Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Our business

Symantec Corporation is a global leader in security. We operate our business on a global civilian cyber intelligence threat network and track a vast number of threats across the Internet from hundreds of millions of mobile devices, endpoints, and servers across the globe. We believe one of our competitive advantages is our database of threat indicators which allows us to reduce the number of false positives and provide faster and better protection for customers through our products. Through the delivery of new and enhanced solutions, we are integrating our security offerings across our portfolio. We are also developing novel solutions in growing markets like cloud, advanced threat protection, information protection and cyber security services. Founded in 1982, Symantec has operations in more than 35 countries and our principal executive offices are located at 350 Ellis Street, Mountain View, California, 94043.

Fiscal calendar

We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to years in this report relate to fiscal year and periods ended April 1, 2016, April 3, 2015 and March 28, 2014. Our fiscal 2016 and 2014 were 52-week years whereas our fiscal 2015 was a 53-week year.

Strategy

Our security strategy is to deliver a unified security analytics platform that provides big data analytics, utilizes our vast telemetry, provides visibility into real-time global threats, and powers Symantec and third-party security analytics applications; leverage this analytics platform to provide best-in-class consumer and enterprise security products; and offer cyber security services that provide a full-suite of services from monitoring to incident response to threat intelligence, all supported by over 500 cyber security experts and nine global security response centers.

After closing the divestiture of Veritas, as the world leader in cybersecurity, we are more focused than ever on the following priorities: delivering upon our Unified Security strategy, building our enterprise security pipeline and go-to-market capabilities, improving our cost structure, and fulfilling our commitment to allocate capital to our stockholders.

Divestiture of Veritas

In August 2015, we entered into a definitive agreement to sell the assets of Veritas to Carlyle and amended the terms in January 2016. Based on the amended terms of the definitive agreement, we received net consideration of $6.6 billion in cash, excluding transaction costs, and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. The transaction closed on January 29, 2016. The disposition resulted in a net gain of $3.0 billion, which is presented as part of income from discontinued operations, net of income taxes in the Consolidated Statements of Operations for fiscal 2016. See Note 6 of the Notes to Consolidated Financial Statements for more information on severance, facilities and separation costs related to our fiscal 2015 plans to separate our security and information management businesses.

The results of Veritas are presented as discontinued operations in our Consolidated Statements of Operations and thus have been excluded from continuing operations and segment results for all reported periods. Furthermore, Veritas' assets and liabilities were removed from our Consolidated Balance Sheet upon consummation of its sale on January 29, 2016, and have been classified as discontinued operations on our Consolidated Balance Sheet as of April 3, 2015. Accordingly, the following discussion reflects our current segment reporting structure, which was reduced from three to two segments, and segment results for all reported periods have been adjusted to conform to the current segment structure. In addition, the following discussion relates to our continuing operations unless stated otherwise.

Our operating segments

Our operating segments are significant strategic business units that offer different products and services distinguished by customer needs. The two reporting segments, which are the same as our operating segments, are:

•	Consumer Security: Our Consumer Security segment focuses on making it simple for customers to be productive and protected at home and at work. Our Norton-branded services provide multi-layer security and identity protection on major desktop and mobile operating systems, to defend against increasingly complex online threats to individuals, families, and small businesses.

•	Enterprise Security: Our Enterprise Security segment protects organizations so they can securely conduct business while leveraging new platforms and data. Our Enterprise Security segment includes our threat protection products, information protection products, cyber security services, and website security offerings, previously named trust services.

For further description of our operating segments see Note 8 of the Notes to Consolidated Financial Statements in this annual report.

Financial results and trends

The following table provides an overview of key financial metrics for each of the last three fiscal years:

	2016				2015				2014
	(In millions, except percentages)
Consolidated Statements of Operations Data:
Net revenues	$	3,600			$	3,956			$	4,183
Gross profit	2,985				3,229				3,392
Operating income	457				154				144
Operating margin percentage	13		%		4		%		3		%
Consolidated Cash Flow Data:
Net cash provided by continuing operating activities	$	1,456			$	17			$	108

Net revenues decreased $356 million for fiscal 2016 as compared to fiscal 2015, primarily due to unfavorable foreign currency fluctuations, declines in our consumer security revenue, and the impact of the additional week from the 53-week fiscal 2015 year.

Gross margin increased to 83% for fiscal 2016 compared to 82% for fiscal 2015, primarily driven by decreases in OEM royalty fees and service related and content delivery expenses.

