What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-05 compared with 2020-11-06 · 104 added, 101 removed, 215 unchanged (49% of the section changed)

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anticipated growth and trends in our businesses and in our industries;

the anticipated impacts of acquisitions, divestitures, restructurings, stock repurchases, and investment activities;

the anticipated impacts of acquisitions (including the recent acquisition of Avira), divestitures, restructurings, stock repurchases, and investment activities;

the outcome or impact of pending litigation, claims or disputes;

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NortonLifeLock Inc.

is leading provider of Cyber Safety solutions for consumers.

Our NortonLifeLock branded solutions help consumers protect their devices, online privacy, identity, and home networks.

is a global leader in consumer Cyber Safety, protecting and empowering people to live their digital lives safely.

We are the consumer’s trusted ally in an increasingly complex and connected world.

Fiscal calendar

We have a 52/53-week fiscal year ending on the Friday closest to March 31.

The three and six months ended October 2, 2020 consisted of 13 and 26 weeks, respectively, whereas the three and six months ended October 4, 2019 consisted of 13 and 27 weeks, respectively.

The three and nine months ended January 1, 2021 consisted of 13 and 39 weeks, respectively, whereas the three and nine months ended January 3, 2020 consisted of 13 and 40 weeks, respectively.

Our 2021 fiscal year consists of 52 weeks and ends on April 2, 2021.

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The following tables provide our key financial metrics for the periods presented:

Three Months Ended Six Months Ended

(In millions, except for per share amounts) October 2, 2020 October 4, 2019 October 2, 2020 October 4, 2019

Three Months Ended Nine Months Ended

(In millions, except for per share amounts) January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020

Net revenues $ 639 $ 618 $ 1,879 $ 1,876

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Net income per share from continuing operations - diluted $ 0.29 $ 0.55 $ 0.81

Net loss per share from discontinued operations - diluted $ (0.17) $ 1.16 $ (0.22)

Net income (loss) per share from discontinued operations - diluted $ 0.01 $ 3.85 $ (0.21)

Net income per share - diluted $ 0.30 $ 4.40 $ 0.60

(In millions) October 2, 2020 April 3, 2020

(In millions) January 1, 2021 April 3, 2020

Cash, cash equivalents and short-term investments $ 1,073 $ 2,263

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Contract liabilities $ 1,135 $ 1,076

Below are our financial highlights for the second quarter of fiscal 2021, compared to the corresponding period in the prior year:

• Net revenues increased $18 million, due to higher sales in both our consumer security products and identity and information protection products.

• Operating income increased $121 million, primarily due to lower compensation expense, outside services expense, and facility and IT costs that were driven by our cost reduction programs.

• Income from continuing operations increased $128 million, primarily due to higher operating income and gain on sale of Culver City property, partially offset by higher income tax expense.

• We incurred a loss from discontinued operations, net of tax, compared to a gain during the corresponding period in fiscal 2020, primarily due to a lower income tax benefit, the absence of operating income as a result of the sale of certain of our Enterprise Security assets and liabilities to Broadcom Inc.

on November 4, 2019 (the Broadcom sale), and a settlement with Broadcom in the second quarter of fiscal 2021 of all outstanding payments and certain claims related to the Broadcom sale.

• Net income and net income per share decreased, primarily due to a higher loss from discontinued operations for the reasons discussed above, partially offset by higher income from continuing operations.

Below are our financial highlights for the first six months of fiscal 2021, compared to the corresponding period in the prior year unless stated otherwise:

• Net revenues decreased $18 million, due to the favorable impact of the additional week in the first quarter of fiscal 2020 and absence of revenues from ID Analytics solutions, which was divested on January 31, 2020, offset by higher sales in both our consumer security products and identity and information protection products.

• Operating income increased $101 million, primarily due to lower compensation expense, outside services expense, and facility and IT costs that were driven by our cost reduction programs, partially offset by higher costs recognized in connection with our restructuring plans .

• Income from continuing operations increased $239 million, primarily due to higher operating income, gain on sale of our Culver City property, gain on extinguishment of debt, and lower income tax expense.

• We incurred a loss from discontinued operations, net of tax, compared to a gain during the corresponding period in fiscal 2020, primarily due to a lower income tax benefit, the absence of operating income as a result of the Broadcom sale, and a settlement with Broadcom in the second quarter of fiscal 2021 of all outstanding payments and certain claims related to the Broadcom sale.

