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

Please read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related Notes thereto included under Item 15 of this Annual Report on Form 10-K.

OVERVIEW

Fiscal calendar and basis of presentation

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 ended March 30, 2018, March 31, 2017 and April 1, 2016, each of which was a 52-week year.

Key financial metrics

The following table provides our key financial metrics for continuing operations for fiscal 2018 compared with fiscal 2017:

(In millions, except for percentages and per share amounts)		Fiscal 2018				Fiscal 2017
Net revenues		$	4,834			$	4,019
Operating income (loss)		$	49			$	(100	)
Income (loss) from continuing operations		$	1,127			$	(236	)
Income (loss) per share from continuing operations — diluted		$	1.69			$	(0.38	)
Cash, cash equivalent and short-term investments		$	2,162			$	4,256
Net cash provided by (used in) continuing operating activities		$	957			$	(145	)
Deferred revenue		$	3,103			$	2,787

	•		Net revenues grew 20% in fiscal 2018 compared to fiscal 2017 primarily as a result of the inclusion of revenue from our consumer identity and information protection products acquired at the end of fiscal 2017 for a full year and increased revenues from sales of our enterprise network and web security solutions which included products acquired in our fiscal 2017 acquisition, partially offset by a decrease in revenue as a result of the divestiture of our WSS and PKI solutions. See Note 14 to the Consolidated Financial Statements for further information on our products and services revenues.

	•		Operating income increased primarily as a result of increased net revenues and our cost reduction initiatives and integration synergy program we announced in fiscal 2017. This increase was partially offset by increased operating expenses as a result of acquisitions of Blue Coat and LifeLock, including stock-based compensation, amortization of intangible assets, and advertising and promotional expenses. The increase in operating income was also partially offset by increased transition costs primarily due to costs related to our enterprise resource planning and supporting systems and separation costs related to the divestiture of our WSS and PKI solutions.

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	•		Income from continuing operations and diluted income per share from continuing operations increased primarily as a result of the $653 million gain on the divestiture of our WSS and PKI solutions and a net tax benefit of $690 million primarily as a result of the Tax Cuts and Jobs Act (H.R.1) (the “Act”). Partially offsetting the increase in the diluted income per share from continuing operations was a higher diluted share count due to including the dilutive effect of potentially issuable common shares under our equity award programs and convertible debt. Such potentially issuable common shares were excluded from our net loss per share computation in fiscal 2017 as they would have been anti-dilutive.

	•		Cash, cash equivalents and short-term investments decreased primarily as a result of our $3.2 billion of debt repayments as part of our plan to deleverage our balance sheet and $401 million paid for acquisitions, partially offset by $933 million in net cash proceeds from the divestiture of our WSS and PKI solutions and cash flow from continuing operating activities of $957 million.

	•		Cash flow from continuing operating activities increased primarily due to a one-time tax payment of $887 million related to the gain on sale from the divestiture of our information management business (“Veritas”) in fiscal 2017 and an increase in deferred revenue.

	•		Deferred revenue increased $316 million, primarily due to our shift in sales contracts to a higher mix of solutions subject to ratable versus point in time revenue recognition and longer contract duration in our Enterprise Security segment, which resulted in less in-period revenue recognized, and due to higher billings towards the end of the fiscal year, reflecting seasonal sales cycles in that segment. These factors were partially offset by a decrease of $319 million in deferred revenue as a result of the divestiture of our WSS and PKI solutions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

A summary of our significant accounting policies is included in Note 1 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our Consolidated Financial Statements.

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 and assumptions.

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We enter into arrangements that can include various combinations of software and non-software elements. Where elements are delivered over different periods of time, and when allowed under GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. We use a hierarchy to determine the fair value to be used for allocating revenue to non-software elements: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence, and (iii) estimated selling price (“ESP”). For software elements, we follow the industry-specific software guidance which only allows for the use of VSOE in establishing fair value. VSOE of each element is based on the price for which the undelivered element is sold separately by us. 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 serial undelivered items, the entire arrangement fee is recognized ratably over the performance period. When VSOE does not exist for a discrete undelivered item, consideration for the entire arrangement is deferred until that item is delivered. 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. ESPs for non-software elements are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. Our process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.

