The following reflects estimated future payments for deemed repatriation taxes by fiscal year:
| | (In millions) | (In millions) | April 1, 2022 | (In millions) | March 31, 2023 |
| 2023 | $ | 68 | | |
| 2024 | 2024 | 128 | | 2024 | $ | 128 | |
| 2025 | 2025 | 171 | | 2025 | 171 | |
| 2026 | 2026 | 138 | | 2026 | 139 | |
| | | Total obligations | Total obligations | $ | 505 | | Total obligations | $ | 438 | |
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, product warranties and losses arising out of our breach of agreements or representations and warranties made by us.us, including claims alleging that our software infringes on the intellectual property rights of a third party. In addition, our bylaws contain indemnification obligations to our directors, officers, employees, and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances
regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. We monitor the conditions that are subject to indemnification to identify if a loss has occurred. Historically, we have not incurred material costs as a result of obligations under these agreements, and we have not accrued any material liabilities related to such indemnification obligations in our Consolidated Financial Statements.
In connection with the sale of Veritas and the sale of our Enterprise Security business to Broadcom, we assigned several leases to Veritas Technologies LLCBroadcom or Broadcom and/or their relatedcertain of its subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC, Broadcom,Broadcom’s or their relatedsuch subsidiaries’ breach of payment obligations under the terms of thesuch lease. As with our other indemnification obligations discussed above and in
general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses, and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations in our Consolidated Financial Statements.
We provide limited product warranties, and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Such indemnification provisions may not be subject to maximum loss clauses. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.
Litigation contingencies
For a description of our accounting policy regarding litigation and loss contingencies, see “Critical Accounting Policies and Estimates” included in Part II, Item 7 of this Annual Report.
Trustees of the University of Columbia in the City of New York v. NortonLifeLock
As previously disclosed, in our public filings, on May 2, 2022, a jury returned its verdict in a patent infringement case filed in 2013 by the Trustees of Columbia University in the City of New York (Columbia) in the U.S. District Court for the Eastern District of Virginia. Columbia originally brought suit alleging infringement of six patents owned by the university. The CompanyWe won a favorable claim construction order on all 6six patents, and the claim construction was upheld by the Federal Circuit in 2016 on all but U.S. Patent Nos. 8,601,322 and 8,074,115. The CompanyWe also sought inter partes review by the Patent Trial and Appeal Board of the claims of the ‘322 and ‘115 Patents and all but 2two claims of the ‘322 Patent and 3three claims of the ‘115 Patent were invalidated. The remaining claims of the ‘322 and ‘115 Patents were the only claims that remained in suit at trial.
The jury found that the Company’sour Norton Security products and Symantec Endpoint Protection products (the latter of which were sold by us to Broadcom as part of an Asset Purchase Agreement with NortonLifeLock dated November 4, 2019) willfully infringe the ‘322 and ‘115 Patents through the use of SONAR/BASH behavioral protection technology. The jury awarded damages in the amount of $185 million. Columbia did not seek injunctive relief against the Company. The Company intendsus. We intend to cease use of the technology found by the jury to infringe. The jury also found that the Companywe did not fraudulently conceal its prosecution of U.S. Patent No. 8,549,643 but did find that two Columbia professors were coinventors of this patent. No damages were awarded related to this patent.
A formal judgment has not yet been entered in the case. There are likely to be post-verdictPost-verdict motions have been filed, and hearings, and the Company intendswe intend to file an appeal challenging the verdict.
At this time, our current estimate of the low end of the range of probable estimated losses from this matter is $185approximately $237 million, reflecting the jury award and prejudgment interest, which we have accrued. The jury’s verdict may be enhanced and, should it be upheld on appeal, could ultimately result in the payment of somewhere between 1one and 3three times the jury’s verdict, plus interest and attorneys’ fees. There is a reasonable possibility that a loss may be incurred in excess of our accrual for this matter; however, such loss cannot be reasonably estimated.
SEC Investigation
As previously disclosed in our public filings, the Audit Committee of our Board of Directors (the Audit Committee) completed its internal investigation (the Audit Committee Investigation) in September 2018. In connection with the Audit Committee Investigation, we voluntarily contacted the U.S. Securities and Exchange Commission (SEC) in April 2018. The SEC commenced a formal investigation with which we cooperated. In April 2022, the SEC Staff informed the Company that it concluded its investigation and does not intend to recommend an enforcement action by the Commission against us.