• Net income and net income per share decreased, primarily due to the higher loss from discontinued operations, partially offset by higher income from continuing operations.

Below are our financial highlights for the third quarter of fiscal 2021, compared to the corresponding period in the prior year:

• Net revenues increased $21 million, due to higher sales in both our consumer security products and identity and information protection products, partially offset by the loss of sales of ID analytics solutions, which were divested in the fourth quarter of fiscal 2020.

• Operating income increased $218 million, primarily due to lower compensation expense, outside services expense, and facility and IT costs that were driven by our cost reduction programs, as well as lower costs recognized in connection with our restructuring plans.

• Income from continuing operations decreased $180 million, primarily due to the absence of gain on sale of our equity method investment in DigiCert, partially offset by a higher operating income.

• Income from discontinued operations, net of tax, decreased by $2,487 million, primarily due to the absence of gain on the sale of our Enterprise Security assets and liabilities to Broadcom Inc.

on November 4, 2019 (the Broadcom sale).

• Net income and net income per share decreased, primarily due to lower income from discontinued operations and to a lesser extent, lower income from continuing operations for the reasons discussed above.

Below are our financial highlights for the first nine months of fiscal 2021, compared to the corresponding period in the prior year unless stated otherwise:

• Net revenues were relatively flat.

• Operating income increased $319 million, primarily due to lower compensation expense, outside services expense, and facility and IT costs that were driven by our cost reduction programs, partially offset by a legal accrual relating to an ongoing civil lawsuit involving a government contract with the U.S.

General Services Administration (GSA) and higher costs recognized in connection with our restructuring plans.

• Income from continuing operations increased $59 million, primarily due to higher operating income, gain on sale of our Culver City property, gain on extinguishment of debt, and lower income tax expense, partially offset by the absence of gain on sale of our equity method investment in DigiCert, which was divested in the third quarter of fiscal 2020.

• We incurred a loss from discontinued operations, net of tax, compared to a gain during the corresponding period in fiscal 2020, primarily due to the absence of gain on the Broadcom sale, the absence of operating income as a result of the Broadcom sale, and a settlement with Broadcom in the second quarter of fiscal 2021 of all outstanding payments and certain claims related to the Broadcom sale.

• Net income and net income per share decreased, primarily due to the loss from discontinued operations for the reasons discussed above, partially offset by higher income from continuing operations.

• Cash, cash equivalents and short-term investments decreased by $1,190 million compared to April 3, 2020, primarily due to repayment of debt, net of borrowings, and to a lesser extent, payments for dividends and dividend equivalents, partially offset by proceeds from sale of our Culver City property.

In May 2020, we settled the principal and conversion rights of $625 million of our 2.0% Convertible Notes for $1,179 million in cash.

• Contract liabilities were relatively flat compared to April 3, 2020.

• Contract liabilities increased $59 million, primarily due to higher billings than recognized revenue.

COVID-19 UPDATE

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Additionally, if employees, partners or third-party services providers return to work during the COVID-19 pandemic, the risk of inadvertent transmission of COVID-19 through human contact could still occur and result in litigation .

Although we have not yet experienced a material increase in customer cancellations or a material reduction in our retention rate in calendar 2020, a prolonged economic downturn or recession could adversely affect demand for our offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures , as well impact the value of our common stock, our ability to refinance our debt, and our access to capital.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of the disease, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners and third-party service providers.

Although we have not yet experienced a material

increase in customer cancellations or a material reduction in our retention rate in fiscal 2021, a prolonged economic downturn or recession could adversely affect demand for our offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures , as well impact the value of our common stock, our ability to refinance our debt, and our access to capital.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of the disease and new variants of the disease, the extent and effectiveness of containment actions, including vaccination programs, and the impact of these and other factors on our employees, customers, partners and third-party service providers.

For more information on the risks associated with the COVID-19 pandemic, please see “Risk Factors” in Part II, Item 1A below.

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Our critical accounting policies and estimates were disclosed 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 April 3, 2020.

There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our Condensed Consolidated Financial Statements during the six months ended October 2, 2020.

RESULTS OF OPERATIONS

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

Three Months Ended Six Months Ended

October 2, 2020 October 4, 2019 October 2, 2020 October 4, 2019

Three Months Ended Nine Months Ended

January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020

100 % 100 % 100 % 100 %

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(5) (8) (6) (8)

Other income (expense), net 6 — 5 —

Other income, net 1 65 3 21

Income from continuing operations before income taxes 40 66 31 30

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Percentages may not add due to rounding.