Operating income increased $303 million year over year as the reduction in our operating expenses was greater than the decline in our net revenues. The lower operating expenses were primarily due to a decrease in corporate charges previously allocated to our information management business but not classified within discontinued operations. These corporate charges were included in cost of revenues and expenses from continuing operations and include legal, accounting, real estate, information technology services, treasury, human resources and other corporate infrastructure expenses ("unallocated corporate charges"). See Note 8 of the Notes to Consolidated Financial Statements in this annual report for more information on unallocated corporate charges. We anticipate that we will not have unallocated corporate charges in fiscal 2017 and therefore our fiscal 2017 operating income will benefit from a reduction of unallocated corporate charges as compared to fiscal 2016. We expect our operating margins to fluctuate in future periods as a result of a number of factors, including our operating results and the timing and amount of expenses incurred.

Net cash provided by operating activities was $1.5 billion for fiscal 2016 due to increases in deferred income taxes of $1.1 billion and income taxes payable of $693 million. These amounts were partially offset by a loss from continuing operations, net of income taxes of $821 million, including non-cash items depreciation and amortization charges of $304 million and stock-based compensation expense of $161 million.

Total deferred revenue decreased from $2.9 billion in fiscal 2015 to $2.6 billion in fiscal 2016 primarily driven by a decline in sales and the amortization of retained contracts associated with Veritas.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our Consolidated Financial Statements and related notes included in this annual report in accordance with generally accepted accounting principles in the U.S. requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Historically, our critical accounting policies and estimates have not differed materially from actual results; however, actual results may differ from these estimates under different conditions. If actual results differ from these estimates and other considerations used in estimating amounts reflected in our Consolidated Financial Statements included in this annual report, the resulting changes could have a material adverse effect on our Consolidated Statements of Operations, and in certain situations, could have a material adverse effect on our liquidity and financial condition.

We believe that the estimates described below represent our critical accounting policies and estimates, as they have the greatest potential impact on our Consolidated Financial Statements. See also Note 1 of the Notes to Consolidated Financial Statements included in this annual report.

Revenue recognition

We recognize revenue primarily pursuant to the requirements under the authoritative guidance on software revenue recognition, and any applicable amendments or modifications. Revenue recognition requirements in the software industry are very complex and require us to make estimates.

For software arrangements that include multiple elements, including perpetual software licenses and maintenance or services, packaged products with content updates, and subscriptions, we allocate and defer revenue for the undelivered items based on the fair value using vendor specific objective evidence (“VSOE”), and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. VSOE of each element is based on the price for which the undelivered element is sold separately. We determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, the entire arrangement fee is recognized ratably over the performance period. Our deferred revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product content updates, managed security services, subscriptions, and arrangements where VSOE does not exist. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and increasing flexibility in contractual arrangements could materially impact the amount recognized in the current period and deferred over time.

For arrangements that include both software and non-software elements, we allocate revenue to the software deliverables as a group and non-software deliverables based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“ESP”). When we are unable to establish a selling price using VSOE or TPE, we use ESP to allocate the arrangement fees to the deliverables.

For our consumer products that include content updates, we recognize revenue ratably over the term of the subscription upon sell-through to end-users, as the subscription period generally commences on the date of sale to the end-user. We defer revenue and cost of revenue amounts for unsold product held by our distributors and resellers.

We expect our distributors and resellers to maintain adequate inventory of consumer packaged products to meet future customer demand, which is generally four or six weeks of customer demand based on recent buying trends. We ship product to our distributors and resellers at their request and based on valid purchase orders. Our distributors and resellers base the quantity of orders on their estimates to meet future customer demand, which may exceed the expected level of a four or six week supply. We offer limited rights of return if the inventory held by our distributors and resellers is below the expected level of a four or six week supply. We estimate reserves for product returns as described below. We typically offer liberal rights of return if inventory held by our distributors and resellers exceeds the expected level. Because we cannot reasonably estimate the amount of excess inventory that will be returned, we primarily offset deferred revenue against trade accounts receivable for the amount of revenue in excess of the expected inventory levels.

Arrangements for maintenance, subscriptions, managed security services and SaaS offerings are generally offered to our customers over a specified period of time, and we recognize the related revenue ratably over the maintenance, subscription, or service period.

Reserves for product returns. We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical trends. We fully reserve for obsolete products in the distribution channels as an offset to deferred revenue. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the economic and industry environment could make actual results differ from our return estimates.

Reserves for rebates. We estimate and record reserves for channel and end-user rebates as an offset to revenue or deferred revenue. For consumer products that include content updates, rebates are recorded as a ratable offset to revenue or deferred revenue over the term of the subscription. Our estimated reserves for channel volume incentive rebates are based on distributors’ and resellers’ actual performance against the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for end-user rebates are estimated based on the terms and conditions of the promotional programs, actual sales during the promotion, the amount of actual redemptions received, historical redemption trends by product and by type of promotional program, and the value of the rebate. We also consider current market conditions and economic trends when estimating our reserves for rebates. If actual redemptions differ from our estimates, material differences may result in the amount and timing of our net revenues for any period presented.