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 expected cash flows from customer relationships, developed technology, trade names and acquired patents; and discount rates. Management estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Income taxes

We are subject to tax in multiple U.S. and foreign tax jurisdictions. We are required to estimate the current tax exposure as well as assess the temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. We apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates.

We use a two-step process to recognize liabilities for uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that the tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest

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amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

As of March 30, 2018, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. These amounts may require further adjustments as a result of additional future guidance from the U.S. Department of the Treasury, changes in our assumptions, and the availability of further information and interpretations. In other cases, we have not been able to make a reasonable estimate and we continue to account for those items based on our existing accounting policies and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which we were able to determine a reasonable estimate, we recognized a provisional tax benefit of $659 million, which is included as a component of income tax expense from continuing operations. This includes an income tax benefit of $1.6 billion resulting from the application of the Act to existing deferred tax balances, including a reduction of the previously accrued deferred tax liability for foreign earnings by $1.4 billion. This was partially offset by $893 million of tax expense that was recorded for the one-time transition tax liability under the Act.

Stock-based compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award. We recognize stock-based compensation cost over the award’s requisite service period on a straight-line basis except for performance-based restricted stock units (“PRUs”) with graded vesting which we recognize on a graded basis. For awards with performance conditions, the amount of compensation cost we recognize over the requisite service period is based on the actual achievement of the performance condition or management’s best estimate of the achievement if not yet known. No compensation cost is ultimately recognized for forfeited awards in which employees do not render the requisite service. We estimate the number of stock-based awards that will be forfeited due to employee turnover. Our forfeiture assumption is primarily based on historical experience.

The fair value of each restricted stock unit (“RSU”) and PRU that does not contain a market condition is equal to the market value of our common stock on the date of grant. The fair value of each PRU that contains a market condition is estimated using the Monte Carlo simulation option pricing model. The fair values of RSUs and PRUs are not discounted by the dividend yield because our RSUs and PRUs are entitled to dividend equivalents to be paid in the form of cash upon vesting for each share of the underlying unit.

We use the Black-Scholes model to determine the fair value of unvested stock options assumed in acquisitions and the fair value of rights to acquire shares of common stock under our employee stock purchase plan (“ESPP”). The determination of the fair value of awards using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. If the acquired companies lack sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term, we estimate the expected life of assumed options using the “simplified method”. For vested options, this represents the midpoint between the valuation date and the contractual term. For unvested options, this represents the midpoint between the average vesting time and full contractual term. Expected volatility is based on the average of historical volatility over the most recent period commensurate with the expected life of the option and the implied volatility of traded options. The risk-free interest rate is equal to the U.S. Treasury rates for the period equal to the expected life. The options assumed are without dividend equivalents and their fair values are discounted by our dividend yield.

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We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates which could materially impact our future stock-based compensation expense.

Loss contingencies

We are subject to contingencies that expose us to losses, including various legal and regulatory proceedings, asserted and potential claims that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. We review the status of each significant matter quarterly and we may revise our estimates. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our consolidated financial statements for that reporting period.

RESULTS OF OPERATIONS

The following table sets forth our Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:

		Fiscal Year
		2018				2017				2016
Net revenues			100	%			100	%			100	%
Cost of revenues			21				21				17
Gross profit			79				79				83
Operating expenses:
Sales and marketing			33				36				36
Research and development			20				20				21
General and administrative			12				14				8
Amortization of intangible assets			5				4				2
Restructuring, transition and other costs			8				7				4
Total operating expenses			78				81				70
Operating income (loss)			1				(2)				13
Interest expense			(5)				(5)				(2)
Gain on divestiture			14				-				-
Other income (expense), net			(0)				1				0
Income (loss) from continuing operations before income taxes			9				(7)				11
Income tax expense (benefit)			(14)				(1)				34
Income (loss) from continuing operations			23				(6)				(23)
Income from discontinued operations, net of income taxes			0				3				92
Net income (loss)			24	%			(3)	%			69	%

Note: The percentages may not add due to rounding.

