UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
DECEMBER 30, 1994.
OR
/ / 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 0-17781
- -------------------------------------------------------------------------------
SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 253-9600
- -------------------------------------------------------------------------------
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 X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of February 7, 1995:
COMMON STOCK, PAR VALUE $0.01 PER SHARE 36,779,026 SHARES
SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED DECEMBER 30, 1994
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1 Financial Statements
Consolidated Balance Sheets
as of December 31, 1994 and March 31, 1994................ 3
Consolidated Statements of Operations
for the three and nine months ended
December 31, 1994 and 1993................................ 4
Consolidated Statements of Cash Flow
for the nine months ended December 31, 1994
and 1993.................................................. 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 22
Item 4. Submission of Matters to a Vote of Security Holders............. 22
Item 5. Other Information............................................... 23
Item 6. Exhibits and Reports on Form 8-K................................ 23
Signatures................................................................ 24
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1994 1994
- ----------------------------------------- ------------ -------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 87,046 $ 60,534
Trade accounts receivable 44,513 48,342
Inventories 5,572 7,842
Deferred income taxes 12,705 17,975
Other 6,243 13,660
---------- ----------
Total current assets 156,079 148,353
Equipment and leasehold improvements 25,276 25,369
Purchased intangibles 9,870 11,228
Other 4,742 3,842
---------- ----------
$ 195,967 $ 188,792
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,305 $ 27,556
Accrued compensation and benefits 10,839 12,257
Accrued other expenses 50,887 57,745
Income taxes payable 707 367
Current portion of long-term obligations 574 847
---------- ----------
Total current liabilities 77,312 98,772
Long-term obligations 25,543 25,966
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock (authorized:
1,000 shares; issued and
outstanding: none) -- --
Common stock (authorized: 70,000
and 50,000 shares; issued and
outstanding: 36,452 and 34,990 shares) 365 350
Capital in excess of par value 169,039 157,637
Notes receivable from stockholders (144) (149)
Translation adjustment (2,265) (2,183)
---------- ----------
Accumulated deficit (73,883) (91,601)
---------- ----------
Total stockholders' equity 93,112 64,054
---------- ----------
$ 195,967 $ 188,792
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ --------------------------
(In thousands, except per share data; unaudited) 1994 1993 1994 1993
- ------------------------------------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 84,128 $ 82,661 $ 246,319 $ 251,169
Cost of revenues 14,935 18,612 46,147 62,085
--------- --------- ----------- -----------
Gross margin 69,193 64,049 200,172 189,084
Operating expenses:
Research and development 15,410 15,031 44,906 48,129
Sales and marketing 38,060 37,044 109,110 124,864
General and administrative 3,958 5,464 12,295 19,223
Acquisition, restructuring and other
expenses -- 21,500 9,545 40,558
--------- --------- ----------- -----------
Total operating expenses 57,428 79,039 175,856 232,774
--------- --------- ----------- -----------
Operating income (loss) 11,765 (14,990) 24,316 (43,690)
Interest income 864 327 1,980 1,055
Interest expense (639) (566) (1,842) (1,872)
Other income (expense), net 88 (186) 26 (343)
--------- --------- ----------- -----------
Income (loss) before income taxes 12,078 (15,415) 24,480 (44,850)
Income tax provision (benefit) 3,020 (4,342) 6,399 (8,986)
--------- --------- ----------- -----------
Net income (loss) $ 9,058 $ (11,073) $ 18,081 $ (35,864)
--------- --------- ----------- -----------
Net income (loss) per share $ 0.25 $ (0.33) $ 0.50 $ (1.07)
--------- --------- ----------- -----------
Shares used to compute per share data 36,865 33,960 36,527 33,479
--------- --------- ----------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------------
(In thousands; unaudited) 1994 1993
- --------------------------------------------------------- --------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 18,081 $(35,864)
Fifth Generation net loss for the three months ended March
31, 1993 -- (16,390)
XTree net loss for the six months ended March 31, 1993 -- (1,040)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation and amortization of equipment
and leasehold improvements 9,694 10,899
Write-off of equipment and leasehold improvements -- 2,183
Amortization and write-off of capitalized software costs 6,544 13,431
Deferred income taxes 5,296 (4,500)
Net change in assets and liabilities:
Trade accounts receivable 5,036 14,785
Inventories 2,377 912
Other current assets 7,680 9,696
Other assets (272) 1,004
Accounts payable (13,639) (11,455)
Accrued compensation and benefits (1,520) (1,385)
Accrued other expenses (7,241) 14,180
Income taxes payable 238 (2,364)
--------- ---------
Net cash provided by (used in) operating activities 32,274 (5,908)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (9,183) (5,507)
Purchased intangibles (6,795) (10,883)
Purchases of short-term investments (80,377) (54,199)
Proceeds from sales of short-term investments 43,645 16,877
--------- ---------
Net cash used in investing activities (52,710) (53,712)
--------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term obligations (710) (11,728)
Net proceeds from sales of common stock
and other 11,059 20,329
--------- ---------
Net cash provided by financing activities 10,349 8,601
--------- ---------
Effect of exchange rate fluctuations on
cash and cash equivalents (133) (687)
Decrease in cash and cash equivalents (10,220) (51,706)
Beginning cash and cash equivalents 32,911 66,700
--------- ---------
Ending cash and cash equivalents $ 22,691 $ 14,994
--------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Symantec Corporation ("Symantec" or the
"Company") as of December 31, 1994 and for the three and nine months ended
December 31, 1994 and 1993 are unaudited and, in the opinion of management,
contain all adjustments, consisting of only normal recurring items necessary for
the fair presentation of the financial position and results of operations for
the interim periods. These consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in Symantec's Registration Statement on Form S-3, as declared effective
on February 3, 1995, the Consolidated Financial Statements and notes thereto
included in Symantec's Annual Report on Form 10-K, as amended, for the year
ended March 31, 1994, the Central Point Consolidated Financial Statements and
the Symantec and Central Point Pro Forma Combined Balance Sheet and Combined
Statements of Operations and notes thereto included on Symantec's Current Report
on Form 8-K filed on June 16, 1994, as amended on June 24, 1994 and the Fifth
Generation Consolidated Financial Statements and the Symantec and Fifth
Generation Pro Forma Combined Balance Sheet and Combined Statements of
Operations and notes thereto included on Symantec's Current Report on Form 8-K
filed on October 19, 1993. The results of operations for the three and nine
months ended December 31, 1994 are not necessarily indicative of the results to
be expected for the entire year.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references
as of and for the periods ended December 31, 1994, March 31, 1994 and December
31, 1993 reflect amounts as of and for the periods ended December 30, 1994,
April 1, 1994 and December 31, 1993, respectively.
Symantec acquired the following companies during fiscal 1995 and 1994:
<TABLE>
<CAPTION>
Acquired
Shares of Company
Symantec Stock
Common Options
Companies Acquired Date Acquired Stock Issued Assumed
- ---------------------------------------------- --------------- ------------ -------
<S> <C> <C> <C>
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc. ("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 2,769,010 --
Contact Software International, Inc. ("Contact") June 2, 1993 2,404,019 232,589
</TABLE>
In addition, during the year ended March 31, 1994, Central Point acquired
Executive Systems, Inc. ("XTree"). All of these acquisition were accounted for
as poolings of interest and with the exception of Intec and SLR, which had
results of operations that were immaterial to Symantec, all financial
information has been restated to reflect the combined operations of these
companies and Symantec.
Due to differing fiscal year ends of Central Point and XTree, financial
information related to XTree's fiscal year ended September 30, 1992 has been
combined with financial information related to Central Point's year ended
March 31, 1993. Accordingly, XTree's results of operations for the six months
ended March 31, 1993 were charged to stockholders' equity. XTree reported net
revenues of $6.9 million and a net loss of $1.0 million for the six months ended
March 31, 1993.
6
The table below sets forth the composition of combined net revenues and net
income (loss) for the pre-acquisition periods indicated. Information with
respect to Central Point for the nine months ended December 31, 1994 reflects
the two months ended June 1, 1994, the date Central Point was acquired. Net
revenues and net income (loss) for the pre-acquisition periods with respect to
Intec and SLR were immaterial.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- ------------------------
(In thousands; unaudited) 1994 1993 1994 1993
- ------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Symantec $ 84,128 $ 67,053 $ 232,833 $ 197,829
Central Point -- 15,608 13,486 53,340
-------- --------- --------- ----------
$ 84,128 $ 82,661 $ 246,319 $ 251,169
-------- --------- --------- ----------
Net income (loss):
Symantec $ 9,058 $ (9,187) $ 15,430 $ (18,318)
Central Point -- (1,886) 2,651 (17,546)
-------- --------- --------- ----------
$ 9,058 $(11,073) $ 18,081 $ (35,864)
-------- --------- --------- ----------
</TABLE>
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1994 1994
- ------------------------------------------ ------------ ---------
(unaudited)
<S> <C> <C>
Cash and short-term investments:
Cash and cash equivalents. . . . . . . . $ 22,691 $ 32,911
Short-term investments . . . . . . . . . 64,355 27,623
------------ ---------
$ 87,046 $ 60,534
------------ ---------
Trade accounts receivable:
Receivables. . . . . . . . . . . . . . . $ 48,416 $ 52,676
Less: allowance for doubtful accounts (3,903) (4,334)
------------ ---------
$ 44,513 $ 48,342
------------ ---------
Inventories:
Raw materials. . . . . . . . . . . . . . $ 1,180 $ 1,189
Finished goods . . . . . . . . . . . . . 4,392 6,653
------------ ---------
$ 5,572 $ 7,842
------------ ---------
Equipment and leasehold improvements:
Computer equipment . . . . . . . . . . . $ 43,287 $ 39,804
Office furniture and equipment . . . . . 19,023 20,723
Leasehold improvements . . . . . . . . . 7,850 7,201
------------ ---------
70,160 67,728
Less: accumulated depreciation and
amortization . . . . . . . . . . . . . (44,884) (42,359)
------------ ---------
$ 25,276 $ 25,369
------------ ---------
Purchased intangibles:
Product rights . . . . . . . . . . . . . $ 31,192 $ 29,998
Less:accumulated amortization. . . . . . (21,322) (18,770)
------------ ---------
$ 9,870 $ 11,228
------------ ---------
7
December 31, March 31,
(In thousands) 1994 1994
- ------------------------------------------ ------------ ---------
(unaudited)
<S> <C> <C>
Accrued other expenses:
Acquisition and restructuring expenses . $ 10,026 $ 14,076
Deferred revenue . . . . . . . . . . . . 23,063 23,612
Marketing development funds. . . . . . . 6,925 6,438
Other. . . . . . . . . . . . . . . . . . 10,873 13,619
------------ ---------
$ 50,887 $ 57,745
------------ ---------
Long-term obligations:
Long-term obligations. . . . . . . . . . $ 26,117 $ 26,813
Less: current portion. . . . . . . . . . (574) (847)
------------ ---------
$ 25,543 $ 25,966
------------ ---------
</TABLE>
NOTE 3. LINE OF CREDIT
The Company has a $10.0 million bank line of credit that expires in October
1995. The line of credit is available for general corporate purposes and bears
interest at the banks' reference (prime) interest rate (8.50% at
December 31, 1994), the U.S. offshore rate plus 1.5%, a CD rate plus 1.5% or
LIBOR plus 1.5%, at the Company's discretion. The line of credit requires bank
approval for the payment of cash dividends. Borrowings under this line are
unsecured and are subject to the Company maintaining certain financial ratios
and profits. The Company was in compliance with the line of credit covenants as
of December 31, 1994. At December 31, 1994, there was approximately $0.5
million of standby letters of credit outstanding under this line of credit.