Valuation of goodwill, intangible assets and long-lived assets

Business combinations. We allocate the purchase price of acquired businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Any residual purchase price is recorded as goodwill. Goodwill is allocated to reporting units expected to benefit from the business combination. The allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, future cash flows from customer relationships, developed technology, trade names and acquired patents; and discount rates. Management estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Goodwill impairment. Goodwill is allocated to our reporting units expected to benefit from the business combination based on the relative fair values at the acquisition date. We evaluate our reporting units which are the same as our operating segments when changes in our operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. We test goodwill for impairment at the reporting unit level at least annually on the first day of the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The accounting guidance gives us the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. These include macro-economic conditions such as deterioration in the entity’s operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as the sale of a reporting unit or a sustained decrease in the company’s stock price. If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed. In the first step of the quantitative testing, we compare the fair value of each reporting unit to its carrying amount. If the first step indicates that the fair value of each reporting unit is greater than its carrying amount, no further testing is required. Goodwill impairment tests require judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. To determine a reporting unit’s fair value, we generally use the income approach which is based on the estimated discounted future cash flows of that unit. The estimation of future cash flows requires us to make projections of future revenues and expenses of each reporting unit and establish a weighted-average cost of capital to discount these cash flows. Changes in these key assumptions and estimates or other assumptions used in this process could materially affect our impairment analysis in a given year. For the fiscal year ended April 1, 2016, we concluded that goodwill was not impaired as the results of our annual impairment test indicate that the fair values of our reporting units are significantly in excess of their carrying values.

Long-lived assets impairment. Long-lived assets, including property and equipment, intangible assets and equity investments, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset group over its fair value. Our estimates of future cash flows require significant judgment based on historical and anticipated future operating results and are subject to many factors which are subject to variability and change.

Contingencies and litigation

We evaluate contingent liabilities including threatened or pending litigation in accordance with the authoritative guidance on contingencies. We assess the likelihood of any adverse judgments or outcomes from potential claims or proceedings, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after the analysis of each separate matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time of our assessment. As additional information becomes available, we reassess the potential liability related to our pending claims

and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position.

Income taxes

We are required to compute our income taxes in each federal, state, and international jurisdiction in which we operate. This process requires that we estimate the current tax exposure as well as assess temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. The income tax effects of the differences we identify are classified as current or long-term deferred tax assets and liabilities in our Consolidated Balance Sheets as of April 3, 2015, and as long-term deferred tax assets and liabilities as of April 1, 2016, following the adoption of Accounting Standards Update No. 2015-17, Income Taxes. See Note 1 of the Notes to Consolidated Financial Statements in this annual report for additional information. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our Consolidated Balance Sheets and Consolidated Statements of Operations.

Our effective tax rate includes the impact of providing U.S. taxes on certain undistributed foreign earnings attributable to the sale of Veritas as well as the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside the U.S. While we do not anticipate changing our intention regarding indefinitely reinvested earnings outside the U.S., material changes in our estimates of such earnings or tax legislation that limits or restricts the amount of such earnings could materially impact our income tax provision and effective tax rate. If certain foreign earnings previously treated as indefinitely reinvested outside the U.S. are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.

We account for uncertain tax positions pursuant to authoritative guidance based on a two-step approach to recognize and measure those positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, the refinement of estimates, or the realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statements of Operations in the period in which such determination is made.

We must also assess the likelihood that deferred tax assets will be realized from future taxable income and, based on this assessment establish a valuation allowance, if required. The determination of our valuation allowance involves assumptions, judgments and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our Consolidated Statements of Operations.

Recently issued authoritative guidance

See Note 1 of the Notes to Consolidated Financial Statements in this annual report for recently issued authoritative guidance, including the respective expected dates of adoption and effects on our results of operations and financial condition.

RESULTS OF OPERATIONS

The following table sets forth certain Consolidated Statements of Operations data as a percentage of net revenues for the fiscal years indicated below:

	2016			2015			2014
Net revenues	100	%		100	%		100	%
Cost of revenues	17	%		18	%		19	%
Gross profit	83	%		82	%		81	%
Operating expenses:
Sales and marketing	36	%		42	%		42	%
Research and development	21	%		21	%		17	%
General and administrative	8	%		9	%		10	%
Amortization of intangible assets	2	%		2	%		2	%
Restructuring, separation, and transition	4	%		4	%		6	%
Total operating expenses	70	%		78	%		78	%
Operating income	13	%		4	%		3	%
Non-operating expense, net	2	%		1	%		1	%

The total percentages may not add due to rounding.

Net revenues by fiscal year

													Change in %
	2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Net revenues	$	3,600			$	3,956			$	4,183			(9)	%		(5)	%

2016 compared to 2015

Net revenues decreased $356 million year over year primarily due to unfavorable foreign currency fluctuations of $171 million and declines in our consumer security revenue driven by the ongoing impact of changes to our renewal practices and a reduction in revenue from OEM arrangements. In addition, net revenues decreased partially due to the impact of the additional week from the 53-week fiscal 2015 year.