Net revenues

		Fiscal Year												Variance in %
(In millions, except for percentages)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net revenues		$	4,834			$	4,019			$	3,600				20	%			12	%

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Fiscal 2018 compared to fiscal 2017

Net revenues increased $815 million, attributable to increases of $616 million from our Consumer Digital Safety segment and $199 million from our Enterprise Security segment, net of the impact of the divestiture of our WSS and PKI solutions. The increase in revenue from our Consumer Digital Safety segment was primarily a result of the inclusion of revenue from our identity and information protection products acquired at the end of fiscal 2017 for a full year.

Fiscal 2017 compared to fiscal 2016

Net revenues increased $419 million, primarily due to an increase of $425 million in revenue from our Enterprise Security segment as a result of the acquisition of Blue Coat during the second quarter of fiscal 2017.

Net revenues by geographical region

Percentage of revenue by geographic region as presented below is based on the billing location of the customer.

		Fiscal Year
		2018				2017				2016
Americas			63	%			58	%			59	%
EMEA			22	%			24	%			25	%
APJ			16	%			18	%			16	%

Note: The Americas include U.S., Canada and Latin America; EMEA includes Europe, Middle East and Africa; APJ includes Asia Pacific and Japan. The percentages may not add up to 100% due to rounding.

Fiscal 2018 compared to fiscal 2017

Our percentage of revenue from the Americas increased, primarily as a result of the inclusion of revenue from our identity and information protection products acquired at the end of fiscal 2017 for a full year as sales of these products are generated entirely in the United States.

Fiscal 2017 compared to fiscal 2016

The geographical distribution of our revenue was relatively consistent in fiscal 2017 compared to fiscal 2016.

Cost of revenues

		Fiscal Year												Variance in %
(In millions, except for percentages)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Cost of revenues		$	1,032			$	853			$	615				21	%			39	%

Fiscal 2018 compared to fiscal 2017

Our cost of revenues increased $179 million primarily due to an increase related to our network and web security solutions and consumer identity and information protection products that were acquired in fiscal 2017, including $88 million of increased amortization of acquired intangible assets and $60 million of increased technical support costs primarily driven by the consumer identity and information protection products, and an increase of $30 million in royalty fees.

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Fiscal 2017 compared to fiscal 2016

Our cost of revenues increased $238 million primarily due to $122 million of increased amortization of acquired intangible assets and increased other costs related to sales of our network and web security solutions and consumer identity and information protection products that were acquired in fiscal 2017, including an acquired product inventory fair value write-up of $24 million. These increases in cost of revenues were partially offset by decreased costs related to Veritas of $22 million.

Operating expenses

		Fiscal Year												Variance in %
(In millions, except for percentages)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Sales and marketing		$	1,593			$	1,459			$	1,292				9	%			13	%
Research and development			956				823				748				16	%			10	%
General and administrative			574				564				295				2	%			91	%
Amortization of intangible assets			220				147				57				50	%			158	%
Restructuring, transition and other costs			410				273				136				50	%			101	%
Total		$	3,753			$	3,266			$	2,528				15	%			29	%

Fiscal 2018 compared to fiscal 2017

Sales and marketing expense increased $134 million primarily due to increases of $148 million in advertising and promotional expense, largely related to promotion of our identity and information protection products, and $58 million in stock-based compensation expense. These increases were partially offset by the decreased expenses from our divested WSS and PKI solutions.

Research and development expense increased $133 million primarily due to increases of $90 million in stock-based compensation expense and $27 million in salary and benefits expense as a result of higher headcount.

General and administrative expense increased $10 million primarily due to a $35 million increase in salary and benefits expense as a result of higher headcount, a $15 million increase in stock-based compensation expense and increased cybersecurity and compliance costs, partially offset by a decrease of $41 million in acquisition-related and integration expenses due to a lower level of acquisition activities in fiscal 2018.

Stock-based compensation expense reported in operating expenses increased $163 million to $582 million in fiscal 2018 from $419 million in fiscal 2017, primarily due to the equity awards granted in connection with our fiscal 2018 and 2017 acquisitions.

Amortization of intangible assets increased $73 million primarily due to the intangible assets acquired in our fiscal 2017 acquisitions.