There were no borrowings outstanding under this line at December 31, 1994.
NOTE 4. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES
Acquisition, restructuring and other expenses consist of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
(In thousands) 1994 1993 1994 1993
- ------------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Central Point acquisition $ -- $ -- $ 9,000 $ --
SLR acquisition -- -- 545 --
Fifth Generation acquisition -- 15,000 -- 15,000
XTree acquisition -- -- -- 3,457
Contact acquisition -- -- -- 7,400
Class action lawsuit settlement -- 6,500 -- 6,500
Central Point purchased in-process research
and development -- -- -- 1,275
Central Point restructuring charge -- -- -- 2,226
Centralization expense -- -- -- 4,700
------- ------- ------- -------
Total acquisition, restructuring and
other expenses $ -- $21,500 $ 9,545 $40,558
------- ------- ------- -------
</TABLE>
On August 31, 1994, Symantec completed the acquisition of Intec Systems
Corporation ("Intec"). No significant acquisition expenses related to the
combination of Symantec and Intec were incurred.
8
In connection with the acquisitions of Central Point and SLR in the quarter
ended June 30, 1994, (see Note 1), Symantec recorded total acquisition charges
of $9.5 million. The charges included $3.2 million for legal, accounting and
financial advisory services, $1.0 million for the write-off of duplicative
product-related expenses and modification of certain development contracts, $0.9
million for the elimination of duplicative and excess facilities, $3.1 million
for personnel severance and outplacement expenses, and $1.3 million for the
consolidation and discontinuance of certain operational activities and other
acquisition related expenses.
In connection with the acquisition of Fifth Generation in the quarter ended
December 31, 1993, (see Note 1), Symantec recorded an acquisition charge of
$15.0 million. The charge included $2.0 million for legal, accounting and
financial advisory services, $7.6 million for the write-off of duplicative
product related expenses and modification of certain development contracts, $0.8
million for the elimination of duplicative and excess facilities, $2.4 million
for personnel severance and outplacement expenses, and $2.2 million for the
consolidation and discontinuance of certain operational activities and other
acquisition related expenses.
In connection with the acquisition of XTree by Central Point in the quarter
ended September 30, 1993, Central Point recorded an acquisition charge of $3.5
million. The charge included $0.2 million for legal, accounting and financial
advisory services, $1.8 million for the elimination of duplicative and excess
facilities, $1.0 million for personnel severance and outplacement expenses, and
$0.5 million for the consolidation and discontinuance of certain operational
activities and other acquisition related expenses.
In connection with the acquisition of Contact in the quarter ended June 30, 1993
(see Note 1), Symantec recorded an acquisition charge of $7.4 million. The
charge included $2.1 million for legal, accounting and financial advisory
services, $1.1 million for the elimination of duplicative and excess facilities,
$1.9 million for personnel severance and outplacement expenses, and $2.3 million
for the consolidation and discontinuance of certain operational activities and
other acquisition related expenses.
In the quarter ended December 31, 1993, Symantec reached an agreement with the
plaintiffs and Symantec's insurance carriers to settle two securities class
actions and a related derivative lawsuit brought by stockholders of Symantec
(see Note 8). The combined settlement amount of the cases was $19.0 million,
approximately $12.5 million of which was paid by Symantec's insurance carriers.
Symantec recorded a charge of $6.5 million in the quarter ended December 31,
1993, representing Symantec's portion of the class action settlement
(see Note 8).
In the quarter ended September 30, 1993, Central Point purchased from unrelated
parties certain in-process software technologies for $1.3 million which were
immediately expensed. In the quarter ended September 30, 1993, Central Point
incurred $2.2 million of expenses related to the restructuring of its operations
in order to reduce its overall cost structure and to redirect its software
development and marketing efforts away from the personal desktop computer market
toward the personal computer network market.
In the quarter ended June 30, 1993, Symantec announced a plan to consolidate and
centralize certain operational activities. The plan was designed to reduce
operating expenses and enhance operational efficiencies by centralizing certain
order administration, technical support and customer service activities in
Eugene, Oregon. The Company recorded a charge of $4.7 million in the quarter
ended June 30, 1993, which included $1.1 million for the elimination of
duplicative and excess facility expenses, $1.5 million for the relocation of the
Company's existing operations and equipment, $1.1 million for employee
relocation expenses and $1.0 million for employee severance payments. The
Company's centralization has been completed.
9
As of December 31, 1994, Symantec had approximately $10.2 million of accrued
acquisition and restructuring related expenses related to company acquisitions
and the restructuring of Central Point's software development efforts away from
the personal desktop computer market toward the personal computer network market
which occurred in fiscal 1994. Total accrued acquisition expenses were $6.8
million and total accrued restructuring expenses were $3.4 million as of
December 31, 1994. These cash related expenses include $1.4 million for
duplicative product-related expenses and modification of certain development
contracts, $2.6 million for the elimination of duplicative and excess
facilities, $4.1 million for personnel severance and outplacement expenses, and
$2.1 million for the consolidation and discontinuance of certain operational
activities and other acquisition and restructuring related expenses.
NOTE 5. INCOME TAXES
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Symantec provides for income
taxes during interim reporting periods based upon an estimate of its annual
effective tax rate. This estimate reflects U.S. federal, state and foreign
income taxes.
NOTE 6. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated using the treasury stock method.
Under the treasury stock method, net income (loss) per share is calculated using
the weighted average number of common and dilutive common equivalent shares
outstanding during each period. Common stock equivalents consist principally of
the assumed exercises of stock options net of the assumed repurchase of shares
with any related proceeds.
In those periods where the Company recorded net income and the number of shares
of common stock obtainable on exercises of outstanding options and warrants
exceeds 20 percent of the number of common shares outstanding at the end of the
period, all of the options and warrants are assumed to have been exercised and
the aggregate proceeds to have been applied to the repurchase of up to 20
percent of the outstanding common shares at the average market price during the
period, with the balance of the funds first applied to reduce borrowings and any
remaining funds are assumed to be invested in U.S. government securities, net of
any income tax effect.
The difference between primary and fully diluted net income (loss) per share is
either not significant or anti-dilutive in all periods presented.
NOTE 7. STOCK OPTION PLANS
As of September 30, 1994, the Company had granted options representing
approximately 1.7 million shares in excess of the total number of shares
authorized under the 1988 Employee Stock Option Plan. During the quarter ended
December 31, 1994, the Company obtained stockholder approval of an increase in
the number of shares authorized under that Plan sufficient to cover these
options.
NOTE 8. LITIGATION
On December 30, 1994, Software Engineering Carmel ("Carmel") filed a lawsuit in
the U.S. District Court for the District of Oregon against Central Point, a
wholly owned subsidiary of the Company. Carmel developed and maintains the
anti-virus program distributed by Central Point. The complaint alleges that
Central Point breached its contract with Carmel by not fulfilling an implied
obligation under the contract to use its best efforts or, alternatively, its
reasonable efforts to market the anti-virus program developed by Carmel. The
complaint also alleges that Central Point violated the non-competition provision
in its agreement, by selling a competing anti-virus program, apparently based on
Symantec's sale of its own anti-virus product. The complaint seeks damages in
the amount of $6.75 million and a release of Carmel from its obligation not to
sell competing products. Symantec believes the complaint has no merit.
On September 3, 1992, Borland International, Inc. ("Borland") filed a lawsuit in
the Superior Court for Santa Cruz County, California against Symantec, Gordon E.
Eubanks, Jr. (Symantec's President and Chief Executive Officer)
10
and Eugene Wang (an Executive Vice President of Symantec who is a former
employee of Borland). The complaint, as amended, alleges misappropriation of
trade secrets, unfair competition, inducing breach of contract, interference
with prospective economic advantage and unjust enrichment. Borland alleged that
prior to joining Symantec, Mr. Wang transmitted to Mr. Eubanks confidential
information concerning Borland's product and marketing plans. Borland claims
damages in an unspecified amount. Symantec has denied the allegations of
Borland's complaint and contends that Borland has suffered no damages from the
alleged actions. Borland obtained a temporary restraining order and a
preliminary injunction prohibiting the defendants from using, disseminating or
destroying any Borland proprietary information or trade secrets. Symantec filed
a cross complaint against Borland alleging that Borland had committed abuse of
process and defamation in publishing statements that Symantec had acted in
contempt of a temporary restraining order. The case is not being actively
prosecuted at this time pending the outcome of the criminal proceedings,
discussed below. Symantec believes the charges have no merit.
On September 2, 1992, the Scotts Valley, California police department, operating
with search warrants for Borland proprietary and trade secret information,
searched Symantec's offices and the homes of Messrs. Eubanks and Wang and
removed documents and other materials. On February 26, 1993, criminal
indictments were filed against Messrs. Eubanks and Wang for allegedly violating
various California Penal Code Sections relating to the misappropriation of trade
secrets and unauthorized access to a computer system. On August 23, 1993, the
Court recused the District Attorney's Office from prosecution of the action. On
October 5, 1993, the State Attorney General and the District Attorney's Office
filed a Notice of Appeal of the Order. Symantec believes the criminal charges
against Messrs. Eubanks and Wang have no merit.
On December 11, 1992 and April 19, 1993, class action complaints were filed in
U.S. District Court for the Northern District of California against the Company,
all of its directors and certain of its officers. The complaints as amended
alleged violations of federal securities laws and claimed that during the period
from June 3, 1991 through October 8, 1992, the defendants disseminated and
allowed to be disseminated, misleading statements and concealed adverse material
information. The December 11, 1992 complaint also contained two claims for
relief asserted derivatively on behalf of the Company against the individual
defendants for breach of fiduciary duty, including permitting or engaging in
alleged illegal insider trading. Symantec reached an agreement with the
plaintiffs and Symantec's insurance carriers and settled these two securities
class actions and the related derivative lawsuit. The settlement was approved
by the Court on June 6, 1994. The settlement concluded all outstanding
securities class actions and derivative claims that were pending against
Symantec. The combined settlement amount of the cases was $19.0 million,
approximately $12.5 million of which was paid by Symantec's insurance carriers.
Symantec recorded a charge of $6.5 million in the quarter ended December 31,
1993 representing Symantec's portion of the settlement.
On June 11, 1992, Dynamic Microprocessor Associates, Inc. ("DMA"), a wholly-
owned subsidiary of Symantec, commenced an action against EKD Computer Sales &
Supplies Corporation ("EKD"), a former licensee of DMA and Thomas Green, a
principal of EKD, for copyright infringement, violations of the Lanham Act,
trademark infringement, misappropriation, deceptive acts and practices and
unfair competition and breach of contract. On July 14, 1992, the Suffolk County
sheriff's department conducted a search of EKD's premises and seized and
impounded thousands of infringing articles. On July 21, 1992, the Court issued
a preliminary injunction against EKD and Mr. Green, enjoining them from
manufacturing, marketing, distributing, copying or purporting to license DMA's
pcANYWHERE III or using DMA's marks. On February 19, 1993, EKD moved to vacate
the preliminary injunction. The Court denied the motion orally in April 1993
and issued a written opinion in September 1993, and EKD appealed this denial.
EKD's appeal was denied in March 1994, leaving the preliminary injunction in
place.