Three Months Ended Six Months Ended

(In millions, except for percentages) October 2, 2020 October 4, 2019 Change in %

October 2, 2020 October 4, 2019 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) January 1, 2021 January 3, 2020 Change in %

January 1, 2021 January 3, 2020 Change in %

Net revenues $ 639 $ 618 3 % $ 1,879 $ 1,876 — %

Three Months Ended October 2, 2020 Compared with Three Months Ended October 4, 2019

Three Months Ended January 1, 2021 Compared with Three Months Ended January 3, 2020

Net revenues increased $21 million, due to a $22 million increase in sales of our consumer security products and a $14 million increase in sales of our identity and information protection products, partially offset by a $15 million decrease as a result of the divestiture of ID Analytics solutions in January 2020.

Six Months Ended October 2, 2020 Compared with Six Months Ended October 4, 2019

Net revenues decreased $18 million, due to approximately $44 million of revenue from the additional week in the first quarter of fiscal 2020 and a $27 million decrease as a result of the divestiture of ID Analytics solutions, offset by a $27 million increase in sales of our consumer security products and a $26 million increase in sales of our identify and information protection products.

Performance Metrics

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Three Months Ended

(In millions, except for per user amounts) October 2, 2020 October 4, 2019

(In millions, except for per user amounts) January 1, 2021 January 3, 2020

Direct customer revenues $ 569 $ 542 (1)

Partner revenues $ 70 $ 61

Average direct customer count 20.8 20.1

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$ 9.10 $ 8.99

(1) Direct customer revenues in the second quarter of fiscal 2020 excludes $13 million of revenue from ID Analytics solutions.

(1) Direct customer revenues in the third quarter of fiscal 2020 excludes $15 million of revenue from ID Analytics solutions, which were divested in the fourth quarter of fiscal 2020.

We define direct customer revenues as revenues from sales of our consumer solutions to direct customers, which we define as active paid users who have a direct billing relationship with the Company at the end of the reported period.

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We exclude users on free trials and promotions and users who have indirectly purchased our product or services through partners unless such users convert or renew their subscription directly with us.

For the three months ended October 2, 2020 and October 4, 2019, partner revenues were $63 million and $59 million, respectively.

Average direct customer count presents the average of the total number of direct customers at the beginning and end of the fiscal quarter.

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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.

We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer customer base.

Net revenues by geographical region

Three Months Ended Six Months Ended

October 2, 2020 October 4, 2019 October 2, 2020 October 4, 2019

Three Months Ended Nine Months Ended

January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020

Americas 72 % 73 % 72 % 74 %

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APJ 12 % 11 % 12 % 11 %

Percentages may not add to 100% due to rounding.

The Americas include the U.S., Canada and Latin America;

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APJ includes Asia Pacific and Japan.

Percentage of revenue by geographic region in the second quarter and the first six months of fiscal 2021 was similar to the corresponding periods in the prior year.

Percentage of revenue by geographic region in the third quarter and the first nine months of fiscal 2021 was similar to the corresponding periods in the prior year.

Cost of revenues

Three Months Ended Six Months Ended

(In millions, except for percentages) October 2, 2020 October 4, 2019 Change in %

October 2, 2020 October 4, 2019 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) January 1, 2021 January 3, 2020 Change in %

January 1, 2021 January 3, 2020 Change in %

Cost of revenues

$ 87 $ 103 (16) % $ 263 $ 296 (11) %

Three Months Ended October 2, 2020 Compared with Three Months Ended October 4, 2019

Three Months Ended January 1, 2021 Compared with Three Months Ended January 3, 2020

Our cost of revenues decreased $16 million, primarily due to decreases in technical support costs and royalty charges, partially offset by an increase in commissions, reflecting higher investments in affiliate marketing programs.

Six Months Ended October 2, 2020 Compared with Six Months Ended October 4, 2019

Nine Months Ended January 1, 2021 Compared with Nine Months Ended January 3, 2020

Our cost of revenues decreased $33 million, primarily due to decreases in technical support costs and royalty charges, partially offset by an increase in commissions, reflecting higher investments in affiliate marketing programs.