Restructuring, transition and other costs increased $137 million, primarily due to an increase of $178 million in transition costs, including increases of $90 million in costs primarily related to our enterprise resource planning and supporting systems and other transformation initiatives and $88 million in separation costs related to the sale of our WSS and PKI solutions.

Fiscal 2017 compared to fiscal 2016

Sales and marketing expense increased $167 million primarily as a result of our fiscal 2017 acquisitions and included increases of $54 million in stock-based compensation expense and

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$24 million in integration expense. These increases were partially offset by a reduction of expenses from new and ongoing cost savings initiatives and decreased costs related to Veritas of $88 million.

Research and development expense increased $75 million primarily as a result of the acquisition of Blue Coat and included an increase of $54 million in stock-based compensation expense. This increase was partially offset by a reduction of expenses from new and ongoing cost savings initiatives and decreased costs related to Veritas of $44 million.

General and administrative expense increased $269 million primarily as a result of the acquisition of Blue Coat and included an increase of $160 million in stock-based compensation expense. In addition, we incurred higher acquisition-related and integration expenses of $79 million. These increases were partly offset by a reduction of expenses from new and ongoing cost savings initiatives and decreased costs related to Veritas of $32 million.

Our stock-based compensation in operating expenses increased $268 million to $419 million in fiscal 2018 from $151 million in fiscal 2017, primarily due to the equity awards granted in connection with the Blue Coat and LifeLock acquisitions, and the expected level of achievement for PRUs granted in fiscal 2017.

Amortization of intangible assets increased $90 million primarily due to the $2.9 billion of intangible assets acquired in the Blue Coat and LifeLock acquisitions.

Restructuring, transition and other costs increased $137 million, primarily due to increases of $60 million in advisory fees incurred in connection with restructuring events and facilities exit costs and $52 million in severance costs as we initiated a restructuring plan during fiscal 2017.

Non-operating income (expense), net

		Fiscal Year
(In millions)		2018				2017				2016
Interest expense		$	(256	)		$	(208	)		$	(75	)
Gain on divestiture			653				-				-
Other income (expense), net			(9	)			46				10
Total other income (expense), net		$	388			$	(162	)		$	(65	)

Fiscal 2018 compared to fiscal 2017

Non-operating income (expense), net, increased, primarily due to a $653 million gain as a result of the divestiture of our WSS and PKI solutions, partially offset by an increase of $48 million in interest expense primarily due to increased interest associated with the debt issued in fiscal 2017, an increase of $26 million in net foreign currency loss, and a $26 million loss from our equity method investment received in connection with the divestiture of our WSS and PKI solutions.

Fiscal 2017 compared to fiscal 2016

Non-operating expense, net, increased, primarily due to an increase of $133 million in interest expense, mainly related to our increased borrowings in fiscal 2017. This increase was partially offset by an increase of $14 million in income, net of direct costs, from transition services provided to Veritas.

Provision for 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

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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.

		Fiscal Year
(In millions, except for percentages)		2018				2017				2016
Income (loss) from continuing operations before income taxes		$	437			$	(262	)		$	392
Provision for (benefit from) income taxes		$	(690	)		$	(26	)		$	1,213
Effective tax rate on income from continuing operations			(158	)%			10	%			309	%

Fiscal 2018 compared to fiscal 2017

The decrease in our effective tax rate in fiscal 2018 as compared to fiscal 2017 was primarily due to a provisional tax benefit of $659 million, which is included as a component of income tax expense from continuing operations. This includes an income tax benefit of $1,552 million resulting from the application of the Act to existing deferred tax balances, including a reduction of the previously accrued deferred tax liability for foreign earnings by $1,420 million, partially offset by $893 million of tax expense that was recorded for the one-time transition tax liability under the Act.

Fiscal 2017 compared to fiscal 2016

The decrease in our effective tax rate in fiscal 2017 as compared to fiscal 2016 was primarily driven by tax expense of $1.1 billion in fiscal 2016 for providing U.S. taxes on certain undistributed foreign earnings, primarily those attributable to the sale of Veritas, partially offset by tax expense of $52 million in fiscal 2017 related to the loss of tax attributes as a result of restructuring activities.