On July 20, 1992 and in a subsequent amendment, EKD and Mr. Green answered
Symantec's complaint denying all liability and asserting counterclaims against
Symantec and Lee Rautenberg, a former principal of DMA. In
11
May 1993, EKD and Mr. Green were granted permission to file a Second Amended
Answer and counterclaims that dropped every previously raised claim and now
allege that DMA obtained the temporary restraining order and preliminary
injunction in bad faith and that DMA, Symantec and Mr. Rautenberg breached
certain license agreements and violated certain federal and New York State
antitrust laws. In March 1994, Symantec moved for judgment on certain of EKD's
claims including that Symantec, DMA and Mr. Rautenberg had violated the
antitrust laws. In August 1994, DMA moved to amend its complaint to assert
additional claims against EKD. Both of these motions are currently pending.
Symantec believes the charges made by EKD and Mr. Green have no merit.
As a result of the acquisition of DMA by Symantec, an individual formerly
associated with DMA has filed a lawsuit in the Supreme Court of the State of New
York against DMA, Symantec and Lee Rautenberg. The lawsuit alleges that Peter
Byer was promised 8% of the outstanding DMA common stock in connection with his
performance of services for DMA. The suit also alleges that Mr. Byer was to be
paid additional compensation based upon sales made by DMA. Mr. Byer has further
amended his complaint to claim that DMA was unjustly enriched because it paid
Mr. Byer less than the fair value of his services. The lawsuit seeks damages of
at least $5.3 million. Symantec believes the charges have no merit.
Furthermore, Mr. Rautenberg and the other stockholders of DMA have an obligation
to indemnify Symantec for liabilities resulting from this action.
Symantec is involved in other judicial and administrative proceedings incidental
to its business. Although occasional adverse decisions (or settlements) may
occur, the final disposition of such matters is not expected to be material.
The Company intends to defend all of the aforementioned pending lawsuits
vigorously and although an unfavorable outcome could occur in one or more of the
cases, the final resolution of these lawsuits, individually or in the aggregate,
is not expected to have a material adverse effect on the financial position of
the Company. However, depending on the amount and timing of an unfavorable
resolution of these lawsuits, it is possible that the Company's future results
of operations or cash flows could be materially adversely effected in a
particular period.
NOTE 9. SUBSEQUENT EVENT
During February 1995, Symantec announced a plan to consolidate certain research
and development activities. This plan is designed to gain greater synergy
between the Company's Third Generation Language and Fourth Generation Language
development groups. The Company expects to incur costs of approximately $4.0
million to $5.0 million for the relocation of the Company's existing research
and development activities, equipment and personnel from Shelton, Connecticut to
Cupertino, California. The Company expects to complete this relocation by
December 1995 with the bulk of the costs occurring in the September 1995
quarter.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the unaudited
consolidated financial statements included elsewhere herein. Due to a number of
factors and risks, including the rapid change in hardware and software
technology, market conditions, seasonality in the retail software market, the
timing of product announcements, the release of new or enhanced products, the
introduction of competitive products by existing or new competitors and the
significant risks associated with acquisitions of companies, technology and
software product rights, historical results and percentage relationships will
not necessarily be indicative of the operating results of any future period.
The pending release of a new operating system ("Windows 95") by Microsoft is a
particularly important event that increases the uncertainty and will likely
increase the volatility of Symantec's results and stock price over the next
year.
The Company's earnings and stock price have been and may continue to be subject
to significant volatility, particularly on a quarterly basis. Symantec has
previously experienced shortfalls in revenue and earnings from levels expected
by securities analysts, which had an immediate and significant adverse effect on
the trading price of the Company's common stock. This may occur again in the
future. Additionally, as a growing percentage of the Company's revenues are
generated from enterprise software products which are frequently sold through
site licenses which often occur late in the quarter, the Company may not learn
of revenue shortfalls until late in the fiscal quarter, which could result in an
even more immediate and adverse effect on the trading price of the Company's
common stock. Finally, the Company participates in a highly dynamic industry,
which often results in significant volatility of the Company's common stock
price. In particular, investor enthusiasm surrounding Microsoft's new operating
system, Windows 95, may result in a significant increase in the volatility in
Symantec's stock price during the first year after the introduction of that
operating system.
Net income (loss) per share is calculated using the treasury stock method (see
Note 6 of Notes to Consolidated Financial Statements). Increases in the price
of the Company's common stock can have an adverse impact on the calculation of
net income per share in that period.
During fiscal 1995 and 1994, Symantec completed acquisitions of the following
companies:
<TABLE>
<CAPTION>
Acquired
Shares of Company
Symantec Stock
Common Options
Companies Acquired Date Acquired Stock Issued Assumed
- ---------------------------------------------------------------------- ------------ -------
<S> <C> <C> <C>
Intec Systems Corporation ("Intec") August 31, 1994 133,332 --
Central Point Software, Inc. ("Central Point") June 1, 1994 4,029,429 707,452
SLR Systems, Inc. ("SLR") May 31, 1994 170,093 --
Fifth Generation Systems, Inc. ("Fifth Generation") October 4, 1993 2,769,010 --
Contact Software International, Inc. ("Contact") June 2, 1993 2,404,019 232,589
</TABLE>
In addition, during the year ended March 31, 1994, Central Point acquired
Executive Systems, Inc. ("XTree"). All of these acquisition were accounted for
as poolings of interest and with the exception of Intec and SLR, which had
results of operations which were immaterial to Symantec, all financial
information has been restated to reflect the combined operations of these
companies and Symantec.
13
RESULTS OF OPERATIONS
The following table sets forth each item from the consolidated statements of
operations as a percentage of net revenues and the percentage change in the
total amount of each item for the periods indicated.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Percent Ended Percent
December 31, Change December 31, Change
------------- in Dollar --------------- in Dollar
1994 1993 Amounts 1994 1993 Amounts
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenues. . . . . . . . . . . . . . . 100% 100% 2% 100% 100% (2)%
Cost of revenues . . . . . . . . . . . . 18 23 (20) 19 25 (26)
---- ---- ---- ----
Gross margin . . . . . . . . . . . . 82 77 8 81 75 6
Operating expenses:
Research and development . . . . . . . . 18 18 3 18 19 (7)
Sales and marketing . . . . . . . . . . 45 44 3 44 50 (13)
General and administrative . . . . . . . 5 7 (28) 5 7 (36)
Acquisition, restructuring and other
expenses . . . . . . . . . . . . . . . -- 26 (100) 4 16 (77)
---- ---- ---- ----
Total operating expenses . . . . . . . 68 95 (27) 71 92 (25)
---- ---- ---- ----
Operating income (loss) . . . . . . . . . . 14 (18) * 10 (17) *
Interest income . . . . . . . . . . . . . . 1 -- 164 1 -- 88
Interest expense . . . . . . . . . . . . . (1) (1) 13 (1) (1) (2)
Other income (expense), net . . . . . . . . -- -- * -- -- *
---- ---- ---- ----
Income (loss) before income taxes . . . . . 14 (19) * 10 (18) *
Income tax provision (benefit) . . . . . . 3 (6) * 3 (4) *
---- ---- ---- ----
Net income (loss) . . . . . . . . . . . . . 11% (13)% * 7% (14)% *
---- ---- ---- ----
<FN>
- -----------------------------------
* percentage change is not meaningful.
</TABLE>
14
NET REVENUES. Net revenues increased 2%, from $82.7 million in the quarter
ended December 31, 1993 to $84.1 million in the current year's comparable
quarter, principally due to an increase in network/communication utility and
security utility revenues which was partially offset by a decrease in advanced
utility and development tools revenues. This reflects, in part, what Symantec
believes is the market's transition to enterprise-wide computing oriented
environments which use network/communication and security utility products.
Symantec believes that many of its customers are moving toward an enterprise-
wide computing oriented environment where more desktop personal computers will
be interconnected into large local-area and wide-area networks administered by
corporate MIS departments. Revenues from enterprise products increased from 20%
of total net revenues in the quarter ended December 31, 1993 to 33% in the
quarter ended December 31, 1994.
Net revenues from international sales decreased from approximately $31.9 million
to $31.1 million and represented 39% and 37% of total net revenues for the
quarters ended December 31, 1993 and 1994, respectively.
Revenues for the nine months ended December 31, 1994 decreased 2%, from $251.2
million for the nine months ended December 31, 1993 to $246.3 million for the
nine months ended December 31, 1994, due to a decrease in Central Point and
Fifth Generation product revenues. Various software products developed and sold
by acquired companies, including Central Point and Fifth Generation, duplicate
the functionality of Symantec products. Symantec may continue to separately
market each of the duplicative products, combine certain features of the
products into a single product and/or discontinue marketing a particular
duplicative product. As a result, future product revenues may be adversely
affected.
Due to the inherent uncertainties in software development and in the
microcomputer software industry, the Company is unable to predict whether the
net revenue trends listed above will continue.
The Company's products include enterprise products which are frequently sold
through site licenses where a license for multiple workstations is sold to a
customer and desktop software products which are generally sold through the
distribution channel or directly to end-users. Enterprise product revenues are
typically comprised of lower volume, high dollar site license transactions
compared to desktop product revenues which are typically comprised of higher
volume, low dollar pre-packaged product sales. The prices of site licenses tend
to vary based upon the individual products purchased, the number of units
licensed and the number of work stations at the customer's site. There was no
material impact to net revenues resulting from changes in desktop product
pricing.
During the March 1995 quarter, Symantec announced a rebate program for The
Norton AntiVirus and The Norton pcANYWHERE products. This rebate program is
designed to increase volume shipments of these products by offering a cash
rebate to endusers. Should volume shipments of these products not increase, net
revenues associated with these products would be adversely affected.
While the acquisition of Central Point and Fifth Generation has enabled further
development of software products for enterprise-wide computing, these products
are expected to result in Symantec's competing with companies with which it has
not previously competed. As a result, there is uncertainty regarding customer
acceptance of the Company's products as Symantec has not been a major supplier
in the enterprise market. These factors increase the uncertainty of forecasting
financial results. While the Company expects the shift toward enterprise
products to continue, there can be no assurance that the Company's enterprise
products will be successful.
With the expansion to enterprise-wide computing systems markets, Symantec
believes that it must develop relationships with systems integrators and other
third-party vendors that provide consulting and integration services to
customers and deliver products developed for this market segment. Furthermore,
the length of the sales cycle with respect to enterprise products is longer and
customers of enterprise products may take delivery of a product subject to
integration and acceptance by the customer. In addition, a very high proportion
of enterprise product sales are completed in the last few days of each quarter,
in part because customers are able, or believe that they are able, to negotiate
lower prices and more favorable terms. Each of these factors increases the risk
that forecasts of quarterly financial results will not be achieved.
15
During the quarter ended December 31, 1994, Symantec released The Norton
pcANYWHERE for Windows v. 2.0, The Norton pcANYWHERE Access Server v. 1.0, More
PC Tools for DOS and Windows, MacTools Pro v. 4.0 and Time Line for Windows v.
6.1.
Enhanced product releases typically result in net revenue increases during the
first three to six months following their introduction due to upgrade purchases
by existing users, usually at discounted prices, and initial inventory purchases
by the Company's distributors. In addition, between the date the Company
announces a new version or new product and the date of release, distributors,
dealers and end users often delay purchases, cancel orders or return products in
anticipation of the availability of the new version or new product.
While Symantec's diverse product line has tended to lessen fluctuations in
quarterly net revenues caused by the timing of announcements and releases of new
or enhanced versions of its products and product upgrades, the introduction of
competitive products by existing or new competitors, reduced demand for any
given product, the market's transition between operating systems, and the
transition from a desktop PC environment to an enterprise-wide environment,
these fluctuations have occurred recently and are likely to occur in the future
and may cause significant fluctuations in sales revenues and, accordingly,
operating results.
