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

Symantec Corporation is a global leader in cyber security. We provide cyber security products, services, and solutions to organizations and individuals worldwide. Founded in 1982, we have operations in more than 45 countries.

Our segments consist of:

•	Enterprise Security. Our Enterprise Security segment focuses on providing our Integrated Cyber Defense solutions to help business and government customers unify cloud and on-premises security to deliver a more effective cyber defense solution, while driving down cost and complexity.

•	Consumer Cyber Safety. Our Consumer Cyber Safety segment focuses on providing cyber safety solutions under our Norton LifeLock brand to help consumers protect their devices, online privacy, identities, and home networks.

For additional information about our offerings, see the discussion in Item 1. Business, under the heading “Products and Services.”

Fiscal calendar and basis of presentation

We have a 52/53-week fiscal year ending on the Friday closest to March 31. Fiscal 2019, 2018, and 2017 in this report refers to fiscal year ended March 29, 2019, March 30, 2018, and March 31, 2017, respectively, each of which was a 52-week year.

Our financial results for fiscal 2019 are presented in accordance with the new revenue standard that was adopted under the modified retrospective method at the beginning of fiscal 2019. Prior period results have not been restated. Refer to Note 2 of our notes to Consolidated Financial Statements for further details about our recent adoption of this accounting guidance.

Key financial metrics

The following table provides our key financial metrics for fiscal 2019 compared with fiscal 2018:

(In millions, except for percentages and per share amounts)	Fiscal 2019				Fiscal 2018
Net revenues	$	4,731			$	4,834
Operating income	$	380			$	49
Net income	$	31			$	1,138
Net income per share - diluted	$	0.05			$	1.70
Net cash provided by operating activities	$	1,495			$	950
	As of
	March 29, 2019				March 30, 2018
Cash, cash equivalents and short-term investments	$	2,043			$	2,162
Contract liabilities	$	3,056			$	3,103

•	Net revenues decreased 2% primarily due to the divestiture of our website security (WSS) and public key infrastructure (PKI) solutions in fiscal 2018, partially offset by increased revenue from our identity and information protection solutions.

•

Operating income increased $331 million primarily due to increased revenue from our identity and information protection solutions in our Consumer Cyber Safety segment, lower stock-based compensation expense, and lower restructuring, transition, and other costs, partially offset by the negative impact to Enterprise Security segment operating income due to the fiscal 2018 divestiture of WSS and PKI solutions.

•	Net income and diluted net income per share decreased primarily due to the absence in fiscal 2019 of the gain on the divestiture of WSS and PKI solutions and a net income tax benefit as a result of the passage of the 2017 Tax Act, both of which occurred during fiscal 2018.

•	Net cash provided by operating activities increased $545 million due to higher net income adjusted for non-cash items, partially offset by unfavorable net changes in operating assets and liabilities.

•	Cash, cash equivalents and short-term investments decreased $119 million compared to March 30, 2018, primarily due to cash used for repayment of debt, stock repurchases, and payments of dividends, partially offset by cash from operations.

•	Contract liabilities decreased $47 million compared to March 30, 2018, primarily due to a decrease of $169 million in the March 30, 2018 balances as a result of the adoption of the new revenue recognition standard, partially offset by higher billings versus recognized revenue during fiscal 2019.

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 contracts with customers. Revenue recognition requirements are very complex and require us to make estimates and assumptions.

We enter into arrangements with multiple performance obligations, which may include hardware, software licenses, cloud services, support and maintenance, and professional services. We allocate revenue to each performance obligation on a relative fair value basis based on management’s estimate of stand-alone selling price (SSP). Judgments are required to determine the SSP for each performance obligation. The determination of SSP is made by taking into consideration observable prices in historical transactions. When observable prices in historical transactions are not available or are inconsistent, we estimate SSP based on observable prices in historical transactions of similar products, pricing discount practices, product margins, and other factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Changes to the performance obligations in an arrangement, the judgments required to estimate the SSP for the respective performance obligations, and increasing variability in contractual arrangements could materially impact the amount and timing of revenue recognition.