See Note 10 to the Consolidated Financial Statements for more information.

Segment operating results

We do not allocate to our operating segments certain operating expenses that we manage separately at the corporate level and are not used in evaluating the results of, or in allocating resources to, our segments. These unallocated expenses primarily consist of unallocated corporate charges related to Veritas in fiscal 2016 and stock-based compensation expense, amortization of intangible assets, restructuring, transition and other costs, and acquisition-related costs in all periods presented. See Note 14 for more information.

Enterprise Security Segment

		Fiscal Year												Variance in %
(In millions, except for percentages)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net revenues		$	2,554			$	2,355			$	1,930				8	%			22	%
Percentage of total net revenues			53	%			59	%			54	%
Operating income		$	473			$	187			$	102				153	%			83	%
Operating margin			19	%			8	%			5	%

Fiscal 2018 compared to fiscal 2017

Revenue increased $199 million, primarily due to increases of $331 million in revenue from sales of our network and web security solutions and $36 million from sales of endpoint and information

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protection solutions, partially offset by a $184 million decrease in revenue as a result of the divestiture of our WSS and PKI solutions. Revenue during fiscal 2018 was also unfavorably affected by a shift in the mix of sales towards subscription and cloud-delivered solutions subject to ratable revenue recognition, which resulted in less in-period recognized revenue and more revenue deferred to the balance sheet as compared to fiscal 2017. Operating income increased $286 million, primarily due to higher revenue discussed above, a $51 million decrease in sales and marketing expenses and a $38 million decrease in cost of revenues.

Fiscal 2017 compared to fiscal 2016

Revenue increased $425 million, primarily due to a $422 million increase from sales of our network and web security solutions, primarily as a result of our acquisition of Blue Coat. Operating income increased $85 million, primarily due to higher revenue and a reduction of expenses from cost savings initiatives. These increases were partially offset by expenses associated with the Blue Coat acquisition in the post-acquisition period, and the cost of revenues from acquired inventory write-ups related to the Blue Coat acquisition of $24 million.

Consumer Digital Safety Segment

		Fiscal Year												Variance in %
(In millions, except for percentages)		2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net revenues		$	2,280			$	1,664			$	1,670				37	%			-	%
Percentage of total net revenues			47	%			41	%			46	%
Operating income		$	1,111			$	839			$	924				32	%			(9	)%
Operating margin			49	%			50	%			55	%

Fiscal 2018 compared to fiscal 2017

Revenue increased $616 million due to a $639 million increase in revenue from sales of our identity and information protection products acquired at the end of fiscal 2017, offset by a $23 million decrease in revenue related to our consumer security products. Our revenue growth reflects the benefit of the shift to subscription-based contracts and bundling of our consumer products, which is helping to mitigate the trend of declining revenues from sales of stand-alone security products. Operating income increased $272 million, primarily due to sales of our identity and information protection products, partially offset by higher related cost of sales and operating expenses.

Fiscal 2017 compared to fiscal 2016

Revenue decreased $6 million due to a decline in revenue from sales of consumer security products of $83 million as the revenue generated from customer additions was not sufficient to replace revenue lost through customer attrition. This decline was mostly offset by a $77 million increase in revenue due to sales of our identity and information protection products acquired in the acquisition of LifeLock. Operating income decreased $85 million, primarily due to the consumer security revenue decline coupled with increased operating expenses as a result of the LifeLock acquisition.

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LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS

Liquidity

We have historically relied on cash generated from operations, borrowings under credit facilities, issuances of debt, and proceeds from divestitures for our liquidity needs.

As of March 30, 2018, we had cash, cash equivalents and short-term investments of $2.2 billion, of which $1.3 billion was held by our foreign subsidiaries. Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity, and generate investment returns. Under the transition tax of the Act, we have treated all previously untaxed foreign earnings as taxable in the U.S. and as a result we recorded a provisional liability for the one-time transition tax, payable over eight years, of $896 million in fiscal 2018. The move to a participation exemption system under the Act allows us to make distributions of non-U.S. earnings to the U.S. without incurring additional U.S. federal tax, however these distributions may be subject to applicable state or non-U.S. taxes. We have not recognized deferred income taxes for local country income and withholding taxes that could be incurred on distributions of certain non-U.S. earnings or for outside basis differences in our subsidiaries, because we plan to indefinitely reinvest such earnings and basis differences.