Operating expenses

Three Months Ended Six Months Ended

(In millions, except for percentages) October 2, 2020 October 4, 2019 Change in %

October 2, 2020 October 4, 2019 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) January 1, 2021 January 3, 2020 Change in %

January 1, 2021 January 3, 2020 Change in %

Sales and marketing $ 140 $ 178 (21) % $ 428 $ 551 (22) %

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Total operating expenses $ 272 $ 453 (40) % $ 986 $ 1,269 (22) %

Three Months Ended October 2, 2020 Compared with Three Months Ended October 4, 2019

Sales and marketing expense decreased $46 million, due to a $46 million de crease in shared facility and IT costs.

Research and development expense decreased $22 million, primarily due to a $26 million decrease in compensation expense and shared facility and IT costs.

General and administrative expense decreased $22 million, primarily due to a $37 million decrease in compensation expense and shared facility and IT costs, and an $18 million decrease in outside services expense, partially offset by a legal accrual of $25 million in the second quarter of fiscal 2021 relating to an ongoing civil suit involving a government contract.

Three Months Ended January 1, 2021 Compared with Three Months Ended January 3, 2020

Sales and marketing expense decreased $38 million, due to a $33 million de crease in shared facility and IT costs coupled with a $5 million decrease in other cost reduction activities.

Research and development expense remained relatively flat.

General and administrative expense decreased $43 million, primarily due to a $33 million decrease in compensation expense and shared facility and IT costs and a $6 million decrease in outside services expense.

The overall decreases in our sales and marketing, research and development and general and administrative expenses were driven by our cost reduction initiatives.

Amortization of intangible assets and restructuring and other costs remained relatively flat.

Six Months Ended October 2, 2020 Compared with Six Months Ended October 4, 2019

Amortization of intangible assets remained relatively flat.

Restructuring and other costs decreased $97 million, primarily due to a $67 million decrease in contract cancellation charges, $11 million decrease in severance costs, $10 million decrease in asset write-offs, and a $5 million decrease in stock-based compensation charges, in connection with the November 2019 restructuring plan (the November 2019 Plan), which was substantially completed in the second quarter of fiscal 2021.

Nine Months Ended January 1, 2021 Compared with Nine Months Ended January 3, 2020

Sales and marketing expense decreased $123 million, primarily due to a $126 million decrease in shared facility and IT costs, partially offset by a $4 million increase in advertising and promotional expense.

Research and development expense decreased $58 million, primarily due to a $57 million decrease in compensation expense and shared facility and IT costs.

General and administrative expense decreased $65 million, primarily due to a $70 million decrease in compensation expense and shared facility and IT costs, and an $26 million decrease in outside services expense, partially offset by a legal accrual of $25 million in the first six months of fiscal 2021 relating to an ongoing civil suit involving a government contract.

Research and development expense decreased $59 million, due to a $59 million decrease in compensation expense and shared facility and IT costs.

General and administrative expense decreased $108 million, primarily due to a $105 million decrease in compensation expense and shared facility and IT costs, and a $24 million decrease in outside services expense, partially offset by a legal accrual of $25 million in the first nine months of fiscal 2021 relating to an ongoing civil lawsuit involving a government contract with the GSA.

The overall decreases in our sales and marketing, research and development and general and administrative expenses were driven by our cost reduction initiatives.

Amortization of intangible assets remained relatively flat.

Restructuring and other costs increased $111 million, primarily due to $58 million of assets write-offs and impairments and $49 million of contract cancellation charges incurred in the first six months of fiscal 2021 associated with our November 2019 restructuring plan (the November 2019 Plan).

Restructuring and other costs increased $14 million, primarily due to a $48 million increase in assets write-offs, partially offset by a $21 million decrease in severance costs and a $18 million decrease in contract cancellation charges, in connection with our November 2019 restructuring plan (the November 2019 Plan).

Non-operating income (expense), net

Three Months Ended Six Months Ended

(In millions) October 2, 2020 October 4, 2019 October 2, 2020 October 4, 2019

Three Months Ended Nine Months Ended

(In millions) January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020

Interest expense $ (32) $ (51) $ (109) $ (146)

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Foreign exchange gain (loss) 2 (5) 3 (7)

Gain on extinguishment of debt — — 20 —

Gain on sale of equity investment method — 379 — 379

Gain on early extinguishment of debt — — 20 —

Gain on sale of property — — 35 —

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Total non-operating income (expense), net $ (27) $ 348 $ (47) $ 251

Three Months Ended October 2, 2020 Compared with Three Months Ended October 4, 2019

Non-operating income, net, increased $50 million, primarily due to the gain on sale of our Culver City property in the second quarter of fiscal 2021 and the absence of loss from our equity interest in DigiCert Parent Inc., which was divested in the third quarter of fiscal 2020.