Securities Class Action and Derivative Litigation
Securities class action lawsuits, which have since been consolidated, were filed in May 2018 against us and certain of our former officers, in the U.S. District Court for the Northern District of California. The lead plaintiff’s consolidated amended complaint alleged that, during a purported class period of May 11, 2017 to August 2, 2018, defendants made false and misleading statements in violation of Sections 10(b) and 20(a), and that certain individuals violated Section 20A, of the Securities Exchange Act. Defendants filed motions to dismiss, which the Court granted in an order dated June 14, 2019. Pursuant to that order, plaintiff filed a motion seeking leave to amend and a proposed firstAct of 1934, as amended complaint on July 11, 2019. The Court granted the motion in part on October 2, 2019, and the first amended complaint was filed on October 11, 2019. The Court’s order dismissed certain claims against certain of our former officers. Defendants filed answers on November 7, 2019. On April 20, 2021, to resolve an alleged conflict of interest raised with respect to the lead plaintiff and its counsel, the Court ordered a second Class Notice disclosing the circumstances of the alleged conflict and providing a further period for class members to opt out, which closed on July 2, 2021. The initial class opt out period closed on August 25, 2020.(the Exchange Act).
On May 24, 2021, the parties reached a proposed settlement and release of all claims in the class action, for $70 million, and on June 8, 2021, the parties executed a Stipulation and Agreement of Settlement, subject to Court approval and exclusive of any claims that may be brought by shareholders who opted out of the class action. Of the $70 million, $67.1 million was covered under the applicable insurance policy with the remainder to be paid by the Company.us. The Court approved the settlement on February 12, 2022.
On November 22, 2021, investment funds managed by Orbis Investment Management Ltd. which previously opted out of the securities class action, filed suit under the Securities and Exchange Act of 1934, the Arizona Securities Act, the Arizona Consumer Fraud Act and certain common law causes of action to recover alleged damages for losses incurred by the funds for their purchases or acquisitions of our common stock during the class period. InOn February 7, 2023, our Motion to Dismiss was granted in part and denied in part. The parties have now settled the fourth quartermatter and the action was dismissed with prejudice on April 26, 2023. The impact of fiscal 2022, we made an immaterial settlement offer in this matter, for which we have accrued.was not material.
Purported shareholder derivative lawsuits have been filed against us and certain of our former officers and current and former directors in the U.S.Delaware Court of Chancery (In re Symantec Corp. S’holder. Deriv. Litig.), Northern District Courts forof California (Lee v. Clark et al.,), and the District of Delaware and the Northern District of California, Delaware Chancery Court, and Delaware Superior Court, arising(Milliken vs. Clark et al.). These assert generally out of the same facts and circumstances as alleged in the securities class action and allegingallege claims for breach of fiduciary duty and related claims; these lawsuits includeclaims. On January 4, 2023, after reaching an agreement on the terms of the proposed settlement, which provides for, among other things, a payment of $12 million to the Company by the insurers of the Company’s directors and officers, the parties to the Chancery action broughtfiled a Stipulation and Agreement of Settlement, Compromise and Release in that Court, which was approved by the Court on May 4, 2023, over the objection of the Lee and Milliken plaintiffs, and releases all claims in the Chancery, Lee, and Milliken actions, as well as any other claims based on the same operative facts. The parties in the Milliken action stipulated to a dismissal with prejudice, which was entered by the Court on May 12, 2023. The Lee action has been stayed pending the settlement hearing in the Chancery Court and we intend to seek dismissal of the Lee action based on the preclusive effect of the approved release in the Chancery action.
A fourth lawsuit filed in the Delaware Superior Court, Kukard v. Symantec, brings claims derivatively on behalf of our 2008 Employee Stock Purchase Plan. No specific amount of damages has been alleged in these lawsuits. We have also received demands from purported stockholders to inspect corporate books and records under Delaware law. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the derivative lawsuitsKukard action or estimate the range of any potential loss.
We will continue to incur legal fees in connection with these pending cases, and demands, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we will be successful in any defense. If any of the lawsuits are decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations, and cash flows.
GSA
During the first quarter of fiscal 2013, we were advised by the Commercial Litigation Branch of the Department of Justice’s (DOJ) Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the government is investigating our compliance with certain provisions of our U.S. General Services Administration (GSA) Multiple Award Schedule Contract No. GS-35F-0240T effective January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices.
As reported on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $222 million from the period beginning January 2007 and ending September 2012. We fully cooperated with the government throughout its investigation, and in January 2014, representatives of the government indicated that their initial analysis of our actual damages exposure from direct government sales under the GSA Schedule contract was approximately $145 million; since the initial meeting, the government’s analysis of our potential damages exposure relating to direct sales has increased. The government also indicated they would pursue claims for certain sales to California, Florida, and New York as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure.