2015 compared to 2014

Net revenues decreased $227 million primarily due to declines in our consumer security products driven by our channel strategy to exit unprofitable retail arrangements and certain high-cost OEM arrangements, coupled with the impact to change our renewal practices. In addition, net revenues decreased due to the general strengthening of the U.S. dollar against foreign currencies and weakness in endpoint management, partially offset by the impact of the additional week from the 53-week fiscal 2015 year.

Net revenues and operating income by segment by fiscal year

													Change in %
	2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Net revenues:
Consumer Security	$	1,670			$	1,887			$	2,063			(11)	%		(9)	%
Enterprise Security	1,930				2,069				2,135				(7)	%		(3)	%
Percentage of total net revenues:
Consumer Security	46		%		48		%		49		%
Enterprise Security	54		%		52		%		51		%
Operating income:
Consumer Security	$	924			$	982			$	928			(6)	%		6	%
Enterprise Security	102				293				349				(65)	%		(16)	%
Operating margin:
Consumer Security	55		%		52		%		45		%
Enterprise Security	5		%		14		%		16		%

2016 compared to 2015

Consumer Security revenue decreased $217 million primarily due to the ongoing impact of changes to our renewal practices and a reduction in revenue from OEM arrangements. Unfavorable currency fluctuations of $81 million also contributed to the decline in revenue. Consumer Security operating income decreased $58 million primarily due to the decreases in revenue in this segment, which were partially offset by reductions in cost of revenues, sales and marketing and research and development expenses.

Enterprise Security revenue decreased $139 million primarily due to unfavorable foreign currency fluctuations of $90 million, as well as decrease in sales of endpoint management and our mail cloud security products. The decrease of $191 million in operating income was primarily due to decreased revenue and increased allocation of stranded costs. These stranded costs consist of overhead expenses resulting from the sale of Veritas and primarily include information technology infrastructure and services, and real estate costs.

2015 compared to 2014

Consumer Security revenue decreased $176 million primarily due to our channel strategy to exit unprofitable retail arrangements and certain high-cost OEM arrangements, coupled with the impact of our decision to change our renewal practices. Consumer Security operating income increased $54 million primarily due to reductions in advertising and promotional expenses of $141 million and decreases in cost of revenues of $52 million and salaries and wages of $26 million, partially offset by the revenue decline in the segment.

Enterprise Security revenue decreased $66 million primarily due to unfavorable foreign currency fluctuations, as well as a decrease in the sales of endpoint management. The decrease of $56 million in operating income was mainly due to the reduction in revenue.

Net revenues by geographic region by fiscal year

													Change in %
	2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Revenues by geographic region:
Americas (U.S., Canada and Latin America)	$	2,113			$	2,214			$	2,315			(5)	%		(4)	%
EMEA (Europe, Middle East and Africa)	894				1,065				1,129				(16)	%		(6)	%
APJ (Asia Pacific and Japan)	593				677				739				(12)	%		(8)	%
Total net revenues	$	3,600			$	3,956			$	4,183
U.S.	$	1,897			$	1,960			$	2,049			(3)	%		(4)	%
International	1,703				1,996				2,134				(15)	%		(6)	%
Total net revenues	$	3,600			$	3,956			$	4,183
Percentage of total net revenues:
Americas (U.S., Canada and Latin America)	59		%		56		%		55		%
EMEA (Europe, Middle East and Africa)	25		%		27		%		27		%
APJ (Asia Pacific and Japan)	16		%		17		%		18		%
U.S.	53		%		50		%		49		%
International	47		%		50		%		51		%

Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our international revenue by approximately $171 million for fiscal 2016 as compared to fiscal 2015. Fiscal 2016 revenue for the EMEA and APJ regions decreased primarily due to unfavorable foreign currency fluctuations of $119 million and $49 million, respectively, compared to fiscal 2015.

Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our international revenue by approximately $92 million for fiscal 2015 as compared to fiscal 2014. This was due to unfavorable foreign currency fluctuations of $53 million in the EMEA region and $39 million in the APJ region.

Our international sales are expected to continue to be a significant portion of our revenue. As a result, revenue is expected to continue to be affected by foreign currency exchange rates as compared to the U.S. dollar. We are unable to predict the extent to which revenue in future periods will be impacted by changes in foreign currency exchange rates. If international sales become a greater portion of our total sales in the future, changes in foreign currency exchange rates may have a potentially greater impact on our revenue and operating results.