Six Months Ended October 2, 2020 Compared with Six Months Ended October 4, 2019

Non-operating expense, net, decreased $77 million, primarily due to the gain on sale of our Culver City property in the second quarter of fiscal 2021, the gain on extinguishment of debt due to the repayment of our 2.0% Convertible Notes in the first quarter of fiscal 2021, the absence of loss from our equity interest in DigiCert Parent Inc., which was divested in the third quarter of fiscal 2020, and lower interest expense as a result of debt repayments.

These decreases were partially offset by lower interest income as a result of lower investments in money market funds and short-term investments in the first six months of fiscal 2021 compared to the prior year period.

Three Months Ended January 1, 2021 Compared with Three Months Ended January 3, 2020

Non-operating income, net, decreased $375 million, primarily due to the absence of gain on sale of our equity method investment in DigiCert, which was divested in the third quarter of fiscal 2020.

Nine Months Ended January 1, 2021 Compared with Nine Months Ended January 3, 2020

Non-operating income, net, decreased $298 million, primarily due to the absence of gain on sale of our equity method investment in DigiCert, which was divested in the third quarter of fiscal 2020.

The decrease was partially offset by the absence of loss from our equity interest in DigiCert, gain on sale of our Culver City property in the second quarter of fiscal 2021, and the gain on extinguishment of debt due to the repayment of our 2.0% Convertible Notes in the first quarter of fiscal 2021.

Provision for income taxes

Three Months Ended Six Months Ended

(In millions, except for percentages) October 2, 2020 October 4, 2019 October 2, 2020 October 4, 2019

Three Months Ended Nine Months Ended

(In millions, except for percentages) January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020

Income from continuing operations before income taxes $ 253 $ 410 $ 583 $ 562

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Effective tax rate 32 % 14 % 16 % 24 %

Our effective tax rate for income from continuing operations for the second quarter and the first six months of fiscal 2021 differs from the federal statutory income tax rate primarily due to various permanent differences, foreign return to provision adjustments, and state taxes, partially offset by the benefits of lower-tax international earnings and the research and development tax credit.

In addition, for the first six months of fiscal 2021, we recorded a tax benefit related to a favorable tax ruling in Japan.

Our effective tax rate for income from continuing operations for the second quarter and the first six months of fiscal 2020 differs from the federal statutory income tax rate primarily due to tax expense related to the Ninth Circuit's holding in Altera Corp.

Commissioner (which the Supreme Court declined to review in June 2020), various permanent differences, and state taxes, partially offset by the benefits of lower-tax international earnings and the research and development tax credit.

Our effective tax rate for income from continuing operations for the three months ended January 1, 2021 differs from the federal statutory income tax rate primarily due to taxes in foreign jurisdictions in excess of the federal statutory rate, and state taxes, partially offset by the benefits of lower-tax international earnings and stock-based compensation.

Our effective tax rate for income from continuing operations for the nine months ended January 1, 2021 differs from the federal statutory income tax rate primarily due to the gain on selling a building, taxes in foreign jurisdictions in excess of the federal statutory rate, and state taxes, partially offset by the benefits of lower-tax international earnings, a favorable withholding tax ruling in Japan, and stock-based compensation.

Our effective tax rate for income from continuing operations for the three and nine ended months January 3, 2020 differs from the federal statutory income tax rate primarily due to tax expense related to the Ninth Circuit's holding in Altera Corp.

Commissioner (which the Supreme Court declined to review in June 2020), a discrete tax charge recorded to account for the sale of our equity investment in DigiCert, various permanent differences, and state taxes, partially offset by the benefits of lower-tax international earnings and the research and development tax credit.

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.

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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 October 2, 2020, we had cash, cash equivalents and short-term investments of $1,049 million, of which $586 million was held by our foreign subsidiaries.

As of January 1, 2021, we had cash, cash equivalents and short-term investments of $1,073 million, of which $399 million was held by our foreign subsidiaries.

Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity, and generate investment returns.

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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 revolving credit facility of $1,000 million which expires in November 2024.

We also have an undrawn revolving credit facility of $1 billion which expires in November 2024.