The Company's pattern of revenues and earnings may also be affected by a
phenomenon known as "channel fill." Channel fill occurs following the
introduction of a new product or a new version of a product as distributors buy
significant quantities of the new product or version in anticipation of sales of
such product or version. Following such purchases, the rate of distributors'
purchases often declines in a material amount, depending on the rates of
purchases by end users or "sell-through." The phenomenon of "channel fill" may
also occur in anticipation of price increases or in response to sales promotions
or incentives, some of which may be designed to encourage customers to
accelerate purchases that might otherwise occur in later periods. Channels may
also become filled simply because the distributors are unable to, or do not,
sell their inventories to retail distribution or end users as anticipated. If
sell-through does not occur at a sufficient rate, distributors will delay
purchases or cancel orders in later periods or return prior purchases in order
to reduce their inventories. Such order delays or cancellations can cause
material fluctuations in revenues from one quarter to the next. The impact is
somewhat mitigated by the Company's deferral of revenue associated with
inventories estimated to be in excess of levels deemed appropriate in the
domestic distribution channel; however, net revenues may still be materially
affected favorably or adversely by the effects of channel fill. Channel fill
did not have a material impact on the Company's net revenues in the three and
nine months ended December 31, 1994 and 1993.
The Company is devoting substantial efforts to the development of software
products that are designed to operate on Microsoft Corporation's new operating
system ("Windows 95"), which is currently under development. Microsoft may
incorporate advanced utilities in Windows 95 that may decrease the demand for
certain of the Company's products, including those currently under development.
Further, should Microsoft incur further delays in the development or release of
Windows 95, which is scheduled by Microsoft to be released around August 1995,
should Windows 95 not achieve market acceptance, or should Symantec be unable to
successfully or timely develop products that function under Windows 95,
Symantec's future revenues would be adversely affected. In addition, as the
timing of delivery and adoption of many products is dependent on Microsoft's
delivery of beta and final versions of Windows 95 and the adoption rate of
Windows 95, which the Company is unable to predict, the Company's and securities
analysts' ability to forecast the Company's revenues is being adversely
impacted. A delay in the shipment of Windows 95 may adversely affect Symantec's
stock price. Also, the Company expects that demand for certain of its existing
utility products will decline in advance of Windows 95 release. It is difficult
for securities analysts or the Company to forecast the extent of this decline.
For all of the preceding reasons, there is a heightened risk that revenues and
profits will not be in line with analysts' expectations in the periods preceding
and following the introduction of Windows 95.
The length of Symantec's product development cycle has generally been greater
than Symantec originally expected. Although such delays have undoubtedly had a
material adverse effect on Symantec's business, Symantec
16
is not able to quantify the magnitude of revenues that were deferred or lost as
a result of any particular delay because Symantec is not able to predict the
amount of revenues that would have been obtained had the original development
expectations been met. Delays in product development are likely to occur in the
future and could have a material adverse effect on the amount and timing of
future revenues. Due to the inherent uncertainties of software development
projects, Symantec does not generally disclose or announce the specific expected
shipment date of the Company's product introductions. In addition, there can be
no assurance that any products currently being developed by Symantec, including
products being developed for Windows 95, will be technologically successful,
that any resulting products will achieve market acceptance or that the Company's
products will be effective in competing with products either currently in the
market or introduced in the future.
During fiscal 1993, Symantec believes revenues were adversely affected by an
unexpected substantial price reduction in 486-based personal computers that
caused a shift in customer spending from software to personal computer hardware.
Symantec also believes that the shift was caused by the introduction of Windows
3.1, which requires more computing capability. If the next class of personal
computers, including those based on the Pentium microprocessor and/or the Power-
PC, are also rapidly reduced in price, there may be another unexpected shift in
customer buying away from software and Symantec's products, which could result
in significantly reduced revenues and a material adverse effect on operating
results. Symantec has noted that Pentium processors are being reduced in price
by Intel. The shift of customer spending from software to hardware could also
result if Windows 95 requires more computing capability than that delivered by
most existing computers.
Price competition is significant in the microcomputer business software market
and will continue to increase and become even more significant in the future,
resulting in reduced profit margins. Should competitive pressures in the
industry increase, Symantec may be required to increase its spending on sales,
marketing and research and development as a percentage of net revenues,
resulting in lower profit margins. In addition, aggressive pricing strategies
of competitors in other software markets, some of whom have significantly more
financial resources than Symantec, may further cause the Company to reduce
software prices and/or increase sales and marketing expenses on a number of the
Company's products.
The Company estimates and maintains reserves for product returns. Product
returns occur when the Company introduces upgrades and new versions and
discontinues products. In addition, competitive factors require the Company to
offer rights of return for products that distributors or retail stores are
unable to sell. The Company has set its reserves for returns in accordance with
historical experience. Setting reserves involves making judgments about future
competitive conditions and product life cycles. Those judgments involve
evaluating information that often is unclear and in conflict. Symantec prepares
detailed analyses of historical return rate experiences in its estimation of
reserves for product returns. In addition to detailed historical return rates,
the Company's estimation of return reserves takes into consideration upcoming
product upgrades, current market conditions, distributor and "superstore"
inventory balances and any other known factors that could impact anticipated
product returns. Based upon returns experienced, the Company's estimates have
been materially accurate. However, there can be no assurance that historical
experience will be an accurate guide for the future because the rate of returns
is primarily a function of the competitive state of the market in the future and
thus, in large part, is a function of the actions of the Company's competitors,
which the Company cannot anticipate. The Company's product return reserve
balances typically fluctuate from period to period based upon the level and
timing of product upgrade releases. The level of actual product returns and
related product return reserves is largely a factor of the level of product
sell-in (gross revenue) from normal sales activity and the replacement of
obsolete quantities with the current version of the product. As a result, gross
revenues generally move in the same direction as product returns. Changes in
the levels of product returns and related product return reserves are generally
offset by changing levels of gross revenue and, therefore, do not typically have
a material impact on reported net revenues.
In March 1994, due to the market's concerns regarding Central Point's long-term
viability and the announced merger between Central Point and Symantec, Central
Point was unable to reasonably estimate future product
17
returns from its distributors and resellers. In addition, there were high
levels of inventory in the channel which had been shipped into the channel prior
to the acquisition. Central Point believed that there was a high risk of this
inventory being returned. As a result, revenues relating to product inventory
at Central Point's distributors and resellers as of March 31, 1994 were deferred
until sold by the distributors or resellers to endusers. Symantec has been
analyzing returns related to the Central Point products for the last three
quarters to determine when such products were sold through to the end users.
Symantec believes that its marketing and sales programs are being successful in
moving this deferred channel inventory through to endusers, and Symantec expects
to recognize the associated remaining deferred revenue once Symantec verifies
that product sell through has occurred and it is able to estimate any remaining
returns exposures. Symantec expects to recognize the remaining deferred revenue
associated with this distributor inventory in the March 1995 and June 1995
quarters.
A significant portion of the Company's revenues are from sales to two large
distributors and a large "superstore." These customers tend to make the great
majority of their purchases at the end of the fiscal quarter, in part because
they are able or believe that they are able to negotiate lower prices and more
favorable terms. This end-of-quarter buying pattern means that forecasts of
quarterly financial results are particularly vulnerable to the risk that they
will not be achieved, either because expected sales do not occur or because they
occur at lower prices or on less favorable terms to the Company. The Company's
distribution and superstore customers also carry the products of the Company's
competitors, some of which have greater financial resources than the Company.
The distributors and superstores have limited capital to invest in inventory and
their decisions to purchase the Company's products and, in the case of
superstores, to give them critical shelf space, is partly a function of pricing,
terms and special promotions offered by the Company and its competitors, over
which the Company has no control and which it cannot predict.
The Company operates with relatively little backlog; therefore, if near-term
demand for the Company's products weakens in a given quarter, there could be a
material adverse effect on revenues and on the Company's operating results.
Symantec maintains a research and development facility in Santa Monica,
California that was damaged during the January 1994 earthquake in Southern
California. Much of the Company's administration, sales and marketing,
manufacturing facilities and research and development efforts are located on the
west coast of the United States. Future earthquakes or other natural disasters
could cause a significant disruption to the Company's operations and may cause
delays in product development that could adversely impact future revenues of the
Company.
During the March 1994 quarter, Symantec introduced a new product support program
that provides a wide variety of free and fee-based technical support services to
its customers. Symantec provides its customers with free technical support via
electronic and automated services as well as 90 days complimentary free
telephone support for certain of the Company's products. In addition, Symantec
offers both individual users and corporate customers a variety of fee-based
support options for certain of the Company's products, designed to meet their
individual technical support requirements. Fee-based technical support services
did not generate significant revenues in the quarter or nine month period ended
December 31, 1994 and are not expected to generate significant revenues in the
near future.
GROSS MARGIN. Gross margin represents net revenues less cost of revenues. Cost
of revenues consists primarily of manufacturing expenses, manuals, packaging,
royalties paid to third parties under publishing contracts and amortization and
write-off of capitalized software. Amortization of capitalized software,
including amortization and write-off of both purchased product rights and
capitalized software development expenses, totaled $0.9 million and $1.3 million
for the quarters ended December 31, 1994 and 1993 and $6.5 million and $13.4
million for the nine months ended December 31, 1994 and 1993, respectively. The
decrease in amortization and write-off of capitalized software costs for the
nine month period December 31, 1994 is largely due to the write-off of
duplicative capitalized technology in connection with the acquisitions of
Central Point and Fifth Generation and
18
the restructuring of Central Point's software development efforts away from the
personal desktop computer market toward the personal computer network market
which occurred in the quarter ended March 31, 1994.
Gross margin increased to 82% of net revenues in the quarter ended December 31,
1994 from 77% of net revenues in the quarter ended December 31, 1993. Gross
margin increased to 81% of net revenues in the nine months ended December 31,
1994 from 75% of net revenues in the nine months ended December 31, 1993. The
increase in gross margin percentage is primarily due to the reduction in
software amortization and write-offs for the nine months ended December 31,
1994, the gradual shift in Symantec's product mix from desktop products toward
higher margin enterprise products and improvements in the gross margin
percentage of Fifth Generation's products. This improvement in the gross margin
percentage of Fifth Generation's products was largely due to the absence of
significant software amortization and write-offs of capitalized software by
Fifth Generation during fiscal 1993 and Symantec's ability to produce the Fifth
Generation products with a lower cost structure than Fifth Generation was able
to prior to the merger.
The microcomputer business software market has been subject to rapid changes
that can be expected to continue. Future technology or market changes,
including the release of Windows 95, may cause certain products to become
obsolete more quickly than expected and thus may result in capitalized software
write-offs and an increase in required inventory reserves and, therefore,
reduced gross margins and net income.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
3% from $15.0 million or 18% of net revenues in the quarter ended December 31,
1993 to $15.4 million or 18% of net revenues in the quarter ended December 31,
1994. The increase in research and development expenses for the quarter was due
to increased product development efforts in the network/communication, client
server and security utility product groups which was partially offset by a
reduction in research and development expenses due to the consolidation of
certain product development efforts in connection with the acquisition of
Central Point. Research and development expenses for the nine months ended
December 31, 1994 decreased 7% to $44.9 million or 18% of net revenues from
$48.1 million or 19% of net revenues for the comparable 1993 period. The
decrease in research and development expenses for the nine months ended December
31, 1994 is primarily due to the consolidation of certain product development
efforts in connection with the acquisitions of Central Point and Fifth
Generation.
Symantec believes increased research and development expenditures will be
necessary in order to remain competitive and to increase future revenues and
expects research and development expenses to increase in dollar amount.