Cost of revenues by fiscal year

													Change in %
	2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Cost of revenues	$	615			$	727			$	791			(15)	%		(8)	%

2016 compared to 2015

Cost of revenues consists primarily of technical support costs, costs of billable services, and fees to OEMs under revenue-sharing agreements. Our cost of revenues decreased $112 million for fiscal 2016 compared to fiscal 2015 primarily due to favorable currency effects, a decrease in OEM royalty fees, and a decrease in service related and content delivery expenses.

2015 compared to 2014

Our cost of revenues decreased $64 million for fiscal 2015 compared to fiscal 2014 primarily due to favorable currency effects, a decrease in OEM royalty fees, and a decrease in service related and content delivery expenses in our Consumer Security segment.

Operating expenses by fiscal year

													Change in %
	2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Sales and marketing expense	$	1,292			$	1,650			$	1,766			(22)	%		(7)	%
Research and development expense	748				812				722				(8)	%		12	%
General and administrative expense	295				362				420				(19)	%		(14)	%
Amortization of intangible assets	57				87				93				(34)	%		(6)	%
Restructuring, separation, and transition	136				164				247				(17)	%		(34)	%
Total	$	2,528			$	3,075			$	3,248			(18)	%		(5)	%

2016 compared to 2015

The overall decreases in operating expenses for fiscal 2016 compared to fiscal 2015 were primarily due to a decrease in unallocated corporate charges previously allocated to Veritas. These unallocated corporate charges are included in expenses from continuing operations. Refer to Note 8 of the Notes to Consolidated Financial Statements in this annual report for more information about our unallocated corporate charges. The impacts of the unallocated corporate charges are discussed below. In addition to the impacts of unallocated corporate charges, we experienced favorable foreign currency effects on our operating expenses for fiscal 2016 compared to fiscal 2015.

Sales and marketing expense decreased $358 million primarily due to a reduction of unallocated corporate charges of $328 million.

Research and development expense decreased $64 million primarily due to a reduction of unallocated corporate charges of $76 million.

General and administrative expenses decreased $67 million primarily due to a reduction of unallocated corporate charges of $91 million, partially offset by an increase in stock-based compensation expense.

Amortization of intangible assets decreased $30 million primarily due to certain intangible assets becoming fully amortized during fiscal 2015.

Restructuring, separation, and transition costs include severance, facilities, separation, transition and other related costs. For fiscal 2016, we incurred $44 million of restructuring costs, $14 million in separation costs, and $78 million in transition costs. For further information on restructuring, separation, and transition costs, see Note 6 of the Notes to Consolidated Financial Statements in this annual report.

2015 compared to 2014

We experienced favorable foreign currency effects on our operating expenses in fiscal 2015 as compared to fiscal 2014.

Sales and marketing expense decreased $116 million in fiscal 2015, primarily due to lower advertisement and promotions expenses partly offset by higher unallocated corporate charges of $67 million.

The $90 million increase in research and development expense for fiscal 2015 was primarily due to higher unallocated corporate charges and stock-based compensation expense.

General and administrative expenses decreased $58 million primarily due to a reduction of unallocated corporate charges of $17 million.

Amortization of intangible assets decreased by $6 million primarily as a result of certain intangible assets becoming fully amortized during fiscal 2015.

Restructuring, separation, and transition costs include severance, facilities, separation, transition and other related costs. For fiscal 2015, we incurred $101 million of restructuring costs, $23 million in separation costs, and $40 million in transition costs. For further information on restructuring and transition costs, see Note 6 of the Notes to Consolidated Financial Statements in this annual report.

Non-operating expense, net by fiscal year

													Change in %
2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Interest income	$	10			$	11			$	11			(9)	%		—	%
Interest expense	(75		)		(78		)		(84		)		(4)	%		(7)	%
Other income, net	—				14				36				*			*
Non-operating expense, net	$	(65	)		$	(53	)		$	(37	)		23	%		43	%

• Percentage is not meaningful.

2016 compared to 2015

Non-operating expense, net, increased $12 million primarily due to net foreign currency remeasurement losses.

2015 compared to 2014

Non-operating expense, net, increased $16 million primarily due to a $32 million realized gain from sale of short-term investments during fiscal 2014, offset by favorable foreign currency effects and a reduction in interest expense.

Provision for income taxes by fiscal year

													Change in %
2016				2015				2014				2016 v 2015			2015 v 2014
	(Dollars in millions)
Income from continuing operations before income taxes	$	392			$	101			$	107			288	%		(6)	%
Provision for (benefit from) income taxes	$	1,213			$	(8	)		$	16			*			*
Effective tax rate on continuing operations income	309		%		(8		)%		15		%

• Percentage is not meaningful.

We recorded an income tax expense on discontinued operations of $1.1 billion, $223 million and $242 million for fiscal 2016, 2015 and 2014, respectively. See Note 3 of the Notes to Consolidated Financial Statements in this annual report for additional information.