Our principal cash requirements are primarily to meet our working capital needs, support on-going business activities, including payment of taxes and cash dividends, funding capital expenditures, servicing existing debt, repurchasing shares of our common stock, and investing in business acquisitions.

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In fiscal 2020, we completed the sale of certain assets and the assumption of certain liabilities of our Enterprise Security business to Broadcom.

In the six months ended October 2, 2020, we paid approximately $70 million of U.S.

and foreign income

taxes as a result of the transaction, and we expect to pay additional income taxes of $2 million in fiscal 2021 as a result of the transactions.

In the nine months ended January 1, 2021, we paid approxi mately $70 million of U.S.

and foreign income taxes as a result of the transaction, and we expect to pay additional income taxes of $2 million i n fiscal 2021 as a result of the transactions.

On October 1, 2020, we entered into multiple agreements with Broadcom for an aggregate amount of $200 million.

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The following summarizes our cash flow activities:

Six Months Ended

(In millions) October 2, 2020 October 4, 2019

Nine Months Ended

(In millions) January 1, 2021 January 3, 2020

Net cash provided by (used in):

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Cash from operating activities

Our cash flows for the first six months of fiscal 2021 reflected net income of $182 million, adjusted by non-cash items, consisting primarily of impairments of current and long-lived assets of $88 million, amortization and depreciation of $85 million, stock-based compensation expense of $45 million, deferred income taxes of $30 million and gain on sale of property of $35 million.

Our cash flows for the first six months of fiscal 2020 reflected net income of $811 million adjusted by non-cash items, consisting primarily of deferred income tax benefits of $707 million, amortization and depreciation of $251 million, and stock-based compensation expense of $150 million.

Changes in operating assets and liabilities in the first six months of fiscal 2021 consisted primarily of the following:

Accounts receivable decreased $13 million, compared to $111 million in the first six months of fiscal 2020, primarily due to the absence of Enterprise Security billings after the close of the Broadcom sale and the collection of those receivables thereafter.

Contract liabilities decreased $25 million, compared to $129 million in the first six months of fiscal 2020, primarily due to the absence of Enterprise Security billings after the close of the Broadcom sale.

Income tax payable d ecreased by $299 million, compared to an increase of $5 million in the first six months of fiscal 2020, primarily due to tax payments made in the first six months of fiscal 2021, including payments related to Broadcom sale, and a decrease in unrecognized tax benefits as a result of a favorable tax ruling.

Our cash flows for the first nine months of fiscal 2021 reflected net income of $360 million, adjusted by non-cash items, consisting primarily of amortization and depreciation of $113 million, impairments of current and long-lived assets of $88 million, stock-based compensation expense of $66 million, deferred income taxes of $47 million, and gain on sale of property of $35 million.

Our cash flows for the first nine months of fiscal 2020 reflected net income of $3,656 million adjusted by non-cash items, consisting primarily of gain on sale of Enterprise Security assets of $5,422 million, gain on sale of equity method investment of $379 million, amortization and depreciation of $307 million, and stock-based compensation expense of $270 million.

Changes in operating assets and liabilities in the first nine months of fiscal 2021 consisted primarily of the following:

Accounts receivable increased $1 million, compared to $537 million in the first nine months of fiscal 2020, primarily due to the absence of Enterprise Security billings after the close of the Broadcom sale and the collection of those receivables thereafter.

Contract liabilities increased $21 million, compared to a decrease of $163 million in the first nine months of fiscal 2020, primarily due to higher billings than recognized revenue.

Accrued compensation and benefits decreased $25 million, compared to $99 million in the first nine months of fiscal 2020, primarily due to a reduction in headcount in connection with our November 2019 Plan, which was substantially completed in the second quarter of fiscal 2021.

Income tax payable decreased by $348 million, compared to an increase of $2,096 million in the first nine months of fiscal 2020, primarily due to tax payments made in the first nine months of fiscal 2021, including payments related to Broadcom sale, payments of federal and foreign income taxes, and a decrease in unrecognized tax benefits as a result of a favorable tax ruling.

Cash from investing activities

Our cash flows from investing activities in the first six months of fiscal 2021 consisted primarily of proceeds from the sale of our Culver City property of $118 million and proceeds from maturities and sales of short-term investments of $46 million.

Our investing activities in the first six months of fiscal 2020 consisted primarily of proceeds from maturities and sales of short-term investments of $120 million, partially offset by capital expenditures of $76 million.