During February 1995, Symantec announced a plan to consolidate certain research
and development activities. This plan is designed to gain greater synergy
between the Company's Third Generation Language and Fourth Generation Language
development groups. The Company expects to incur costs of approximately $4.0
million to $5.0 million for the relocation of the Company's existing research
and development activities, equipment and personnel from Shelton, Connecticut to
Cupertino, California. The Company expects to complete this relocation by
December 1995 with the bulk of the costs occurring in the September 1995
quarter.
Research and development expenditures are charged to operations as incurred.
Financial accounting rules requiring capitalization of certain internal software
development costs did not materially affect the Company in the periods
presented.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 3% to
$38.1 million or 45% of net revenues in the quarter ended December 31, 1994 from
$37.0 million or 44% of net revenues in the prior year's comparable quarter.
The increase for the quarter was primarily due to an increase in marketing
development funds and commissions associated with higher revenues. Sales and
marketing expenses were $109.1 million and $124.9 million and represented 44%
and 50% of total net revenues for the nine months ended December 31, 1994 and
19
1993, respectively. The decrease for the nine month period is principally due
to the elimination of duplicative sales organizations as a result of the
acquisitions of Central Point and Fifth Generation.
Symantec believes substantial sales and marketing efforts are essential to
achieve revenue growth and to maintain and enhance Symantec's competitive
position. Accordingly, with the continued expansion of its international
operations, as well as the introduction of new and upgraded products, Symantec
expects the expenses associated with these efforts to increase in dollar amount
and to continue to constitute its most significant operating expense. There can
be no assurance that these increased efforts will be successful.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 28%, from $5.5 million or 7% of net revenues in the quarter ended
December 31, 1993 to $4.0 million or 5% of net revenues, in the quarter ended
December 31, 1994. General and administrative expenses decreased 36%, from
$19.2 million or 7% of total net revenues for the nine months ended December 31,
1993 to $12.3 million or 5% of total net revenues, for the nine months ended
December 31, 1994. The decrease was principally due to benefits resulting from
the consolidation of the general and administrative functions of the acquired
companies at Symantec's corporate headquarters and the decrease in legal
expenses as a result of the settlement of two class action complaints in the
December 1993 quarter. Future growth of the Company is expected to result in an
increase in the dollar amount of general and administrative spending from
current levels.
ACQUISITION, RESTRUCTURING AND OTHER EXPENSES.
In connection with the various acquisitions completed in fiscal 1995 and 1994
(see Notes 1 and 4 of Notes to Consolidated Financial Statements), significant
acquisition expenses were incurred. These acquisition expenses principally
included fees for legal, accounting and financial advisory services, the write-
off of duplicative capitalized technology, the modification of certain
development contracts and expenses related to the combination of the companies,
including the elimination of duplicative and excess facilities and personnel.
These charges approximated $9.5 million and $25.9 million in the nine months
ended December 31, 1994 and 1993, respectively.
Symantec has completed a number of acquisitions and expects to acquire other
companies in the future. In addition to the significant business risks
associated with acquisitions, including the successful combination of the
companies in an efficient and timely manner, the coordination of research and
development and sales efforts, the retention of key personnel, diversion of
management's attention away from day-to-day matters and the integration of the
acquired products, Symantec typically incurs significant acquisition expenses
for legal, accounting and financial advisory services, the write-off of
duplicative technology and other expenses related to the combination of the
companies. These expenses may have a significant adverse impact on the
Company's future profitability and financial resources. Additionally, there may
be an adverse impact on revenues of acquired companies due to the transition of
product sales and marketing and research and development activities. Symantec
often experiences significant declines in revenues of acquired company products
immediately subsequent to an acquisition.
To date the Company has not experienced any material change in estimated
acquisition or restructuring expenses; however, there can be no assurances that
the Company will not experience material adverse changes of any estimated
expenses in the future or in connection with any future acquisition or
restructuring charge.
Symantec is involved in a number of judicial and administrative proceedings
incidental to its business (see Note 8 of Notes to Consolidated Financial
Statements). The Company intends to defend all of these lawsuits vigorously and
although an unfavorable outcome could occur in one or more of the cases, the
final resolution of these lawsuits, individually or in the aggregate, is not
expected to have a material effect on the financial position of the Company.
However, depending on the amount and timing of an unfavorable resolution of
these lawsuits, it is possible that the Company's future results of operations
or cash flows could be materially adversely affected in a particular period.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest income
increased to $0.8 million in the quarter ended December 31, 1994 from $0.3
million in the prior year's comparable quarter due to higher
20
interest rates and higher average cash balances. Interest expense increased
$0.1 million to $0.6 million in the quarter ended December 31, 1994 from $0.5
million in the prior year's comparable quarter.
The Company conducts business in various foreign currencies and is therefore
subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are recorded and
the dates that they are consummated. Symantec utilizes some natural hedging to
mitigate the Company's transaction exposures and, effective December 31, 1993,
the Company commenced hedging some residual transaction exposures through the
use of 30-day forward contracts. There have been no significant gains or losses
to date with respect to these activities. Gains or losses would occur on 30-day
forward contracts held by the Company when changes in foreign currency exchange
rates occur. These gains and losses should be largely offset by the transaction
gains and losses resulting from foreign currency denominated cash, accounts
receivable, intercompany balances and trade payables. There can be no assurance
that these strategies will continue to be effective or that transaction losses
can be minimized or forecasted accurately. The Company does not hedge either
its translation risk or its economic risk.
INCOME TAX PROVISION (BENEFIT). The effective income tax provision for the nine
months ended December 31, 1994 was 26% which compared to an effective income tax
benefit rate of 20% in the prior year's comparable period. The low benefit rate
for the nine months ended December 31, 1993 was primarily attributable to
unbenefitted temporary differences from Central Point.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $87.0 million at December 31, 1994 and
$60.5 million at March 31, 1994. This increase in cash is principally due to
cash provided by operating activities and cash generated from sales of common
stock and the exercise of stock options. Cash provided by operating activities
includes the Company's net income of $18.1 million, tax refunds of $7.2 million
and a decrease in accounts receivable of $3.8 million. In addition to cash and
short-term investments of $87.0 million at December 31, 1994, the Company has
$9.5 million available under a bank line of credit which expires in
October 1995. Company acquisitions in the future may cause the Company to be in
violation of the line of credit covenants; however, Symantec believes that if
the line of credit were canceled or amounts were not available under the line,
there would not be a material adverse impact on the financial results, liquidity
or capital resources of the Company.
Due to cash payments expected to be made during the remainder of fiscal 1995
related to costs associated with the previous acquisitions and restructurings
(see Note 4 of Notes to Consolidated Financial Statements), the Company
anticipates that aggregate cash and short-term investments may decline.
Further, the Company may utilize additional cash in connection with the
potential acquisition of additional companies and software product rights in the
future. The Company believes existing cash and short-term investments will be
sufficient to fund operations for the next year. However, if the Company were
to sustain further significant losses, there can be no assurances that the bank
line of credit, which is available through October 1995, would remain available.
Additionally, the Company could be required to reduce operating expenses, which
could result in further product delays; reassess acquisition opportunities,
which could negatively impact the Company's growth objectives; and/or pursue
further financing options.
Trade accounts receivable decreased from $48.3 million at March 31, 1994 to
$44.5 million at December 31, 1994 due to improved cash collections. Working
capital increased from $49.6 million at March 31, 1994 to $78.8 million at
December 31, 1994, principally due to working capital provided by operating
activities and proceeds from the sales of common stock under the Company's
employee stock plans which were partially offset by capital expenditures and
payments of acquisition expenses made with respect to the acquisitions of
Central Point and Fifth Generation and the Central Point restructuring. Long-
term obligations at December 31, 1994 and March 31, 1994 consisted primarily of
convertible subordinated debentures.
21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to
Note 8 of Notes to Consolidated Financial Statements included herein
on page 10 of this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders of Symantec was held on
November 21, 1994.
(b) Matters voted on at the meeting and votes cast on each were
as follows:
<TABLE>
<CAPTION>
Total Vote Authority
Total Vote Withheld Withheld
for Each From Each from All
Director Director Nominees
--------- -------- --------
<S> <C> <C> <C>
1. To elect six directors to Symantec's
Board of Directors, each to hold
office until his successor is elected
and qualified or until his earlier
resignation or removal.
Charles M. Boesenberg. . . . . . 30,157,794 348,913 222,778
Walter W. Bregman. . . . . . . . 30,246,828 259,879 222,778
Carl D. Carman . . . . . . . . . 30,257,718 248,989 222,778
Gordon E. Eubanks, Jr. . . . . . 30,039,990 466,717 222,778
Robert S. Miller . . . . . . . . 30,260,165 246,542 222,778
Leslie L. Vadasz . . . . . . . . 30,262,768 243,939 222,778
<CAPTION>
Broker
For Against Abstain "Non-Votes"
---------- ------- -------- -----------
<S> <C> <C> <C> <C>
2. To consider and act upon a proposal 29,522,386 502,265 370,066 111,990
to amend Symantec's Certificate of
Incorporation to increase by 20,000,000
(from 50,000,000 to 70,000,000) the
number of shares of Common Stock
authorized for issuance.
3. To consider and act upon a proposal 22,493,651 3,467,005 530,745 4,015,306
to amend the 1989 Employee Stock
Purchase Plan to increase the number
of shares authorized for issuance by
400,000 to 1,500,000.
4. To consider and act upon a proposal to 14,549,270 11,169,373 533,434 1,254,630
amend the 1988 Employees Stock
Option Plan to increase the number of
shares authorized for issuance by
4,000,000 to 12,700,000.
5. To consider and act upon a proposal to 30,021,073 17,637 467,997 --
ratify the Board of Director's selection
of Ernst & Young as Symantec's
independent auditors.
</TABLE>
22
ITEM 5. OTHER INFORMATION
On January 30, 1995, the Company filed a Registration Statement on
Form S-3, as declared effective on February 3, 1995, covering "All of
the shares of Common Stock of Symantec Corporation being sold by three
purchasers of the Company's subordinated notes convertible into shares
of the Company's Common Stock and by two purchasers of warrants to
purchase the Company's Common Stock." This registration statement
registered 2,198,295 shares.
The holders of the subordinated notes are required to provide five
business days advance notice of any sale of the shares covered by this
registration statement. To date, no such notice has been given.
Under the agreement which required the Company to register these
shares, the shares can only be sold after receipt of a notice from the
debentureholders as described above that they intend to sell their
shares.
On January 23, 1995, the Company's registration statement of Form S-8
covering an amendment to the "1988 Employees Stock Option Plan" and
the "1989 Employee Stock Purchase Plan" became effective. This
registration statement registered 4,400,000 shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of, or incorporated
by reference into, this Form 10-Q:
4.01 Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 4.01 filed with the
Registrant's Registration Statement on Form S-3 (No. 33-
82012) as declared effective on February 3, 1995.)
10.01* Employment and Consulting Agreement among Symantec Corporation,
Symantec Acquisition Corp. and Charles M. Boesenberg.
(Confidential treatment has been granted with respect to
portions of this exhibit.)
11.01 Computation of Net Income (Loss) Per Share.
(b) Reports on Form 8-K
None
ITEMS 2 AND 3 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
- --------------------------
* Indicates a management contract or compensatory plan or arrangement
23
SIGNATURES
Pursuant to the requirements 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.