We also have an undrawn credit facility of $1.0 billion which expires in May 2021.

Our principal cash requirements are primarily to meet our working capital needs, support on-going business activities, including the payment of taxes, fund capital expenditures, service existing debt, and invest in business acquisitions. As a part of our plan to deleverage our balance sheet, we may from time to time make optional repayments of our debt obligations, which may include repurchases of our outstanding debt, depending on various factors such as market conditions.

Our capital allocation strategy is to balance driving shareholder returns, managing financial risk, and preserving our flexibility to pursue strategic options, including acquisitions. Historically this has included a quarterly cash dividend, the repayment of debt and the repurchase of our common stock.

Cash flows

The following table summarizes our cash flow activities:

		Year Ended
(In millions)		March 30, 2018				March 31, 2017				April 1, 2016
Net cash provided by (used in):
Continuing operating activities		$	957			$	(145	)		$	1,462
Continuing investing activities		$	(21	)		$	(6,766	)		$	7,236
Continuing financing activities		$	(3,475	)		$	5,280			$	(4,740	)
Increase (decrease) in cash and cash equivalents		$	(2,473	)		$	(1,736	)		$	3,109

Cash from continuing operating activities

Our primary source of cash from operations has been from cash collections from our customers. Due to seasonality, our billings are generally higher in our third and fourth fiscal quarters and lower in our first and second fiscal quarters. Cash inflows are affected by fluctuations in our billings and timing of the related collections.

Our primary uses of cash include payments for operating expenses and income taxes, payments to our resellers and distribution partners, and other on-going business activities.

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Our cash flows from operations in fiscal 2018 were $957 million, compared to cash used of $145 million in fiscal 2017. Our cash flows for fiscal 2018 reflected net income of $1.1 billion adjusted by non-cash amortization and depreciation of $640 million, stock-based compensation of $610 million, offset by a deferred tax benefit of $1.8 billion, primarily as a result of the enactment of the Act in December 2017, and a gain on divestiture of $653 million. Our cash flows for fiscal 2017 reflected a net loss of $106 million, adjusted by non-cash amortization and depreciation of $492 million, stock-based compensation of $440 million, offset by a deferred tax provision of $168 million.

Changes in operating assets and liabilities consisted primarily of:

Accounts receivable increased $170 million in fiscal 2018, compared to a decrease of $45 million in fiscal 2017, reflecting higher billings in the last month of fiscal 2018 and our shift in sales to solutions with ratable revenue recognition in our Enterprise Security segment.

Deferred revenue increased $541 million in fiscal 2018, compared to an increase of $125 million in fiscal 2017, reflecting the factors discussed in the Overview.

Income taxes payable increased $880 million in fiscal 2018, compared to a decrease of $871 million in fiscal 2017. The increase in fiscal 2018 reflected the one-time transition tax of $896 million discussed above, while the decrease in fiscal 2017 was primarily the result of a one-time tax payment of $887 million related to the gain on sale from the divestiture of Veritas.

The decrease in cash flow from continuing operating activities in fiscal 2017 compared to fiscal 2016 was primarily due to net loss from continuing operation of $106 million in fiscal 2017, compared to net income of $2.5 billion in fiscal 2016, as well as a higher adjustment to net income for deferred taxes in fiscal 2016. In addition, income taxes payable decreased $871 million in fiscal 2017, reflecting the cash payment for taxes as a result of the gain on sale from the divestiture of Veritas, compared to an increase in tax payable of $742 million in fiscal 2016.

Cash from continuing investing activities

Our cash flows from continuing investing activities consisted primarily of proceeds from divestitures, payments for acquisitions, and net purchases of short-term investments. Our investing activities in fiscal 2018 included $933 million in net cash proceeds from the divestiture of our WSS and PKI solutions, partially offset by $401 million paid for acquisitions and net purchases of $387 million of short-term investments, while our investing activities in fiscal 2017 primarily included $6.7 billion paid for the Blue Coat and LifeLock acquisitions.