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 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 December 28, 2018, we have completed our accounting for the effects of the enactment of the 2017 Tax Act in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118, and the amounts are no longer considered provisional. We continue to evaluate any new guidance from the U.S. Department of Treasury and the IRS as issued.

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. 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.

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

Pursuant to instruction 1 of the instructions to paragraph 303(a) of Regulation S-K, discussion of the results of operations from fiscal year 2018 to fiscal year 2017 has been omitted. Such omitted discussion can be found under Item 7 of our annual report on Form 10-K for the fiscal year ended March 30, 2018, filed with the Commission on October 26, 2018.

Fiscal 2019 compared to fiscal 2018

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

	Fiscal Year
	2019			2018
Net revenues	100	%		100	%
Cost of revenues	22			21
Gross profit	78			79
Operating expenses:
Sales and marketing	32			33
Research and development	19			20
General and administrative	9			12
Amortization of intangible assets	4			5
Restructuring, transition and other costs	5			8
Total operating expenses	70			78
Operating income	8			1
Interest expense	(4	)		(5	)
Gain on divestiture	—			14
Other expense, net	(1	)		—
Income from continuing operations before income taxes	2			9
Income tax expense (benefit)	2			(14	)
Income from continuing operations	—			23
Income from discontinued operations, net of income taxes	—			—
Net income	1	%		24	%

Note: The percentages may not add due to rounding.

Net revenues

	Fiscal Year								Variance in
(In millions, except for percentages)	2019				2018				Dollars				Percent
Net revenues	$	4,731			$	4,834			$	(103	)		(2	)%

Net revenues decreased primarily due to a $231 million decrease from our Enterprise Security segment as a result of the divestiture of our WSS and PKI solutions, partially offset by an increase of $128 million from our Consumer Cyber Safety segment. The adoption of the new revenue accounting standard had a favorable impact of $47 million on our fiscal 2019 revenues.

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
	2019			2018
Americas	64	%		63	%
EMEA	21	%		22	%
APJ	15	%		16	%

Percentages may not add to 100% due to rounding.

The Americas include U.S., Canada, and Latin America; EMEA includes Europe, Middle East, and Africa; APJ includes Asia Pacific and Japan.

Cost of revenues

	Fiscal Year								Variance in
(In millions, except for percentages)	2019				2018				Dollars				Percent
Cost of revenues	$	1,050			$	1,032			$	18			2	%

Our cost of revenues increased primarily due to a $51 million increase in our Consumer Cyber Safety segment, partially offset by a $37 million decrease from the divestiture of our WSS and PKI solutions.

Operating expenses

	Fiscal Year								Variance in
(In millions, except for percentages)	2019				2018				Dollars				Percent
Sales and marketing	$	1,493			$	1,593			$	(100	)		(6	)%
Research and development	913				956				(43		)		(4	)%
General and administrative	447				574				(127		)		(22	)%
Amortization of intangible assets	207				220				(13		)		(6	)%
Restructuring, transition and other costs	241				410				(169		)		(41	)%
Total	$	3,301			$	3,753			$	(452	)		(12	)%

Sales and marketing expense decreased primarily due to a $51 million decrease in stock-based compensation expense and a $41 million decrease as a result of the divestiture of our WSS and PKI solutions.

Research and development expense decreased primarily due to a $66 million decrease in stock-based compensation expense.

General and administrative expense decreased primarily due to a $130 million decrease in stock-based compensation expense.

Amortization of intangible assets decreased primarily due to the intangible assets sold with the divestiture of WSS and PKI solutions.

Restructuring, transition and other costs reflect a decrease of $70 million in fiscal 2019 compared to fiscal 2018 in severance and other restructuring costs. In addition, fiscal 2018 costs included $88 million of transition related costs related to our fiscal 2018 divestiture of our WSS and PKI solutions compared to $3 million in fiscal 2019.