Date: February 9, 1995 SYMANTEC CORPORATION
By /s/ Robert R. B. Dykes
----------------------------
Robert R. B. Dykes
Executive Vice President/Worldwide
Operations and Chief Financial Officer
(duly authorized officer)
24
EXHIBIT 10.01
EMPLOYMENT AND CONSULTING AGREEMENT
This EMPLOYMENT and CONSULTING AGREEMENT("AGREEMENT") is made as of March
31, 1994 among Symantec Corporation, a Delaware corporation ("Symantec"),
Symantec Acquisition Corp., a Delaware corporation ("SYMANTEC ACQUISITION"), and
Charles M. Boesenberg ("BOESENBERG")
BACKGROUND
This Agreement is entered into in connection with an Agreement and Plan of
Reorganization (the "PLAN" ) dated as of March 31, 1994, among Symantec,
Symantec Acquisition and Central Point Software, Inc., a Delaware corporation
("CENTRAL POINT"), pursuant to which Central Point is to merge with and into
Symantec Acquisition, the wholly owned subsidiary of Symantec. The effective
date of this Agreement will be the date the merger becomes effective under the
terms of the Plan (the "EFFECTIVE DATE") Should the Plan be terminated prior to
the effectiveness of the merger, this Agreement shall be of no further force or
effect.
Boesenberg and Central Point have entered into a certain letter agreement (the
"LETTER AGREEMENT") dated September 6, 1993, which gives to Boesenberg certain
rights in the event of a change in control as contemplated by the Plan. If the
merger under the terms of the Plan becomes effective, Boesenberg agrees to waive
his rights under the Letter Agreement in consideration for the rights granted
under this Agreement.
Boesenberg is the President, Chief Executive Officer and Chairman of the Board
of Central Point and has been actively involved in the operations of Central
Point. To preserve and protect the intangible assets of Central Point, including
Central Point's good will, customers and trade secrets of which Boesenberg has
knowledge, and in consideration for Symantec's and Symantec Acquisition's
entering into and performing under the Plan and in consideration for Boesenberg
waiving his rights under the Letter Agreement, the parties hereto enter into
this Agreement.
NOW, THEREFORE, in consideration of the foregoing background and the mutual
agreements of the parties contained herein, Symantec, Symantec Acquisition and
Boesenberg hereby agree as follows:
1. PERIOD OF SERVICE. Boesenberg shall be employed by Symantec, on a
full-time basis, from the Effective Date to and including March 31, 1995
("EMPLOYMENT PERIOD"), unless terminated pursuant to Section 6 hereof. During
the Employment Period, Boesenberg and Symantec shall meet and confer about the
possibility of continuing Boesenberg's employment after March 31, 1995. Symantec
agrees that it in good faith will offer a position to Boesenberg which will meet
or exceed Boesenberg's level of responsibility during the Employment Period at
the same or greater level of base compensation and benefits provided in this
Agreement. Boesenberg in his own discretion may accept or decline any offer of
employment beyond the Employment Period which offer may be declined for any
reason or no reason at all. If Symantec for any reason fails to make an offer
of employment, or if Boesenberg declines or fails to accept any offer by March
31, 1995, then from April 1, 1995, to March 31, 1996 (the "CONSULTING PERIOD"),
Boesenberg shall act as a consultant to Symantec. During the Consulting
Period, Boesenberg will devote such time as may reasonably be required to
provide services hereunder, it being agreed that Boesenberg will render services
for not less than twelve (12) days of service hereunder per calendar quarter
during the Consulting Period.
2. DUTIES. Boesenberg will during the Employment Period and Consulting
Period perform services and devote his energy, knowledge and training in the
advancement of Symantec's interests in accordance with Boesenberg's experience
and skills. Symantec agrees that the services requested of Boesenberg during the
Employment Period will be commensurate with those of other officers of Symantec
with similar responsibilities. Boesenberg will perform the duties reasonably
and appropriately requested of him from time to time by Gordon Eubanks President
and Chief Executive Officer of Symantec ("EUBANKS"), or his successor, and
Boesenberg will
1
diligently and conscientiously perform such duties. Boesenberg shall report
directly to Eubanks or his successor at Symantec's Beaverton office.
At the first Board of Directors meeting following the Effective Date
Boesenberg shall be made a member of the Board of Directors of Symantec. At the
commencement of the Consulting Period, Boesenberg shall be entitled to the
compensation paid to other nonemployee directors for their services including,
but not limited to, an option to purchase 30,000 (or such other amount specified
by Symantec's Directors Stock Option Plan) shares of Symantec common stock. Such
option shall be granted at the first Board of Directors meeting following the
commencement of the Consulting Period and shall have an exercise price equal to
the fair market value of Symantec common stock as of the first Board of
Directors meeting following the commencement of the Consulting Period. Such
fair market value shall be determined according to the consistently applied past
practice of Symantec. The compensation paid under this paragraph shall be in
addition to the compensation and benefits paid under this Agreement.
3. COMPENSATION. For the services provided during the Employment Period,
Symantec agrees to pay compensation at the rate of $235,000.00 per year. For
the services provided during the Consulting Period, Symantec agrees to pay
compensation of $360,000.00 per year. Payments shall be paid to Boesenberg
twice a month during the Employment Period and Consulting Period. In addition,
Symantec will reimburse Boesenberg for all reasonable out-of-pocket expenses,
including travel, and entertainment expenses incurred by Boesenberg in providing
the services under this Agreement within thirty (30) days after receiving
written evidence of such expenses from Boesenberg as required pursuant to
Symantec's standard policies and record keeping procedures applicable to its
employees.
Subject to the limitations set forth below and provided that Boesenberg has
remained an employee of Symantec through March 31, 1995 (unless terminated by
Symantec without cause or as a result of his death or disability pursuant to
Section 6(b)), Symantec agrees to pay to Boesenberg as additional incentive
compensation, at such time as Symantec announces its financial results for the
fiscal quarters ending September 30, 1994, December 30, 1994 and March 31, 1995,
respectively, a bonus based on a bonus target amount of $31,250 per quarter.
The amount of such target bonus actually payable with respect to any such
quarter will be a function of the recognizable revenue (as such term is defined
below) generated by Central Point business unit which Boesenberg will control
during such quarter (the CP Unit"), as compared to the quarterly revenue goals
for the CP Unit set forth on Schedule A hereto. The amount of the bonus target
payable to Boesenberg for any such quarter shall be: (i) none, if the
recognizable revenue from the CP Unit during such quarter is less than eighty
one percent (81%) of the revenue goal for such quarter, or (ii) twenty-five
percent (25%) if the recognizable revenue from the CP Unit during such quarter
is eighty one percent (81%) of the revenue goal for such quarter, with the bonus
increasing by 3.947% of the bonus target for each percent increase in the
recognizable revenue from the CP Unit during such quarter in excess of eighty
one percent (81%) of the revenue goal and with the bonus increasing by 2% of the
bonus target for each percent increase in the recognizable revenue from the CP
Unit during such quarter in excess of one hundred percent (100%) of the bonus
target.
Additionally, provided that Boesenberg has remained an employee of Symantec
through March 31, 1995 (unless terminated by Symantec without cause or as a
result of his death or disability pursuant to Section 6(b)), Boesenberg will be
entitled to an additional bonus payable at such time as Symantec announces its
financial results for the fiscal quarter ending March 31, 1995 equal to (i)
$25,000 if the recognizable revenue from the CP Unit during three of the
quarters referenced on Schedule A is no less than one hundred percent (100%) of
the revenue goals for such three quarters and the recognizable revenue for the
remaining quarter is no less than eighty percent (80%) of the revenue goals for
such quarter or (ii) $100,000 if the recognizable revenue from the CP Unit
during all four of the quarters referenced on Schedule A is no less than one
hundred percent (100%) of the revenue goals for such quarters.
In all cases, revenue from the CP Unit shall be calculated as: the revenue value
of sales of Central Point-branded products (except those offered for the
Chicago Operating System) and those network products that are today Central
Point branded and which may be rebranded by Symantec by the following
distributors (800 Software, Corporate Software, Egghead, IMD, Kenfil,
MacWarehouse, Merisel, PC Connection, Softmart, Tech Data,
2
ASAP, Software, Multiple Zones, Computers 2000 and Software Spectrum) to their
customers less returns to those distributors plus the value of OEM sales and
direct sales (including, without limitation, sales of Central Point branded
product through direct mail and telesales efforts) less returns from other
customers. Additionally, for the purposes of determining whether such financial
goals have been met for the purposes of paying the bonuses specified in the
preceding paragraph or extending the non-compete provisions of Section 8(a),
revenue from the CP Unit will also be deemed to include revenue from the sale of
Symantec products as a result of direct mail solicitations of customers through
the use of the CP Unit registered customer database. Notwithstanding any other
provision of this Agreement, no quarterly financial goal will be deemed to have
been met for the purpose of paying bonuses or vesting of stock options hereunder
if the CP Unit exceeds the expense budget for such quarter set forth on Schedule
A hereto (subsequent to the Effective Date) unless a variance to such budget is
approved in writing by the CEO of Symantec, provided however, that the expense
budget may be exceeded in the June quarter to the extent of any bonuses paid
where revenues for such quarter exceed the revenues goal for such quarter by at
least the amount of any such bonuses.
As additional incentive compensation, Symantec agrees to grant to Boesenberg an
option to purchase 50,000 shares of its common stock at the first regular board
meeting after the Effective Date, which option shall have a per share exercise
price equal to the fair market value of Symantec's common stock as of the date
of such meeting. Provided that Boesenberg has remained an employee of Symantec
through March 31, 1995 (unless terminated by Symantec without cause or as a
result of his death or disability pursuant to Section 6(b)), such option will
vest upon Symantec's announcement of its financial results for the fiscal
quarter ending March 31, 1995 (i) as to 16,666 shares if the Central Point
business unit which Boesenberg will control during such quarter met the
quarterly financial goal specified above for the fiscal quarter ending September
30, 1994, (ii) as to 16,666 shares if the Central Point business unit which
Boesenberg will control during such quarter met the quarterly financial goal
specified above for the fiscal quarter ending December 30, 1994, (iii) as to
16,667 shares if the Central Point business unit which Boesenberg will control
during such quarter met the quarterly financial goal specified above for the
fiscal quarter ending March 31, 1995. Any of such options which did not vest as
a result of the failure of the Central Point business unit which Boesenberg will
control to have met one or more quarterly financial goals, will vest on the
fifth anniversary of the Effective Date, provided that Boesenberg is then still
an employee of Symantec or one of its subsidiaries.
If Boesenberg voluntarily leaves Symantec (other than as a result of his death
or disability pursuant to Section 6(b)) or is terminated for cause before the
end of the Employment Period, Boesenberg shall forfeit the compensation yet to
be paid or received under this Section including all compensation for the
remaining Employment Period and Consulting Period.
4. BENEFITS
(a) EMPLOYEE BENEFITS. During the Employment Period, Boesenberg shall be
entitled to all employee benefits customarily and regularly granted to the
employees of Symantec responsible for similar duties, including vacations,
holidays, etc. with the exclusion of participation in Symantec's Management
Bonus Objective Plan.
(b) RELOCATION BENEFITS. Symantec also agrees that it will reimburse
Boesenberg's reasonable actual packing and moving expenses from his residence in
the Portland area to anywhere in the continental United States made anytime on
or before September 30, 1997. Such reimbursement shall include real estate
commissions and standard closing costs incurred in connection with the sale of
Boesenberg's home in the Portland area and packing and transportation of his
household goods. For the purpose of this paragraph, real estate commissions of
7% or less shall be deemed reasonable and Symantec agrees to pay in full the
lowest of three written bids to pack and transport such household goods provided
by Boesenberg. Standard closing costs shall be determined by the custom and
practice for single family real estate sales; in the Portland area at the time
of the sale. Symantec also agrees to pay an additional amount to cover any
federal, state or local income and employment taxes due in connection with the
reimbursement of such relocation expenses (the "Expenses Gross-up"). In
calculating the Expenses Gross-up, it shall be assumed that Boesenberg has paid
the maximum federal, state and local tax rate then in effect.