In 2012, a sealed civil lawsuit was filed against us related to compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the lawsuit. On September 16, 2014, the states of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the DOJ filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the DOJ and the relator on behalf of New York in an Omnibus Complaint, and a First Amended Omnibus Complaint was filed on October 8, 2015; the state claims also do not state specific damages amounts. On June 6, 2019, we filed a motion seeking summary judgment on all claims asserted by all plaintiffs, and the plaintiffs filed a motion for partial summary judgment on elements of liability on their claims. On October 21, 2019, the DOJ moved for a Prejudgment Writ of Sequestration for the Company to set aside $1,090 million to pay a judgment, should the United States prevail in this litigation, under the Federal Debt Collection Procedures Act. The Writ was sought in response to the Company’s announcement of its plans to distribute the after-tax proceeds of the sale of the Symantec enterprise business to Broadcom to its shareholders via a special dividend. The Court denied the Writ on December 12, 2019, on the basis of the Government’s failure to establish the “probable validity” of the debt, the amount sought to be sequestered, and the Company’s available cash, cash equivalents and short-term investments. The Court permitted the DOJ limited discovery of facts relevant to the Company’s financial state and financial projections and the option to renew its motion if appropriate and supported by the analysis of its own financial expert. That discovery period has now closed. On March 30, 2020, the Court issued an Order granting in part and denying in part our motion for summary judgment and granting in part and denying in part the United States’ motion for partial summary judgment. On September 30, 2020, the Company filed a Motion for Reconsideration of certain rulings in the Court’s March 30 Summary Judgment Order. A second Motion for Reconsideration of certain rulings in the Summary Judgement Order based on significant change in the law was filed on July 23, 2021. Both Motions for Reconsideration were denied. Court ordered mediations in July 2020 and February 2021 were not successful.
On March 23, 2021, Plaintiffs withdrew their demand for a jury trial and the Companywe consented to proceed with a bench trial, which concluded on March 24, 2022. On January 19, 2023, the Court issued its Findings of Facts and Conclusions of Law in which it found in favor of the United States in part and awarded damages and penalties in the amount of $1.3 million. The Court has not yet issued its judgment.also found in favor of the State of California in part and awarded penalties in the amount of $0.4 million. The resulting Judgment was filed by the Court on January 20, 2023. On February 16, 2023, Plaintiffs filed Motions to Amend Judgment to revive the damages claimed at trial. We have opposed and the motion is now fully briefed before the Court.
On May 13, 2021, we reached a settlement in principle with the State of Florida to resolve all claims it asserted in the litigation for $0.5 million, plus Relator’sthe relator’s statutory attorney’s fees with respect to the State of Florida’s claims. On February 28, 2022, we reached a settlement in principle with the State of New York and Relatorthe relator to resolve all of the New York claims asserted in the litigation for $5 million.
AtThe January 2023 Judgment has been paid, and at this time, our current estimate of the low end of the range of probable estimated losses from this matter is $50was reduced to $1.4 million, inclusive of the settlement with the States of Florida and New York, which we have accrued. It is possible that the litigationCourt could grant Plaintiffs’ Motions to Amend Judgment, in whole or in part, or an appeal of the Court’s Judgment by the Plaintiffs, if brought, could lead to further claims or findings of violations of the False Claims Act and could be material to our results of operations and cash flows for any period. Resolution of False Claims Act investigations can ultimately result in the payment of somewhere between 1one and 3three times the actual damages proven by the government, plus civil penalties. There is a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter; however, such loss cannot be reasonably estimated.
Jumpshot Matters
At the end of 2019, Avast came under media scrutiny for provision of Avast customer data to its data analytics subsidiary Jumpshot Inc. Jumpshot was a subsidiary of Avast with its own management team and technical experts. Avast announced the decision to terminate its provision of data to, and wind down, Jumpshot on January 30, 2020. As Avast has previously disclosed, it has been in communication with certain regulators and authorities prior to completion of the Merger, and we will continue cooperating fully in respect of all regulatory enquiries.
On December 23, 2019, the United States Federal Trade Commission (FTC) issued a Civil Investigative Demand (CID) to Avast seeking documents and information related to its privacy practices, including Jumpshot's past use of consumer information that was provided to it by Avast. Avast responded cooperatively to the CID and related follow-up requests from the FTC. On October 29, 2021, staff at the FTC sent Avast a draft complaint and proposed settlement order. We have been engaged in ongoing negotiations with the FTC staff regarding the scope and terms of the proposed settlement. Any negotiated settlement with the FTC, or absent settlement, any litigation or other legal proceeding between us and the FTC could result in material monetary remedies and/or compliance requirements that impose significant and material cost and resource burdens on us, and may impact our ability to use data in the future. There can be no assurance that we will be successful in negotiating a favorable settlement or in litigation. Any remedies or compliance requirements could adversely affect our ability to operate our business or have a materially adverse impact on our financial results. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this investigation or estimate the range of any potential loss. On February 8, 2021, Lauren Holden filed27, 2020, the Czech Office for Personal Data Protection (the Czech DPA) initiated offense proceedings concerning Avast`s practices with respect to Jumpshot, which remain ongoing and we continue to evaluate our options.
In addition, we received a letter and notification before action from Stichting CUIC – Privacy Foundation for Collective Redress, a Dutch foundation (the Foundation). The Foundation has asserted it represents the interests of Avast customers in the Netherlands whose data was provided to Jumpshot and that by doing so Avast violated the requirements of the GDPR and other provisions in Dutch and European Union privacy and consumer law entitling those customers to damages and other compensation, all of which we dispute. No specific amount of damages has been alleged and to date, no action has been filed. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this notification before action or estimate the range of any potential loss.