Tax expense in fiscal 2016 was primarily driven by (1) $1.1 billion of tax expense for providing U.S. taxes on certain undistributed foreign earnings, primarily those attributable to the sale of Veritas, and (2) $10 million of tax expense attributable to recording valuation allowances for certain deferred tax assets.

The tax expense in fiscal 2015 was reduced by the following benefits: (1) $59 million for tax benefits related to the settlement of the Symantec 2009 through 2013 Internal Revenue Service (“IRS”) audit, (2) $21 million in tax benefits resulting from tax settlements and lapses of statutes of limitations, (3) $14 million in tax benefits related to certain foreign operations, and (4) $14 million in tax benefits resulting from deductible separation costs.

The tax expense in fiscal 2014 was reduced by the following benefits: (1) $33 million for the resolution of a tax matter related to the sale of our 49% ownership interest in the joint venture with Huawei during the fourth quarter of fiscal 2012, (2) $24 million for tax benefits related to the settlement of the Symantec 2005 through 2008 IRS audit, (3) $15 million tax benefit related to certain foreign operations, and (4) $13 million from lapses of statutes of limitation. These tax benefits were partially offset by $12 million in tax expense, resulting from the sale of short-term investments.

The effective tax rates for all periods presented otherwise reflect the benefits of lower-taxed international earnings, domestic manufacturing incentives, and research and development credits, partially offset by state income taxes.

We are a U.S.-based multinational company subject to tax in multiple U.S. and international tax jurisdictions. A substantial portion of our international earnings were generated from subsidiaries organized in Ireland and Singapore. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.

For further information on the impact of foreign earnings on our effective tax rate, see Note 11 of the Notes to Consolidated Financial Statements in this annual report.

See Critical Accounting Policies and Estimates above for additional information about our provision for income taxes.

In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the current and prior two years; we have strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. Levels of future taxable income are subject to the various risks and uncertainties discussed in Part I, Item 1A, Risk Factors, set forth in this annual report. We have concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of April 1, 2016 of $308 million, which are net of a valuation allowance of $50 million, are realizable on a “more likely than not” basis.

On September 3, 2013, we settled and effectively settled matters with the IRS for the Symantec 2005 through 2008 fiscal years. The result of the settlements, effective settlements, and re-measurements resulted in a reduction in the balance of our gross unrecognized tax benefits in fiscal year 2014 of $122 million.

On March 18, 2015, we settled and effectively settled matters with the IRS for the Symantec 2009 through 2013 fiscal years. The settlement and effective settlement resulted in a benefit to tax expense in fiscal year 2015 of $59 million. Additionally, the Company settled transfer price related matters of $158 million, a portion of which was accounted for against deferred tax liabilities on unremitted foreign earnings. The Company has paid in $155 million to cover the final tax and interest liability on the settlement.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by $7 million.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

Divestiture of Veritas

In August 2015, we entered into a definitive agreement to sell the assets of Veritas to Carlyle and amended the terms in January 2016. Based on the amended terms of the definitive agreement, we received net consideration of $6.6 billion in cash excluding transaction costs and 40 million B common shares of Veritas and Veritas assumed certain liabilities in connection with the acquisition. Our U.S. and foreign income taxes and indirect taxes payable resulting from the transaction are estimated to be $1.0 billion.

Sources of cash

We have historically relied on cash flow from operations, borrowings under a credit facility, issuances of debt and equity securities, and sale of business, more recently, for our liquidity needs. As of April 1, 2016, we had cash, cash equivalents and short-term investments of $6.0 billion and an unused credit facility of $1.0 billion resulting in a liquidity position of approximately $7.0 billion. As of April 1, 2016, $4.9 billion in cash, cash equivalents, and short-term investments were held by our foreign subsidiaries. We have provided U.S. deferred taxes on a portion of our undistributed foreign earnings sufficient to address the incremental U.S. tax that would be due if we needed such portion of these funds to support our operations in the U.S.

Senior Notes. In fiscal 2013, we issued $1.0 billion of Senior Notes consisting of the 3.95% Senior Notes due in 2022 and the 2.75% Senior Notes due in 2017. We received proceeds of $996 million, net of an issuance discount. In fiscal 2011, we issued $750 million of Senior Notes consisting of the 4.20% Senior Notes due in 2020.

Convertible Senior Notes. In fiscal 2016, we issued $500 million in 2.50% Convertible Senior Notes, due April 2021.

Revolving Credit Facility. In fiscal 2011, we entered into a $1.0 billion senior unsecured revolving credit facility (“credit facility”), which was amended in fiscal 2013. The amendment extended the term of the credit facility to June 7, 2017. This revolving credit facility was further amended in March 2016 to amend the definition of EBITDA (earnings before interest, taxes, depreciation and amortization) to account for the sale of Veritas and related expenses and to amend our consolidated leverage ratio under the agreement. Under the terms of this credit facility, we must comply with certain financial and non-financial covenants, including a covenant to maintain a specified ratio of debt to EBITDA. As of April 1, 2016, we were in compliance with the required covenants, and no amounts were outstanding.