Non-operating income (expense), net

	Fiscal Year								Variance in
(In millions)	2019				2018				Dollars
Interest expense	$	(208	)		$	(256	)		$	48
Gain on divestiture	—				653				(653		)
Interest income	42				24				18
Loss from equity interest	(101		)		(26		)		(75		)
Foreign exchange loss	(18		)		(28		)		10
Other	13				21				(8		)
Total other income (expense), net	$	(272	)		$	388			$	(660	)

Non-operating income (expense), net, decreased primarily due to the absence of the fiscal 2018 $653 million gain on the divestiture of our WSS and PKI solutions. In addition, our loss from our equity interest received in connection with the divestiture of our WSS and PKI solutions increased $75 million, which was partially offset by a $48 million decrease in interest expense as a result of lower outstanding borrowings due to repayments.

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 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)	2019				2018
Income from continuing operations before income taxes	$	108			$	437
Provision for (benefit from) income taxes	$	92			$	(690	)
Effective tax rate on income from continuing operations	85		%		(158		)%

The increase in our effective tax rate in fiscal 2019 compared to fiscal 2018 was primarily due to one-time benefits from the 2017 Tax Act in fiscal 2018. In addition, increases in tax expense in fiscal 2019 are attributable to the valuation allowance on capital losses for which we cannot yet recognize a tax benefit.

Segment operating results

We do not allocate certain operating expenses to our operating segments that we manage separately at the corporate level and that are not used in evaluating the results of, or in allocating resources to, our segments. These unallocated expenses primarily consist of stock-based compensation expense, amortization of intangible assets, restructuring, transition and other costs, and acquisition-related costs in all periods presented. See Note 15 for more information.

Enterprise Security segment

	Fiscal Year								Variance in
(In millions, except for percentages)	2019				2018				Dollars				Percent
Net revenues	$	2,323			$	2,554			$	(231	)		(9	)%
Percentage of total net revenues	49		%		53		%
Operating income	$	269			$	473			$	(204	)		(43	)%
Operating margin	12		%		19		%

Revenue decreased primarily due to a $238 million decrease as a result of the fiscal 2018 divestiture of our WSS and PKI solutions, partially offset by a $47 million favorable impact from the adoption of the new revenue recognition standard. Operating income decreased primarily due to the divestiture of our WSS and PKI solutions which contributed $141 million to segment operating income in fiscal 2018.

Consumer Cyber Safety segment

	Fiscal Year								Variance in
(In millions, except for percentages)	2019				2018				Dollars				Percent
Net revenues	$	2,408			$	2,280			$	128			6	%
Percentage of total net revenues	51		%		47		%
Operating income	$	1,145			$	1,111			$	34			3	%
Operating margin	48		%		49		%

Revenue increased primarily due to a $161 million increase in revenue from sales of our identity and information protection products, partially offset by a $33 million decrease in revenue from sales of our consumer security solutions. Operating income increased primarily due to increased revenue, partially offset by higher allocated corporate costs and increased cost of revenues.

Performance Metrics

We regularly monitor a number of metrics in order to measure our current performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.

The following table summarizes supplemental key performance metrics for our Consumer Cyber Safety segment:

(In millions, except for per user amounts and percentages)	Fiscal 2019				Fiscal 2018
Average direct customer count	20.7				21.2
Direct average revenue per user (ARPU)	$	8.74			$7.99/$8.23 (1)
Annual retention rate	85		%		83	%

(1) Represents a non-GAAP financial measure. Estimated net revenue generated from direct customers during fiscal year 2018 used in the calculation of ARPU excluded a reduction in revenue related to contract liability purchase accounting adjustments required by GAAP, as further discussed below.

Average direct customer count presents the average of the total number of direct customers at the end of the most recently completed fiscal quarter and the end of the corresponding period in the prior fiscal year. We define direct customers as those customers in our Consumer Cyber Safety segment who have a direct billing relationship with us, including online acquisition and retention, affiliates, co-marketing, and original contract manufacturer channels.

ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure. We estimate direct customer net revenues to be $2.2 billion on a GAAP basis and $2.1 billion on a non-GAAP basis in fiscal year 2019 and 2018, respectively. Non-GAAP fiscal 2018 estimated direct customer revenues used in the calculation of ARPU is adjusted only to exclude a reduction in revenue of $60 million related to purchase accounting adjustments related to the February 2017 acquisition of LifeLock. ARPU for fiscal 2018 would have been $7.99 without this adjustment. We believe the adjustment is useful to investors to reflect ARPU trends in our business by improving the comparability of ARPU between periods. Fiscal 2019 did not include any adjustments to estimated direct customer revenue as the purchase accounting adjustments were fully amortized prior to that period. Non-GAAP estimated direct customer revenues and ARPU have limitations as analytical tools and should not be considered in isolation or as a substitute for GAAP estimated direct customer revenues or other GAAP measures. We monitor APRU because it helps us understand the rate at which we are monetizing our consumer customer base.

Annual retention rate is defined as the number of direct customers who have more than a one-year tenure as of the end of the most recently completed fiscal period divided by the total number of direct customers as of the end of the period from one year ago. We monitor annual retention rate to evaluate the effectiveness of our strategies to improve renewals of subscriptions.

Fiscal 2018 compared to fiscal 2017

The following table summarizes our 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	)
Net cash provided by (used in) continuing operating activities	$	957			$	(145	)
	As of
	March 30, 2018				March 31, 2017
Cash, cash equivalents and short-term investments	$	2,162			$	4,256
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 Cyber Safety segment identity and information protection products acquired through our LifeLock acquisition at the end of fiscal 2017 for a full year and increased revenues from sales of our Enterprise Security segment network and web security solutions which included products acquired in our fiscal 2017 acquisition of Blue Coat, partially offset by a decrease in revenue as a result of the divestiture of our Enterprise Security segment WSS and PKI solutions.

•

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 our fiscal 2017 acquisitions, 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.

•

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 2017 Tax 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 Veritas information management business 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.

Segment operating results

Enterprise Security segment

	Fiscal Year								Variance in
(In millions, except for percentages)	2018				2017				Dollars				Percent
Net revenues	$	2,554			$	2,355			$	199			8	%
Percentage of total net revenues	53		%		59		%
Operating income	$	473			$	187			$	286			153	%
Operating margin	19		%		8		%

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 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.

Consumer Cyber Safety segment

	Fiscal Year								Variance in
(In millions, except for percentages)	2018				2017				Dollars				Percent
Net revenues	$	2,280			$	1,664			$	616			37	%
Percentage of total net revenues	47		%		41		%
Operating income	$	1,111			$	839			$	272			32	%
Operating margin	49		%		50		%

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.

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 29, 2019, we had cash, cash equivalents and short-term investments of $2.0 billion, of which $0.5 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. The participation exemption system under current U.S. federal tax regulations generally allows us to make distributions of non-U.S. earnings to the U.S. without incurring additional U.S. federal tax, however these distributions may be subject to applicable state or non-U.S. taxes. 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 stockholder 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 in fiscal 2019 compared to fiscal 2018.

	Fiscal Year
(In millions)	2019				2018
Net cash provided by (used in):
Operating activities	$	1,495			$	957
Investing activities	$	(241	)		$	(21	)
Financing activities	$	(1,209	)		$	(3,475	)
Increase (decrease) in cash and cash equivalents	$	17			$	(2,473	)

Our cash flow activities in fiscal 2018 compared to fiscal 2017 were discussed under Liquidity, Capital Resources and Cash Requirement in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 30, 2018.

Cash from operating activities

Our cash flows for fiscal 2019 reflected net income of $31 million adjusted by non-cash items, including amortization and depreciation of $615 million, stock-based compensation of $352 million, and loss from equity interest of $101 million.

Changes in operating assets and liabilities during fiscal 2019 consisted primarily of the following:

Accounts receivable decreased $113 million, reflecting lower billings and higher collections in the last months of fiscal 2019 compared to the corresponding period in fiscal 2018. Days sales outstanding (DSO) decreased to 54 days in the fourth quarter of fiscal 2019, compared to 61 days in the corresponding period in fiscal 2018. DSO is calculated by dividing ending accounts receivable by revenue per day for a given quarter.