On December 12, 2022, a putative class action, Lau v. Gen Digital Inc. and Jumpshot Inc., was filed in the Circuit Court for Duval County, FloridaNorthern District of California alleging that the Company violated the Florida wiretapping statute, Florida Security of Communications Act, Fla. Stat. Ann. § 934.01, et. seq., through the use of session replay technology on www.us.norton.com. The complaint defines the class as consisting of Florida residents who visited the website and whose electronic communications were alleged to have been intercepted by the Company without prior consent and, on behalfviolations of the class, seeksElectronic Communications Privacy Act, California Invasion of Privacy Act, statutory damages, attorney’s feeslarceny, unfair competition and costs, and injunctive relief. On March 12, 2021, the Company removed the casevarious common law claims related to the District Court for the Middle Districtprovision of Florida and filed its Answer and Affirmative Defensescustomer data to the complaint. The Company then filed a Motion for Judgment on the Pleadings on April 20, 2021.Jumpshot. On April 29, 2021, Plaintiff filed a Motion for Leave to File an Amended Complaint. On July 22, 2021, the Court granted Plaintiff leave to file an amended complaint and deemed the Motion for Judgment on the Pleadings moot. On August 5, 2021, the CompanyFebruary 24, 2023, we filed a Motion to Dismiss, which is still pending. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this action or estimate the First Amended Complaint. On September 9, 2021,range of any potential loss. We dispute these claims and intend to defend them vigorously.
The outcome of the Plaintiff filed a Notice of Voluntary Dismissal Without Prejudiceregulatory proceedings, government enforcement actions and litigation is difficult to predict, and the Court enteredcost to defend, settle or otherwise resolve these matters may be significant. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of large or indeterminate amounts or seek to impose sanctions, including significant monetary penalties, as well as equitable relief. The monetary and other impact of these litigations, proceedings or actions may remain unknown for substantial periods of time. Further, an Orderunfavorable resolution of litigations, proceedings or actions could have a material adverse effect on September 16, 2021, dismissingour business, financial condition, and results of operations and cash flows. The amount of time that will be required to resolve these matters is unpredictable, and these matters may divert management’s attention from the case without prejudice.day-to-day operations of our business. Any future investigations or additional lawsuits may also adversely affect our business, financial condition, results of operations and cash flows.
Other
We are involved in a number of other judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it is not possible to estimate the possible loss or losses from each of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on our business, results of operations, financial condition or cash flows.
(2) Financial Statement Schedule
Schedule II
NORTONLIFELOCKGEN DIGITAL INC.
VALUATION AND QUALIFYING ACCOUNTS
All financial statement schedules have been omitted, since the required information is not applicable or is not present in material amounts, and/or changes to such amounts are immaterial to require submission of the schedule, or because the information required is included in our Consolidated Financial Statements and notes thereto included in this Form 10-K.
(3) Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 2.01(§) | | | | 8-K | | 000-17781 | | 2.01 | | 8/8/2019 | | |
| 2.02 | | | | 8-K | | 000-17781 | | 2.01 | | 8/10/2021 | | |
| 2.03 | | | | 8-K | | 000-17781 | | 2.02 | | 8/10/2021 | | |
| 2.04 | | | | 8-K | | 000-17781 | | 2.03 | | 8/10/2021 | | |
| 3.01 | | | | 10-K | | 000-17781 | | 3.01 | | 5/21/2021 | | |
| 3.02 | | | | 8-K | | 000-17781 | | 3.02 | | 11/4/2019 | | |
| 3.03 | | | | 10-K | | 000-17781 | | 3.06 | | 5/28/2020 | | |
| 4.01 | | | | 10-K | | 000-17781 | | 4.01 | | 5/28/2020 | | |
| 4.02 | | | | 10-K | | 000-17781 | | 4.02 | | 5/28/2020 | | |
| 4.03 | | | | 8-K | | 000-17781 | | 4.01 | | 9/16/2010 | | |
| 4.04 | | | | 8-K | | 000-17781 | | 4.02 | | 6/14/2012 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 4.05 | | | | 8-K | | 000-17781 | | 10.01 | | 2/9/2016 | | |
| 4.06 | | | | 8-K | | 000-17781 | | 10.01 | | 3/7/2016 | | |