Our investing activities in fiscal 2016 primarily included proceeds from the divestiture of Veritas of $6.5 billion and net proceeds from short-term investments of $1.0 billion.

Cash from continuing financing activities

Our financing cash flows consist primarily of issuances and repayments of debt, payment of dividends and dividend equivalents to stockholders, stock repurchases, and tax payments related to shares withheld in the settlement of RSUs. Our financing activities in fiscal 2018 primarily consisted of debt repayments of $3.2 billion, while our financing activities in fiscal 2017 primarily consisted of net proceeds from borrowings of $6.1 billion.

Our financing activities in fiscal 2016 primarily consisted of payments of dividends and dividend equivalents of $3.0 billion and repurchases of common stock of $1.9 billion.

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Cash requirements

Debt - As of March 30, 2018, our total outstanding principal amount of indebtedness was $5.1 billion, summarized as follows. Our Senior Term Loans are pre-payable, and we expect to continue to focus on repayment in fiscal 2019. See Note 7 to the Consolidated Financial Statements for further information on our debt.

(In millions)		March 30, 2018
Senior Term Loans		$	1,100
Senior Notes			2,250
Convertible Senior Notes			1,750
Total debt		$	5,100

Dividends - On May 10, 2018, we announced a cash dividend of $0.075 per share of common stock to be paid in June 2018. On August 2, 2018, we announced a cash dividend of $0.075 per share of common stock to be paid in September 2018. Any future dividends will be subject to the approval of our Board of Directors. See Note 11 to the Consolidated Financial Statements for more information on our dividends and dividend equivalents.

Share repurchases - Under our stock repurchase programs, we may purchase shares of our outstanding common stock through open market and through accelerated stock repurchase transactions. As of March 30, 2018, the remaining balance of our share repurchase authorization is $800 million and does not have an expiration date. See Note 11 to the Consolidated Financial Statements for more information on our share repurchases.

Contractual obligations

The following is a schedule of our significant contractual obligations as of March 30, 2018:

		Payments Due by Period
(In millions)		Total				Less than 1 Year				1 - 3 Years				3 - 5 Years				Over 5 Years
Debt (1)		$	5,100			$	-			$	1,850			$	2,150			$	1,100
Interest payments on debt (2)			788				180				318				153				137
Purchase obligations (3) (4)			659				496				126				31				6
Long-term income taxes payable (5)			896				72				144				144				536
Operating leases (6)			253				78				92				46				37
Total		$	7,696			$	826			$	2,530			$	2,524			$	1,816

(1)	See Note 7 to the Consolidated Financial Statements for further information on our debt.

(2)	Interest payments were calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes and Senior Term Facilities. Interest on variable rate debt was calculated using the interest rate in effect as of March 30, 2018. See Note 7 to the Consolidated Financial Statements for further information on the Senior Notes, Convertible Senior Notes and Senior Term Facilities.

(3)

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.

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(4)	Purchase obligations do not include future minimum contractual obligations related to a five-year purchase agreement with a service provider for a total contract value of $500 million that we entered into in September 2018.

(5)	These amounts represent the transition tax on previously untaxed foreign earnings of foreign subsidiaries under the Act which may be paid in installments over an eight-year period. See Note 10 to the Consolidated Financial Statements for further information on our income taxes and the impact from the recently enacted legislation.

(6)	We have entered into various non-cancelable operating lease agreements that expire on various dates through fiscal 2029. The amounts in the table above exclude expected sublease income.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of March 30, 2018 we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $302 million in long-term income taxes payable has been excluded from the contractual obligations table. See Note 10 to the Consolidated Financial Statements for further information.

Fiscal 2019 Restructuring Plan

On August 2, 2018, we announced a restructuring plan under which we will initiate targeted reductions of our global workforce of up to approximately 8%. We estimate that we will incur total costs in connection with the restructuring plan of approximately $50 million, primarily for severance and termination benefits. These actions are expected to be completed in fiscal 2019.

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. Refer to Note 15 to the Consolidated Financial Statements for further information on our indemnifications.