3
(c) STOCK PURCHASE PLAN . Until the termination or expiration of this
Agreement, Boesenberg shall be eligible to participate in any applicable
Symantec stock purchase plan then in effect.
(d) OFFICE EQUIPMENT. In order to perform the services hereunder,
Symantec and Symantec Acquisition hereby transfer all right title and interest
to the Toshiba portable computer and docking station, H-P Laser Writer and
panofax facsimile machine presently in the possession of Boesenberg and which
have been previously provided to Boesenberg by Central Point.
5. Innovations.
(a) DISCLOSURE OF INNOVATIONS. Boesenberg agrees to disclose in writing
to Symantec all inventions, products, computer programs, procedures,
improvements, developments, drawings, notes, documents, information and
materials made, conceived or developed by Boesenberg, alone or jointly with
others, in the course of performing work for Symantec, Central Point, or
Symantec Acquisition under the Agreement ("Innovations").
(b) ASSIGNMENT OF OWNERSHIP. Boesenberg hereby irrevocably transfers and
assigns any and all of his right, title and interest in and to the Innovations,
including but not limited to all copyrights, patent rights, trade secrets and
trademarks, to Symantec. All Innovations will be the sole property of Symantec
and Symantec will have the sole right to determine the treatment of any
Innovations, including the right to keep them as trade secrets, to file and
execute patent applications on them, to use and disclose them without prior
patent application, to file registrations for copyright or trademark on them in
its own name, or to follow any other procedure that Symantec deems appropriate.
Boesenberg agrees: (i) to disclose promptly in writing to Symantec all
Innovations; (ii) to cooperate with and assist Symantec at its expense to apply
for, and to execute any applications and/or assignments reasonably necessary to
obtain, any patent, copyright, trademark or other statutory protection for
Innovations in Symantec's name as Symantec deems appropriate and, (iii) to
otherwise treat all Innovations as "Confidential Information," as defined below.
These obligations to disclose, assist, execute and keep confidential will
survive any expiration or termination of this Agreement.
(c) MORAL RIGHTS WAIVER. "Moral Rights" means any right to claim
authorship of a work, any right to object to any distortion or other
modification of a work, and any similar right, existing under the law of any
country in the world, or under any treaty. Boesenberg hereby irrevocably
transfers and assigns to Symantec any and all Moral Rights that Boesenberg may
have in any Innovation. Boesenberg also hereby forever waives and agrees never
to assert against Symantec, its successors or licensees, any and all Moral
Rights Boesenberg may have in any Innovation, even after expiration or
termination of this Agreement.
6. TERMINATION.
(a) FOR CAUSE. Symantec may terminate Boesenberg's employment at any
time for "cause," effective immediately upon written notice to Boesenberg,
without prejudice to any other remedy which Symantec may be entitled at law, in
equity, or under this Agreement. As used in this Subsection 6(a), "cause" will
mean (i) an intentional tort (excluding any tort relating to a motor vehicle)
which causes loss, damage or injury to the property or reputation of Symantec or
its subsidiaries, (ii) any crime or act of fraud or dishonesty against Symantec
or its subsidiaries, (iii) the commission of a felony, (iv) Boesenberg's
habitual neglect of his duties which is not cured within ten (10) days after
written notice thereof by the President of Symantec to Boesenberg, (v) the
disregard of the written policies of Symantec or its subsidiaries which causes
loss, damage or injury to the property or reputation of Symantec or its
subsidiaries which is not cured within ten (10) days after written notice of
such neglect by the President of Symantec to Boesenberg, (vi) or any material
breach or Articles 5, 8 or 9 of this Agreement. In the event of any termination
for cause hereunder, Boesenberg will receive all compensation under Section 3
until the date of termination, all benefits under Section 4 until the date of
termination (except as to those benefits which must be continued pursuant to
applicable law) and Boesenberg shall have the right to exercise vested options
as provided under Section 27.
(b) UPON DEATH OR DISABILITY. Symantec may terminate Boesenberg's
employment upon written notice if Boesenberg dies or suffers any physical or
mental disability reasonably preventing him from performing
4
his substantial or material duties for a period of three (3) consecutive months.
However, such death or disability, whether during the Employment Period or
Consulting Period, shall not terminate the obligations of Symantec to pay the
compensation under Section 3 until the expiration of this agreement and provide
the benefits under Section 4 for the Consulting Period. Such compensation and
benefits shall be paid to Boesenberg, his wife, Nancy B. Boesenberg, or, if she
is deceased, Boesenberg's estate. Furthermore, such death or disability shall
not terminate the indemnification obligation referred to in Section 26 any
outstanding option at the time of disability shall continue to vest and become
exercisable, as provided in Section 27 and in the case of death become
immediately excercisable and Boesenberg, his wife or, if she is deceased, his
estate shall have the right to exercise such vested option as provided in such
Section.
(c) EXPIRATION Unless terminated earlier as provided by paragraph (a),
this Agreement shall continue to and expire at midnight March 31, 1996.
(d) TERMINATION BY SYMANTEC OTHER THAN FOR "CAUSE". Symantec may
terminate Boesenberg's employment or consulting services at any time for
whatever reason it deems appropriate. Upon such termination, Symantec shall
continue to pay compensation under Section 3 as if all revenue goals for the CP
Unit had been achieved at the 100% level and provide the benefits under Section
4 to the original dates contemplated for the Employment Period and Consulting
Period. Boesenberg's sole remedy at law, in equity or under this Agreement shall
be the payment of such compensation and benefits. Furthermore, after such
termination Boesenberg shall have the right to exercise vested options as
provided in Section 27.
7. EFFECT OF EXPIRATION OR TERMINATION. Upon the expiration or
termination of this Agreement as provided in Section 6:
(a) Each party will be released from all obligations to the other
arising after the date of expiration or termination, except that expiration or
termination of this Agreement will not relieve Boesenberg of his obligations;
under Sections 5, 8 and 9, nor will expiration or termination relieve
Boesenberg, Symantec or Symantec Acquisition from any liability arising from any
breach of this Agreement, nor will expiration or termination relieve Symantec or
Symantec Acquisition of any obligations (except to the extent that this
Agreement is terminated by Symantec for cause) under Section 3 for consulting
fees to the extent that the termination is as a result of Bosenberg's death or
disability as provided in Section 6(b), under Sections 4, paragraph (a) (to the
extent benefit coverage is thereafter provided under terms of such coverage or
as required by law) and paragraph (b), 25 ( to the extent Boesenberg has rights
under such insurance policies and 26, or pursuant to stock purchase options
which are vested at the time of such expiration or termination of this Agreement
or which continue to vest as provided under Section 27; and
(b) Boesenberg will promptly notify Symantec of all Confidential
Information (as hereinafter defined), including but not limited to the
Innovations, in Boesenberg's possession and, at the expense of Symantec and in
accordance with Symantec's instructions will promptly deliver to Symantec all
such Confidential Information.
8. CONFIDENTIAL INFORMATION. Boesenberg acknowledges that Boesenberg
will acquire information and materials from Symantec, Central Point and Symantec
Acquisition and acknowledge about the business, products, programming
techniques, experimental work, customers, clients and suppliers of Symantec and
that all such knowledge, information and materials acquired, the existence,
terms and conditions of this Agreement, and the Innovations, are and will be the
trade secrets and confidential and proprietary information of Symantec
(collectively "CONFIDENTIAL INFORMATION"). Confidential Information will not
include, however, any information which is or becomes part of the public domain
through no fault of Boesenberg or that Symantec regularly gives to third parties
without restriction on use or disclosure. Boesenberg agrees to hold all such
Confidential Information in strict confidence, not to disclose it to others or
use it in any way, commercially or otherwise, except in performing the services
required hereunder, and not to allow any unauthorized person access to it,
either before or after expiration or termination of this Agreement. Boesenberg
further agrees to take all action reasonably necessary to protect the
confidentiality of the Confidential Information including, without limitation,
implementing and
5
enforcing operating procedures to minimize the possibility of unauthorized use
or copying of the Confidential Information.
9. AGREEMENT NOT TO COMPETE.
(a) From the Effective Date until the date specified below, Boesenberg
shall not, directly or indirectly, individually or as an employee, partner,
officer or shareholder or in any other capacity whatsoever (other than as a
director) of or for any person, firm, partnership, company or corporation other
than Symantec or its subsidiaries own, manage, operate, sell, control or
participate in the ownership, management, operation, sales or control of or be
connected in any manner with any business engaged in the design, research,
development, marketing, sales, or licensing of any computer hardware, software
or other high technology products. The foregoing limitation will apply until at
least March 31, 1995 and will be extended (i) until June 30, 1995 if the
quarterly revenue targets referenced in Section 3 are missed by fifteen percent
(15%) of such revenue targets for two of such quarters and (ii) until September
30, 1995 if the quarterly revenue targets referenced in Section 3 are missed by
fifteen percent (15%) of such revenue targets for three or four of such
quarters. Notwithstanding the foregoing, for the purpose of determining the
length of the restriction set forth in this Section 9(a), any recognizable
revenue generated by the CP Unit for any such quarter in excess of one hundred
percent (100%) of the quarterly revenue target for such quarter may be applied
to cover any shortfall for any other quarter. From the Effective Date until
March 31, 1995, Boesenberg may continue as a director of AER Enterprises and any
other corporation with the consent of Symantec. After March 31, 1995,
Boesenberg may be a director of any corporation consistent with Boesenberg's
obligation not to compete as set forth in this remaining Section
(b) For the two year period following the Effective Date, Boesenberg
shall not, directly or indirectly, individually or as an employee, partner,
officer, director or shareholder or in any other capacity whatsoever of or for
any person, firm, partnership, company or corporation other than Symantec or its
subsidiaries:
(i) Own, manage, operate, sell, control or participate in the
ownership, management, operation, sales or control of or be connected in any
manner with any business engaged in the design, research, development,
marketing, sales, or licensing of computer software that is substantially
similar to or competitive with any computer program or products created,
distributed or known by him to be under development by Symantec or any of its
subsidiaries or by Central Point prior to the termination of Boesenberg's
employment with Symantec; or
(ii) To Boesenberg's knowledge, directly or indirectly develop
computer software for any one or more of the following or any entity owned by or
under common control with any of the following: Microsoft, Novell, Intel,
Hewlett-Packard and Cheyenne Software, Inc.
(c) For the four year period following the Effective Date, Boesenberg
shall not, directly or indirectly, individually or as an employee, partner,
officer, director or shareholder or in any other capacity whatsoever of or for
any person, firm, partnership, company or corporation other than Symantec or its
subsidiaries:
(i) Own, manage, operate, sell, control or participate in the
ownership, management, operation, sales or control of or be connected in any
manner with any business engaged in design, research, development, marketing,
sales, or licensing of "utility computer software" that is substantially similar
to or competitive with any computer program or products created, distributed or
under development by Central Point prior to the Effective Date.
(ii) Recruit, attempt to hire, solicit, assist others in recruiting
or hiring, or refer to others concerning employment, any person who is or was,
an employee of Central Point or Symantec or any of its subsidiaries or induce or
attempt to induce any such employee to terminate his employment with Central
Point, Symantec or any of its subsidiaries.
(d) The foregoing restrictions will not apply to Boesenberg's personal
investments in publicly traded corporations regardless of the business they are
engaged in, provided that Boesenberg does not at any time own in excess of one
percent (1%) of the issued and outstanding stock of any such corporation.