| 4.07 | | | | 8-K | | 000-17781 | | 2.02 | | 6/14/2016 | | |
| 4.08 | | | | 10-Q | | 000-17781 | | 2.03 | | 8/5/2016 | | |
| 4.09 | | | | 8-K | | 000-17781 | | 4.01 | | 2/9/2017 | | |
| 4.10 | | | | 8-K | | 000-17781 | | 4.02 | | 2/9/2017 | | |
| 4.11 | | | | 8-K | | 000-17781 | | 10.01 | | 11/12/2019 | | |
| 4.12 | | Second Amendment to Investment Agreement, dated November 11, 2019, by and between NortonLifeLock Inc. and BC Bear cat SPV, LP, BCIP Venture Associates, BCIP Venture Associates-B, BCIP Associates IV (US), L.P., BCIP Associates IV-B (US), L.P., BCIP T Associates IV (US), | | 8-K | | 000-17781 | | 10.02 | | 11/12/2019 | | |
| 4.13 | | | | 10-K | | 000-17781 | | 4.14 | | 5/28/2020 | | |
| 4.14 | | | | 10-K | | 000-17781 | | 4.15 | | 5/28/2020 | | |
| 10.01(*) | | | | 8-K | | 000-17781 | | 10.01 | | 1/23/2006 | | |
| 10.02(*) | | | | 8-K | | 000-17781 | | 10.03 | | 3/7/2016 | | |
| 10.03(*) | | | | 10-K | | 000-17781 | | 10.05 | | 5/24/2010 | | |
| 10.04(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 11/1/2011 | | |
| 10.05(*) | | | | 10-Q | | 000-17781 | | 10.06 | | 2/7/2020 | | |
| 10.06(*) | | | | 8-K | | 000-17781 | | 10.01 | | 12/3/2018 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 2.01(§) | | | | 8-K | | 000-17781 | | 2.01 | | 8/8/2019 | | |
| 2.02 | | | | 8-K | | 000-17781 | | 2.02 | | 8/10/2021 | | |
| 2.03 | | | | 8-K | | 000-17781 | | 2.03 | | 8/10/2021 | | |
| 2.04 | | | | 8-K | | 000-17781 | | 2.01 | | 7/18/2022 | | |
| 3.01 | | | | 10-Q | | 000-17781 | | 3.01 | | 11/9/2022 | | |
| 3.02 | | | | 8-K | | 000-17781 | | 3.02 | | 11/7/2022 | | |
| 3.03 | | | | 10-K | | 000-17781 | | 3.06 | | 5/28/2020 | | |
| 4.01 | | | | 10-K | | 000-17781 | | 4.02 | | 5/28/2020 | | |
| 4.02 | | | | 8-K | | 000-17781 | | 4.01 | | 9/16/2010 | | |
| 4.03 | | | | 8-K | | 000-17781 | | 10.01 | | 2/9/2016 | | |
| 4.04 | | | | 8-K | | 000-17781 | | 10.01 | | 3/7/2016 | | |
| 4.05 | | | | 8-K | | 000-17781 | | 2.02 | | 6/14/2016 | | |
| 4.06 | | | | 10-Q | | 000-17781 | | 2.03 | | 8/5/2016 | | |
| 4.07 | | | | 8-K | | 000-17781 | | 4.01 | | 2/9/2017 | | |
| 4.08 | | | | 8-K | | 000-17781 | | 4.02 | | 2/9/2017 | | |
| 4.09 | | | | 8-K | | 000-17781 | | 10.01 | | 11/12/2019 | | |
| 4.10 | | Second Amendment to Investment Agreement, dated November 11, 2019, by and between NortonLifeLock Inc. and BC Bear cat SPV, LP, BCIP Venture Associates, BCIP Venture Associates-B, BCIP Associates IV (US), L.P., BCIP Associates IV-B (US), L.P., BCIP T Associates IV (US), | | 8-K | | 000-17781 | | 10.02 | | 11/12/2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.07(*) | | | | 10-K | | 000-17781 | | 10.10 | | 10/26/2018 | | |
| 10.08(*) | | | | 10-Q | | 000-17781 | | 10.03 | | 8/6/2020 | | |
| 10.09(*) | | | | 10-K | | 000-17781 | | 10.09 | | 5/21/2021 | | |
| 10.10(*) | | | | 10-K | | 000-17781 | | 10.10 | | 5/21/2021 | | |
| 10.11 | | Amended and Restated Credit Agreement, effective as of August 1, 2016, among Registrant, the lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Term Loan A-1/Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan A-2 Administrative Agent, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Bank PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Lead Arrangers and Joint Bookrunners in respect of the Term A-2 Facility, Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd. And TD Securities (USA) LLC, as Co-Documentation Agents in respect of the Term A-2 Facility, and Bank of America, N.A., as Syndication Agent in respect of Term A-2 Facility. | | 10-Q | | 000-17781 | | 4.03 | | 8/5/2016 | | |
| 10.12 | | Term Loan Agreement, dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.05 | | 8/5/2016 | | |
| 10.13 | | | | 10-Q | | 000-17781 | | 4.02 | | 8/5/2016 | | |
| 10.14 | | Assignment and Assumption, dated October 3, 2016, to the Term Loan Agreement dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.01 | | 2/3/2017 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 4.11 | | | | 8-K | | 000-17781 | | 4.01 | | 9/19/2022 | | |
| 4.12 | | | | 8-K | | 000-17781 | | 4.02 | | 9/19/2022 | | |
| 10.01(*) | | | | 8-K | | 000-17781 | | 10.01 | | 1/23/2006 | | |
| 10.02(*) | | | | 8-K | | 000-17781 | | 10.03 | | 3/7/2016 | | |
| 10.03(*) | | | | 10-K | | 000-17781 | | 10.05 | | 5/24/2010 | | |
| 10.04(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 11/1/2011 | | |
| 10.05(*) | | | | 10-Q | | 000-17781 | | 10.06 | | 2/7/2020 | | |
| 10.06(*) | | | | 8-K | | 000-17781 | | 10.01 | | 12/3/2018 | | |
| 10.07(*) | | | | | | | | | | | | X |
| 10.08(*) | | | | | | | | | | | | X |