In May 2016, we replaced our existing $1.0 billion senior unsecured revolving credit facility with a new $2.0 billion credit facility. See Note 13 of the Notes to the Consolidated Financial Statements in this annual report for more information.

We believe that our existing cash and investment balances, our available revolving credit facility, our ability to issue new debt instruments, and cash generated from operations will be sufficient to meet our working capital and capital expenditure requirements, as well as to fund any cash dividends, principal and interest payments on debt, and repurchases of our stock, for at least the next 12 months and foreseeable future. In connection with the divestiture of Veritas, our Board of Directors committed to returning the net proceeds of the sale to stockholders through a combination of a special dividend and share repurchases. The Board of Directors also resolved to adjust its annual dividend starting fiscal year 2017 to $0.30 per share to reflect reduced projected domestic cash flow following the sale of Veritas, while still enabling our company to invest in its future. Our strategy emphasizes organic growth through internal innovation and will be complemented by acquisitions that fit strategically and meet specific internal profitability hurdles.

Uses of cash

Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on debt, and payments of taxes. Also, we may, from time to time, engage in the open market purchase of our notes prior to their maturity. Furthermore, our capital allocation strategy contemplates a quarterly cash dividend. In addition, we regularly evaluate our ability to repurchase stock, pay debts, and acquire other businesses.

Stock Repurchases on Open Market Transactions. In fiscal 2016, we repurchased 17 million shares, or $368 million of our common stock. In fiscal 2015, we repurchased 21 million shares, or $500 million, of our common stock. In fiscal 2014, we repurchased 21 million shares, or $500 million, of our common stock. Our active stock repurchase programs have $790 million remaining authorized for future repurchase as of April 1, 2016, with no expiration date.

Accelerated Stock Repurchase. In November and March of fiscal 2016, we entered into ASR agreements with financial institutions to repurchase an aggregate of $1.5 billion of our common stock. We made upfront payments of $500 million and $1 billion for a total of $1.5 billion, to the financial institutions pursuant to the ASR agreements and received and retired the initial deliveries of 19.9 million and 42.4 million shares of our common stock. The November 2015 ASR agreement's purchase period concluded in the fourth quarter of fiscal 2016, whereby upon settlement, we received an additional 5.0 million shares of our common stock. The total shares received and retired under the terms of the November 2015 ASR were 24.9 million, with an average price paid per share of $20.08. The March 2016 purchase period is expected to close by or no later than the third quarter of fiscal 2017. The upfront payments for the November 2015 and March 2016 ASR agreements are presented under the caption repurchases of common stock in our Consolidated Statements of Cash Flows.

Dividend Program. During fiscal 2016, we declared and paid aggregate cash dividends of $3.0 billion, or $4.60 per common share. These dividends were comprised of our quarterly dividends and a special dividend of $4.00 per share. During fiscal 2015, we declared and paid cash dividends of $413 million or $0.60 per common share. During fiscal 2014, we declared and paid cash dividends of $418 million or $0.60 per common share. Our restricted stock and performance-based stock units have dividend equivalent rights entitling holders to dividend equivalents to be paid in the form of cash upon vesting, for each share of the underlying units.

On May 12, 2016, we declared a cash dividend of $0.075 per share of common stock to be paid on June 22, 2016 to all stockholders of record as of the close of business on June 8, 2016. All shares of common stock issued and outstanding, and unvested restricted stock and performance-based stock, as of the record date will be entitled to the dividend and dividend equivalents, respectively. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.

Restructuring Plans. In fiscal 2015, we announced plans to separate our security and information management businesses. In order to separate the businesses, we put a restructuring plan in place to properly align personnel, and have therefore incurred associated severance and facilities costs. We also incurred separation costs in the form of advisory, consulting and disentanglement expenses. These actions were substantially completed in the fourth quarter of fiscal 2016 with the sale of Veritas on January 29, 2016. However, we expect to incur immaterial adjustments to existing reserves in subsequent periods.

In May 2016, the Board of Directors approved a fiscal 2017 restructuring plan. See Note 13 of the Notes to the Consolidated Financial Statements in this annual report for more information.

Note Repayment. In the second quarter of fiscal 2016, the principal balance of our 2.75% Senior Notes due September 15, 2015 matured and was settled by a cash payment of $350 million, along with the $5 million semiannual interest payment.

Cash flows

The following table summarizes, for the fiscal periods indicated, selected items in our Consolidated Statements of Cash Flows:

	2016				2015				2014
	(Dollars in millions)
Net cash provided by (used in) from continuing operations:
Operating activities	$	1,456			$	17			$	108
Investing activities	7,236				(1,076		)		(517		)
Financing activities	(4,734		)		(800		)		(1,700		)

Continuing operating activities

We expect cash from our operating activities to fluctuate in future periods as a result of a number of factors, including the timing of our billings and collections, our operating results, the timing and amount of tax and other liability payments.