6
10. OTHER AGREEMENTS. Boesenberg represents that Boesenberg has no other
agreements or commitments that would hinder the performance of Boesenberg's
obligations under this Agreement and Boesenberg will not enter into any such
agreements. Boesenberg will indemnify Symantec and hold it harmless from any
claims, damages, losses and expenses incurred by Symantec as a result of any
breach of Boesenberg's representations and obligations under Section 10 of this
Agreement. Unless authorized by law, Boesenberg will not disclose to Symantec
any innovation or confidential information belonging to any former or current
employer or to any person other than Symantec.
11. STATUS AS INDEPENDENT CONTRACTOR. It is understood and agreed that
during the Consulting Period that Boesenberg will not be independent contractor
and that Boesenberg will not be an agent or employee of Symantec and has no
authority whatsoever to bind Symantec by contract or otherwise. Boesenberg
represents to Symantec that no third party or other entity has participated in
the making of this Agreement as a broker, agent or otherwise.
12. EMPLOYMENT TAXES AND BENEFITS. Boesenberg acknowledges that during
the Consulting Period it shall be Boesenberg's sole obligation to report as
self-employment income all compensation received by Boesenberg from Symantec for
Boesenberg's service as a consultant.
13. REMEDY. Because Boesenberg's breach of Sections 5, 8 and 9 of this
Agreement will cause Symantec irreparable harm for which money is inadequate
compensation, Symantec will be entitled to injunctive and other preliminary and
equitable relief against any material breach or threatened breach of this
Agreement, in addition to damages and any other available remedies.
14. ASSIGNMENT; SUCCESSORS. Due to the unique nature of the services to
be provided hereunder, Boesenberg may not delegate his duties under this
Agreement. This Agreement is binding upon and inures to the benefit of Symantec
and Symantec Acquisition and their successors and assigns.
15. MODIFICATION. This Agreement may be modified or amended only by a
writing signed by Symantec, Symantec Acquisition and Boesenberg.
16. GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, excluding that body of law pertaining to conflict of laws.
17. SEVERABILITY. If any provision of this Agreement is to any extent
invalid under applicable law, that provision shall be enforced to the extent
permissible, and the remaining provisions of this Agreement shall continue in
full force and effect.
18. NON-WAIVER. No failure or delay by Symantec or Boesenberg in
exercising any right or remedy under this Agreement shall wave any provision of
this Agreement, nor shall any single or partial exercise by Symantec or
Boesenberg of any right or remedy under the Agreement preclude any of them from
otherwise or further exercising these rights or remedies, or any other rights or
remedies by law or any related documents.
19. CAPTIONS. The headings in this Agreement are for convenience only
and do not effect interpretation of this Agreement.
20. ENTIRE AGREEMENT. This Agreement, together with attachments hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all previous and contemporaneous oral and written
negotiations, agreements or other commitments.
21. NOTICES. All notices and other communications required or permitted
under this Agreement shall be in writing and hand delivered, or sent by
facsimile, certified first class and hand delivered, or sent by facsimile,
certified first class mail, postage pre-paid, or sent by an internationally
recognized express courier service. Such
7
notices and other communications shall be effective upon receipt if personally
delivered or on the next business day if sent by facsimile, three (3) business
days after mailing if sent by mail, and one (1) business day after dispatch if
sent by express courier, to the following addresses, or such other addresses as
either party shall notify the other party:
If to Symantec: Symantec Corporation
10201 Torre Avenue
Cupertino, CA 94014-2132
Attn: General Counsel
If to Boesenberg: Charles M. Boesenberg
2470 Summit Court
Lake Oswego, OR 97034
22. ATTORNEYS' FEES. In the event of any claim, demand arbitration or
suit arising out of or with respect to this Agreement, the prevailing party
shall be entitled to reasonable costs and attorneys' fees, including any such
costs and fees upon appeal.
23. ARBITRATION AGREEMENT. Any controversy between the parties regarding
the construction or application of this Agreement, and any claim arising out of
this Agreement or its breach, shall be submitted to arbitration on the written
request of one party by the service of that request on the other party. Such
arbitration shall be held under the California Code of Civil Procedure, section
1280 et seq., as amended.
24. FORUM SELECTION. The parties agree that any arbitration or court
proceeding if the matter is not arbitrated shall be held in Santa Clara County,
California, and both parties waive any objection they may have concerning venue
or personal jurisdiction to such county.
25. INSURANCE. From the Effective Date until such time as Boesenberg
ceases to be an officer or director of Symantec, Symantec shall provide or cause
to be provided to Boesenberg insurance coverage under its policies for
directors' and officers' liability.
26. INDEMNIFICATION. Neither this Agreement, its termination nor the
merger of Central Point into Symantec Acquisition shall act to modify or
terminate any written agreement or obligation under operation of law that
Central Point may have to indemnify Boesenberg for actions or failures to act
during the term of Boesenberg's employment with Central Point and Central Point,
as the surviving entity in the merger contemplated by the Plan, will continue to
have all such indemnification obligations.
27. VESTING AND EXERCISE OF STOCK OPTIONS. On the Effective Date, each
outstanding option previously granted to Boesenberg by Central Point shall
become immediately exercisable for an additional number of shares equal to that
number of shares for which each such option would have become exercisable during
the two years after the date of the merger. Until the termination or expiration
of this Agreement, any outstanding options held by Boesenberg after the merger
under the Plan shall continue to vest and become excercisable as provided in
such option. Notwithstanding anything contained in any other agreement,
Boesenberg shall have to and including March 31, 1997, to exercise any vested
options issued to Boesenberg pursuant to the Plan.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date
first written above.
SYMANTEC BOESENBERG
Symantec Corporation
10201 Torre Avenue __________________________________
8
Cupertino, CA 95014-2132 Charles M. Boesenberg
2470 Summit Court
Lake Oswego, OR 97034
Taxpayer ID#:______________________
(If foreign citizen, copy of visa must be
attached.)
By:_______________________________
Title:______________________________
SYMANTEC ACQUISITION
Symantec Acquisition
Address:___________________________
___________________________________
By:________________________________
Title:_____________________________
SIGNATURE PAGE TO EMPLOYMENT AND CONSULTING AGREEMENT PLEASE RETURN
ORIGINAL TO SYMANTEC LEGAL
9
[MATERIAL OMITTED PURSUANT TO ORDER DECLARING CONFIDENTIAL TREATMENT]
Charles Boesenberg December 28, 1994
10201 Torre Avenue
Cupertino, CA 95014
Dear Chuck,
I am writing to confirm our agreement to modify the terms of your Employment and
Consulting Agreement with Symantec dated March 31, 1994 (the "Agreement") to
allow you to take a position with another employer prior to the end of the
Employment Period specified in that Agreement. Capitalized terms which are
defined in the Agreement will have the same meaning as are ascribed to them in
the Agreement when used in this letter.
Subject to your agreement by countersignature of this letter, the Agreement will
be modified as follows:
1) The Employment Period will terminate as of December 31, 1994 and you will be
free to seek full-time employment elsewhere, subject to the restrictions on
competition with Symantec set forth in Section 9 of the Agreement.
2) Except as set forth in this letter, you will not lose any of the benefits
that would have been provided to you under the Agreement if you had remained
employed by Symantec through March 31, 1995.
3) Your Consulting Period will commence on January 1, 1995 and end on the
anniversary of that date.
4) You will not receive the salary or quarterly bonus that would have been
payable to you if you had been employed by Symantec from January 1 through March
31, 1995 and the final 16,667 unvested shares under the 50,000 share option you
were granted by Symantec at the commencement of the Employment Period will be
canceled without becoming exercisable.
5) For purposes of calculating the bonus payable to you under the third
paragraph of Section 3 of the Agreement as a result of the financial
performance of the CP Unit during the one year period ending March 31, 1995, as
well as for determining the period of your non-compete under Section 9(a), it
will be deemed that the CP Unit did not meet its recognizable revenue goal for
the March 1995 quarter, regardless of the actual performance of the CP Unit
during that period.
If the foregoing is consistent with your understanding, please countersign a
copy of this letter and return that copy to Derek Witte at Symantec.
Sincerely Your,
/s/ Gordon E. Eubanks, Jr.
Gordon E. Eubanks, Jr.
President and CEO
Countersigned
/s/ Charles Boesenberg
- -----------------------
Charles Boesenberg
EXHIBIT 11.01
SYMANTEC CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1994 1993
- ---------------------------------------------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Net income (loss) $ 9,058 $(11,073) $18,081 $(35,864)
Interest on assumed conversion of convertible
subordinated debentures, and assumed
repayment of short-term and long-term
borrowings and investment in U.S.
government securities, net of income
tax effect 5 -- 361 --
------- -------- ------- --------
Net income (loss), as adjusted $ 9,063 $(11,073) $18,442 $(35,864)
------- -------- ------- --------
------- -------- ------- --------
Weighted average number of common
shares outstanding during the period 35,871 33,960 35,533 33,479
Shares issuable from assumed exercise
of options 8,284 -- 8,284 --
Shares assumed repurchased with proceeds,
limited to 20% of total shares outstanding (7,290) -- (7,290) --
------- -------- ------- --------
Common and common stock equivalent
shares outstanding for purpose of
calculating primary net income (loss)
per share 36,865 33,960 36,527 33,479
------- -------- ------- --------
------- -------- ------- --------
Primary net income (loss) per share $ 0.25 $(0.33) $0.50 $(1.07)
------- -------- ------- --------
------- -------- ------- --------
FULLY DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) $ 9,058 $(11,073) $18,081 $(35,864)
Interest on assumed conversion of convertible
subordinated debentures, and assumed
repayment of short-term and long-term
borrowings and investment in U.S.
government securities, net of income
tax effect 334 -- 963 --
------- -------- ------- --------
Net income (loss), as adjusted $ 9,392 $(11,073) $19,044 $(35,864)
------- -------- ------- --------
------- -------- ------- --------
Weighted average number of common
shares outstanding during the period 35,871 33,960 35,533 33,479
Shares issuable from assumed exercise
of options 8,284 -- 8,284 --
Shares issuable from assumed conversion
of convertible subordinated debentures 2,083 -- 2,083 --
Shares assumed repurchased with proceeds,
limited to 20% of total shares outstanding (7,082) -- (6,895) --
------- -------- ------- --------
Total shares for purpose of calculating
fully diluted net income (loss) per share 39,156 33,960 39,005 33,479
------- -------- ------- --------
------- -------- ------- --------
Fully diluted net income (loss) per share $ 0.24 $(0.33) $0.49 $(1.07)
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Symantec
Corporation's Quarterly Report on Form 10-Q for the period ended December 30,
1994 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-02-1994
<PERIOD-END> DEC-30-1994
<EXCHANGE-RATE> 1.00
<CASH> 22691
<SECURITIES> 64355
<RECEIVABLES> 48416
<ALLOWANCES> 3903
<INVENTORY> 5572
<CURRENT-ASSETS> 156079
<PP&E> 70160
<DEPRECIATION> 44884
<TOTAL-ASSETS> 195967
<CURRENT-LIABILITIES> 77312
<BONDS> 25543
<COMMON> 365
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<OTHER-SE> 92747
<TOTAL-LIABILITY-AND-EQUITY> 195967
<SALES> 246319
<TOTAL-REVENUES> 246319
<CGS> 46147
<TOTAL-COSTS> 46147
<OTHER-EXPENSES> 175856
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 1842
<INCOME-PRETAX> 24480
<INCOME-TAX> 6399
<INCOME-CONTINUING> 18081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18081
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.49
</TABLE>