| 10.09(*) | | | | | | | | | | | | X |
| 10.10(*) | | | | | | | | | | | | X |
| 10.11(*) | | | | | | | | | | | | X |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 10.12 | | Amended and Restated Credit Agreement, effective as of August 1, 2016, among Registrant, the lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Term Loan A-1/Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan A-2 Administrative Agent, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Bank PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Lead Arrangers and Joint Bookrunners in respect of the Term A-2 Facility, Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd. And TD Securities (USA) LLC, as Co-Documentation Agents in respect of the Term A-2 Facility, and Bank of America, N.A., as Syndication Agent in respect of Term A-2 Facility. | | 10-Q | | 000-17781 | | 4.03 | | 8/5/2016 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.15 | | First Amendment, dated December 12, 2016, to the Term Loan Agreement, dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.02 | | 2/3/2017 | | |
| 10.16 | | First Amendment, dated December 12, 2016, to the Credit Agreement, effective as of August 1, 2016, among the Registrant, the lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Term Loan A-1/Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan A-2 Administrative Agent, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Bank PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Lead Arrangers and Joint Bookrunners in respect of the Term A-2 Facility, Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd. And TD Securities (USA) LLC, as Co-Documentation Agents in respect of the Term A-2 Facility, and Bank of America, N.A., as Syndication Agent in respect of Term A-2 Facility. | | 10-Q | | 000-17781 | | 4.03 | | 2/3/2017 | | |
| 10.17(*) | | | | 8-K | | 000-17781 | | 10.03 | | 10/25/2013 | | |
| 10.18(*) | | | | 10-K | | 000-17781 | | 10.18 | | 5/21/2021 | | |
| 10.19(*) | | | | 10-K | | 000-17781 | | 10.19 | | 5/21/2021 | | |
| 10.20(*) | | | | 10-Q | | 000-17781 | | 10.03 | | 8/2/2021 | | |
| 10.21(*) | | | | 10-Q | | 000-17781 | | 10.04 | | 8/2/2021 | | |
| 10.22(§§) | | Assignment of Copyright and Other Intellectual Property Rights, by and between Peter Norton and Peter Norton Computing, Inc., dated August 31, 1990. | | S-4 | | 33-35385 | | 10.37 | | 6/13/1990 | | |
| 10.23(†) | | | | S-1/A | | 333-83777 | | 10.27 | | 8/6/1999 | | |
| 10.24 | | | | 10-Q | | 000-17781 | | 10.01 | | 8/7/2007 | | |
| 10.25 | | | | 10-Q | | 000-17781 | | 10.01 | | 11/16/2018 | | |
| 10.26 | | | | 10-Q | | 000-17781 | | 10.02 | | 11/16/2018 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.13 | | Term Loan Agreement, dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.05 | | 8/5/2016 | | |
| 10.14 | | | | 10-Q | | 000-17781 | | 4.02 | | 8/5/2016 | | |
| 10.15 | | Assignment and Assumption, dated October 3, 2016, to the Term Loan Agreement dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.01 | | 2/3/2017 | | |
| 10.16 | | First Amendment, dated December 12, 2016, to the Term Loan Agreement, dated as of August 1, 2016, among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd., and TD Securities (USA) LLC, as Co-Documentation Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Bank, PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Joint Lead Arrangers and Joint Bookrunners. | | 10-Q | | 000-17781 | | 4.02 | | 2/3/2017 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.27(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 7/8/2020 | | |
| 10.28 | | Credit Agreement, effective as of November 4, 2019, among NortonLifeLock Inc., the issuing banks and lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, BofA Securities, Inc., Mizuho Bank, Ltd., Barclays Bank PLC, and The Bank of Nova Scotia, as Lead Arrangers and Joint Bookrunners, Bank of America, N.A., Mizuho Bank, Ltd., Barclays Bank PLC and The Bank of Nova Scotia, as Syndication Agents and and Goldman Sachs Bank USA, HSBC Securities (USA) Inc., MUFG Bank, Ltd., SunTrust Robinson Humphrey, Inc., Citizens Bank, N.A., BMO Capital Markets Corp., BNP Paribas Securities Corp. and Santander Bank, N.A., as Co-Documentation Agents. | | 8-K | | 000-17781 | | 10.01 | | 11/4/2019 | | |
| 10.29 | | | | 8-K | | 000-17781 | | 10.01 | | 7/8/2020 | | |
| 10.30(+) | | | | 10-Q | | 000-17781 | | 10.01 | | 2/5/2021 | | |