Net cash provided by operating activities was $1.5 billion for fiscal 2016 due to increases in deferred income taxes of $1.1 billion and income taxes payable of $693 million. These amounts were partially offset by a loss from continuing operations, net of income taxes of $821 million, including non-cash items depreciation and amortization charges of $304 million and stock-based compensation expense of $161 million.

Net cash provided by operating activities was $17 million for fiscal 2015, which resulted from income from continuing operations, net of income taxes of $109 million adjusted for non-cash items, including depreciation and amortization charges of $355 million and stock-based compensation expense of $131 million. These amounts were partially offset by decreases in income taxes payable of $405 million, deferred revenue of $83 million, and accounts payable of $73 million.

Net cash provided by operating activities was $108 million for fiscal 2014, which resulted from net income from continuing operations of $91 million adjusted for non-cash items, including depreciation and amortization charges of $374 million and stock-based compensation expense of $105 million. These amounts were partially offset by decreases in income taxes payable of $240 million, deferred revenue of $161 million, and accrued compensation and benefits of $83 million.

Continuing investing activities

Net cash provided by investing activities was $7.2 billion for fiscal 2016 and was primarily due to net proceeds of $6.5 billion from the divestiture of Veritas and proceeds of $1.4 billion from maturities and sales of short-term investments, partially offset by purchases of $378 million of short-term investments and payments of $272 million for capital expenditures.

Net cash used in investing activities was $1.1 billion for fiscal 2015 and was primarily due to $1.8 billion in purchases of short-term investments, and payments of $303 million for capital expenditures, partially offset by $1.0 billion in proceeds from the sales and maturities of our short-term investments.

Net cash used in investing activities was $517 million for fiscal 2014 and was primarily due to the purchase of $492 million, of short-term investments and payments of $194 million for capital expenditures, partially offset by $186 million in proceeds from the sales and maturities of our short-term investments.

Continuing financing activities

Net cash used in financing activities was $4.7 billion for fiscal 2016, which was primarily due to cash dividend payments of $3.0 billion, repurchases of our common stock of $1.9 billion and repayment of Senior Notes and other obligations of $368 million, partially offset by proceeds from the issuance of Convertible Senior Notes of $500 million.

Net cash used in financing activities was $800 million for fiscal 2015, which was primarily due to the repurchases of our common stock of $500 million and cash dividends paid of $413 million, partially offset by net proceeds from sales of common stock through employee stock benefit plans of $116 million.

Net cash used in financing activities of $1.7 billion for fiscal 2014 was primarily due to the repayment of our Convertible Senior Notes of $1.0 billion, repurchases of our common stock of $500 million, and cash dividends of paid of $418 million, partially offset by net proceeds from sales of common stock through employee stock benefit plans of $234 million.

Contractual obligations

The following is a schedule by years of our significant contractual obligations as of April 1, 2016:

	Payments Due by Fiscal Period
	Total				2017				2018 - 2019				2020 - 2021				Thereafter
	(Dollars in millions)
Senior Notes and Convertible Senior Notes (1)	$	2,250			$	—			$	600			$	1,250			$	400
Interest payments on Senior Notes and Convertible Senior Notes (1)	321				76				123				103				19
Purchase obligations (2)	329				256				71				2				—
Operating leases (3)	278				81				115				62				20
Total	$	3,178			$	413			$	909			$	1,417			$	439

(1)	Interest payments were calculated based on terms of the related Senior Notes and Convertible Senior Notes. For further information on the Senior Notes and Convertible Senior Notes, see Note 5 of the Notes to Consolidated Financial Statements in this annual report.

(2)

These amounts are associated with agreements for purchases of goods or services generally including agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The table above also includes agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included in the table above because management believes that cancellation of these contracts is unlikely and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials.

(3)	We have entered into various non-cancelable operating lease agreements that expire on various dates through fiscal 2026. The amounts in the table above exclude expected sublease income and include $8 million in exited or excess facility costs related to restructuring activities.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits as of April 1, 2016 we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $160 million in long-term income taxes payable has been excluded from the contractual obligations table. For further information, see Note 11 of the Notes to Consolidated Financial Statements in this annual report.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In addition, our bylaws contain indemnification obligations to our directors, officers, employees and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our Consolidated Financial Statements.

In connection with the sale of Veritas, we assigned several leases to Veritas Technologies LLC or its related subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC or its related subsidiaries' breach of payment obligations under the terms of the lease. As with our other indemnification obligations discussed above and in general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations under our Consolidated Financial Statements.

We provide limited product warranties and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.