Contract liabilities increased $215 million, reflecting higher billings versus recognized revenue.

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 2017 Tax Act in December 2017, and a gain on divestiture of $653 million.

Changes in operating assets and liabilities during fiscal 2018 consisted primarily of the following:

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

Contract liabilities increased $541 million, reflecting 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 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 divestiture of our WSS and PKI solutions.

Income taxes payable increased $880 million, reflecting the one-time transition tax of $896 million under the 2017 Tax Act.

Cash from investing activities

Our cash flows from investing activities consisted primarily of capital expenditures of $207 million, payments for acquisitions of $180 million, partially offset by proceeds from maturities and sales of short-term investments of $139 million. Our investing activities in fiscal 2018 primarily included $933 million in net proceeds from 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.

Cash from financing activities

Our financing activities in fiscal 2019 primarily consisted of debt repayments of $600 million, repurchases of common stock of $234 million, payments of dividends and dividend equivalents of $217 million, and tax payments related to the vesting of equity awards of $173 million. Our financing activities in fiscal 2018 primarily consisted of debt repayments of $3.2 billion.

Cash requirements

Debt - As of March 29, 2019, our total outstanding principal amount of indebtedness was $4.5 billion, summarized as follows. See Note 8 to the Consolidated Financial Statements for further information on our debt.

(In millions)	March 29, 2019
Senior Term Loans	$	500
Senior Notes	2,250
Convertible Senior Notes	1,750
Total debt	$	4,500

Debt covenant compliance - The Senior Term Loan A-5 agreement contains customary representations and warranties, non-financial covenants for financial reporting, affirmative and negative covenants, including a covenant that we maintain a ratio of consolidated funded debt to consolidated adjusted earnings before interest, taxes, depreciation, and amortization of not more than 6.00 to 1.0 through December 31, 2018, then 5.25 to 1.0 thereafter, and restrictions on subsidiary indebtedness, liens, stock repurchases and dividends (with exceptions permitting our regular quarterly dividend). As of March 29, 2019, we were in compliance with all debt covenants.

Dividends - On May 9, 2019, we announced a cash dividend of $0.075 per share of common stock to be paid in June 2019. Any future dividends will be subject to the approval of our Board of Directors.

Stock repurchases - Under our stock repurchase program, we may purchase shares of our outstanding common stock through open market and through accelerated stock repurchase transactions, open market transactions (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), and privately-negotiated transactions. As of March 29, 2019, the remaining balance of our stock repurchase authorization is $1,048 million and does not have an expiration date. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and other investment opportunities.

Contractual obligations

The following is a schedule of our significant contractual obligations as of March 29, 2019:

	Payments Due by Period
(In millions)	Total				Less than 1 Year				1 - 3 Years				3 - 5 Years				Over 5 Years
Debt (1)	$	4,500			$	—			$	3,000			$	400			$	1,100
Interest payments on debt (2)	609				170				239				118				82
Purchase obligations (3)	1,071				525				320				217				9
Long-term income taxes payable (4)	703				65				134				294				210
Operating leases (5)	244				55				89				58				42
Total	$	7,127			$	815			$	3,782			$	1,087			$	1,443

(1)	See Note 8 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 Facility. Interest on variable rate debt was calculated using the interest rate in effect as of March 29, 2019. See Note 8 to the Consolidated Financial Statements for further information on the Senior Notes, Convertible Senior Notes, and Senior Term Facility.

(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.

(4)	These amounts represent the transition tax on previously untaxed foreign earnings of foreign subsidiaries under the 2017 Tax Act which may be paid through July 2025. See Note 11 to the Consolidated Financial Statements for further information on our income taxes and the impact from the recently enacted legislation.

(5)	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 29, 2019, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $373 million in long-term income taxes payable has been excluded from the contractual obligations table. See Note 11 to the Consolidated Financial Statements for further information.

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 16 to the Consolidated Financial Statements for further information on our indemnifications.