| 10.31 | | First Amendment, effective as of May [7], 2021, among NortonLifeLock Inc., JPMorgan Chase Bank, N.A., as Term Loan Administrative Agent, Wells Fargo Bank, National Association, as Revolver Administrative Agent, and the lenders and other parties thereto. | | 10-K | | 000-17781 | | 10.31 | | 5/21/2021 | | |
| 10.32 | | | | 8-K | | 000-17781 | | 10.02 | | 9/3/2021 | | |
| 10.33 | | Amended and Restated Interim Facilities Agreement, dated September 1, 2021, by and between NortonLifeLock Inc., the parties specified thereto, as acceding finance partners, BofA Securities, Inc. and Wells Fargo Securities, LLC, as arrangers, and Bank of America, N.A., as issuing bank, interim facility agent and interim security agent | | 8-K | | 000-17781 | | 10.01 | | 9/3/2021 | | |
| 10.34 | | | | 8-K | | 000-17781 | | 10.01 | | 6/7/2021 | | |
| 21.01 | | | | | | | | | | | | X |
| 23.01 | | | | | | | | | | | | X |
| 24.01 | | | | | | | | | | | | X |
| 31.01 | | | | | | | | | | | | X |
| 31.02 | | | | | | | | | | | | X |
| 32.01(††) | | | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.17 | | First Amendment, dated December 12, 2016, to the Credit Agreement, effective as of August 1, 2016, among the Registrant, the lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Term Loan A-1/Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan A-2 Administrative Agent, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Bank PLC, Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Royal Bank of Canada and Mizuho Bank, Ltd., as Lead Arrangers and Joint Bookrunners in respect of the Term A-2 Facility, Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Royal Bank of Canada, Mizuho Bank, Ltd. And TD Securities (USA) LLC, as Co-Documentation Agents in respect of the Term A-2 Facility, and Bank of America, N.A., as Syndication Agent in respect of Term A-2 Facility. | | 10-Q | | 000-17781 | | 4.03 | | 2/3/2017 | | |
| 10.18(*) | | | | 8-K | | 000-17781 | | 10.03 | | 10/25/2013 | | |
| 10.19(*) | | | | 10-K | | 000-17781 | | 10.18 | | 5/21/2021 | | |
| 10.20(*) | | | | 10-K | | 000-17781 | | 10.19 | | 5/21/2021 | | |
| 10.21(§§) | | Assignment of Copyright and Other Intellectual Property Rights, by and between Peter Norton and Peter Norton Computing, Inc., dated August 31, 1990. | | S-4 | | 33-35385 | | 10.37 | | 6/13/1990 | | |
| 10.22(†) | | | | S-1/A | | 333-83777 | | 10.27 | | 8/6/1999 | | |
| 10.23 | | | | 10-Q | | 000-17781 | | 10.01 | | 8/7/2007 | | |
| 10.24 | | | | 10-Q | | 000-17781 | | 10.01 | | 11/16/2018 | | |
| 10.25 | | | | 10-Q | | 000-17781 | | 10.02 | | 11/16/2018 | | |
| 10.26(*) | | | | 10-Q | | 000-17781 | | 10.01 | | 7/8/2020 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number
| | | | Incorporated by Reference | | Filed
Herewith
|
Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
32.02(††) | | | | | | | | | | | | X |
101.00 | | The following financial information from NortonLifeLock Inc.'s Annual Report on Form 10-K for the fiscal year ended April 1, 2022 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity (Deficit), (vi) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | | | | | | | | | | X |
104.00 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | | | X |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.27 | | Credit Agreement, effective as of November 4, 2019, among NortonLifeLock Inc., the issuing banks and lenders party thereto (the Lenders), Wells Fargo Bank, National Association, as Revolver Administrative Agent and Swingline Lender, JPMorgan Chase Bank, N.A., as Term Loan Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, BofA Securities, Inc., Mizuho Bank, Ltd., Barclays Bank PLC, and The Bank of Nova Scotia, as Lead Arrangers and Joint Bookrunners, Bank of America, N.A., Mizuho Bank, Ltd., Barclays Bank PLC and The Bank of Nova Scotia, as Syndication Agents and Goldman Sachs Bank USA, HSBC Securities (USA) Inc., MUFG Bank, Ltd., SunTrust Robinson Humphrey, Inc., Citizens Bank, N.A., BMO Capital Markets Corp., BNP Paribas Securities Corp. and Santander Bank, N.A., as Co-Documentation Agents. | | 8-K | | 000-17781 | | 10.01 | | 11/4/2019 | | |
| 10.28 | | | | 8-K | | 000-17781 | | 10.01 | | 7/8/2020 | | |
| 10.29(+) | | | | 10-Q | | 000-17781 | | 10.01 | | 2/5/2021 | | |
| 10.30 | | First Amendment, effective as of May [7], 2021, among NortonLifeLock Inc., JPMorgan Chase Bank, N.A., as Term Loan Administrative Agent, Wells Fargo Bank, National Association, as Revolver Administrative Agent, and the lenders and other parties thereto. | | 10-K | | 000-17781 | | 10.31 | | 5/21/2021 | | |
| 10.31 | | | | 8-K | | 000-17781 | | 10.02 | | 9/3/2021 | | |
| 10.32 | | Amended and Restated Interim Facilities Agreement, dated September 1, 2021, by and between NortonLifeLock Inc., the parties specified thereto, as acceding finance partners, BofA Securities, Inc. and Wells Fargo Securities, LLC, as arrangers, and Bank of America, N.A., as issuing bank, interim facility agent and interim security agent | | 8-K | | 000-17781 | | 10.01 | | 9/3/2021 | | |
| 10.33 | | | | 8-K | | 000-17781 | | 10.01 | | 6/7/2021 | | |
| 10.34++ | | Restatement Agreement, dated as of September 12, 2022, by and among the Company, the other Loan Parties thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as term loan administrative agent and collateral agent under the Existing Credit Agreement, Wells Fargo Bank, National Association, as revolver administrative agent under the Existing Credit Agreement, and Bank of America, N.A., in its capacity as Successor Administrative Agent. | | 8-K | | 000-17781 | | 10.01 | | 9/12/2022 | | |
| 10.35(*) | | | | S-8 | | 000-17781 | | 99.01 | | 9/12/2022 | | |
| 10.36(*) | | | | 10-Q | | 000-17781 | | 10.03 | | 11/9/2022 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | | | Incorporated by Reference | | Filed Herewith |
| Exhibit Description | | Form | | File No. | | Exhibit | | Filing Date | |
| 10.37(*) | | | | 10-Q | | 000-17781 | | 10.04 | | 11/9/2022 | | |
| 10.38(*) | | | | 10-Q | | 000-17781 | | 10.05 | | 11/9/2022 | | |
| 10.39(*) | | | | 10-Q | | 000-17781 | | 10.06 | | 11/9/2022 | | |
| 10.40 | | | | 10-Q | | 000-17781 | | 10.01 | | 8/5/2022 | | |
| 21.01 | | | | | | | | | | | | X |
| 23.01 | | | | | | | | | | | | X |
| 24.01 | | | | | | | | | | | | X |
| 31.01 | | | | | | | | | | | | X |
| 31.02 | | | | | | | | | | | | X |
| 32.01(††) | | | | | | | | | | | | X |
| 32.02(††) | | | | | | | | | | | | X |
| 101.00 | | The following financial information from Gen Digital Inc.'s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity (Deficit), (vi) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | | | | | | | | | | X |
| 104.00 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | | | X |
| | | | | |
| * | Indicates a management contract, compensatory plan or arrangement. |
| ** | Filed by LifeLock, Inc. |
| § | The exhibits and schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally copies of any such exhibits and schedules to the SEC upon request. |
| §§ | Paper filing. |
| † | Filed by Veritas Software Corporation. |
| †† | This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K. |
| + | Certain portions of this document that constitute confidential information have been redacted in accordance with Regulations S-K, Item 601(b)(10). |
| ++ | Certain schedules and similar attachments to the exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5) |
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on the 20th24th day of May 2022.2023.
| | | | | | | | |
| | NORTONLIFELOCKGEN DIGITAL INC. |
| | |
| By: | /s/ Vincent Pilette |
| | Vincent Pilette Chief Executive Officer and Director |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vincent Pilette, Natalie Derse, and Bryan Ko, and each or any of them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities to sign any and all amendments to this report on Form 10-K and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Vincent Pilette | | Chief Executive Officer and Director (Principal Executive Officer) | | May 20, 202224, 2023 |
| Vincent Pilette | | |
| | | | |
| /s/ Natalie Derse | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) | | May 20, 202224, 2023 |
| Natalie Derse | | |
| | | | |
| /s/ Ondrej Vlcek | | President and Director | | May 24, 2023 |
| Ondrej Vlcek | | |
| | | | |
| /s/ Frank E. Dangeard | | Chairman of the Board | | May 20, 202224, 2023 |
| Frank E. Dangeard | | |
| | | | |
| /s/ Sue Barsamian | | Director | | May 20, 202224, 2023 |
| Sue Barsamian | | |
| | | | |
| /s/ Pavel Baudis | | Director | | May 24, 2023 |
| Pavel Baudis | | |
| | | | |
| /s/ Eric K. Brandt | | Director | | May 20, 202224, 2023 |
| Eric K. Brandt | | |
| | | | |
| /s/ Nora Denzel | | Director | | May 20, 202224, 2023 |
| Nora Denzel | | |
| | | | |
| /s/ Peter A. Feld | | Director | | May 20, 202224, 2023 |
| Peter A. Feld | | |
| | | | |
/s/ Kenneth Y. Hao | | Director | | May 20, 2022 |
Kenneth Y. Hao | | |
| | | | |
| /s/ Emily Heath | | Director | | May 20, 202224, 2023 |
| Emily Heath | | |
| | | | |
| /s/ Sherrese M. Smith | | Director | | May 20, 202224, 2023 |
| Sherrese M. Smith | | |