Our cash flows from investing activities in the first nine months of fiscal 2021 consisted primarily of proceeds from the sale of our Culver City property of $118 million and proceeds from maturities and sales of short-term investments of $60 million.

Our investing activities in the first nine months of fiscal 2020 consisted primarily of cash proceeds from the Broadcom sale, net of transaction costs, of $10,572 million, proceeds from sale of equity method investment in DigiCert of $378 million, and proceeds from maturities and sales of short-term investments of $135 million, partially offset by capital expenditures of $86 million.

Cash from financing activities

Our cash flows from financing activities in the first six months of fiscal 2021 consisted primarily of repayments of debt of $1,929 million in connection with the settlement of our 2.0% Convertible Notes and repayments of our 4.2% Senior Notes, and payment of dividends and dividend equivalents of $187 million, partially offset by proceeds from issuance of debt of $750 million under our Delayed Draw Term Loan.

Our financing activities in the first six months of fiscal 2020 consisted primarily of common stock repurchases of $559 million, payment of dividends and dividend equivalents of $98 million, and tax withholding payments related to restricted stock units of $65 million.

Our cash flows from financing activities in the first nine months of fiscal 2021 consisted primarily of repayments of debt of $1,929 million in connection with the settlement of our 2.0% Convertible Notes and repayments of our 4.2% Senior Notes, payment of dividends and dividend equivalents of $300 million, and common stock repurchases of $138 million, partially offset by proceeds from issuance of debt of $750 million under our Delayed Draw Term Loan.

Our financing activities in the first nine months of fiscal 2020 consisted primarily of common stock repurchases of $904 million, repayment of debt of $302 million, and payment of dividends and dividend equivalents of $177 million, partially offset by proceeds from issuance of debt, net of issuance costs, of $300 million and net proceeds from sales of common stock under employee stock incentive plans of $109 million.

Cash requirements

Debt - As of October 2, 2020, our total outstanding principal amount of indebtedness is summarized as follows.

Debt - As of January 1, 2021, our total outstanding principal amount of indebtedness is summarized as follows.

See Note 9 to the Condensed Consolidated Financial Statements for further information on our debt.

(In millions) October 2, 2020

(In millions) January 1, 2021

Term Loans $ 1,250

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The credit agreement we entered into in November 2019 contains customary representations and warranties, non-financial covenants for financial reporting, and affirmative and negative covenants, including compliance with specified financial ratios .

As of October 2, 2020 , we were in compliance with all debt covenants.

On November 5, 2020, we announced the declaration of a cash dividend of $0.125 per share of common stock to be paid in December 2020.

See Note 9 to the Condensed Consolidated Financial Statements for additional information regarding financial ratios and debt covenant compliance.

As of January 1, 2021 , we were in compliance with all debt covenants.

On February 4, 2021, we announced the declaration of a cash dividend of $0.125 per share of common stock to be paid in March 2021.

Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.

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Under our stock repurchase program, we may purchase shares of our outstanding common stock through accelerated stock repurchase transactions, open market transactions (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act) and privately-negotiated transactions.

As of October 2, 2020, the remaining balance of our stock repurchase authorization was $573 million and does not have an expiration date.

As of January 1, 2021, the remaining balance of our stock repurchase authorization was $420 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.

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Under our restructuring plan approved by our Board of Directors in November 2019, we have incurred cash expenditures for severance and termination benefits and contract terminations.

As of October 2, 2020, we have incurred total costs of $503 million in connection with the November 2019 Plan, excluding stock-based compensation expense.

During the first six months of fiscal 2021, we made $124 million in cash payments related to the November 2019 Plan.

As of January 1, 2021, we have incurred total costs of $503 million in connection with the November 2019 Plan, excluding stock-based compensation expense.

During the first nine months of fiscal 2021, we made $134 million in cash payments related to the November 2019 Plan.

These actions were substantially completed by September 2020.

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Contractual obligations

The following is a schedule of our significant contractual obligations as of October 2, 2020.

The following is a schedule of our significant contractual obligations as of January 1, 2021.

The expected timing of payments of the obligations in the following table is estimated based on current information.

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(1) Interest payments were calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes and Term Loans.

Interest on variable rate debt was calculated using the interest rate in effect as of October 2, 2020.

Interest on variable rate debt was calculated using the interest rate in effect as of January 1, 2021.

See Note 9 to the Condensed Consolidated Financial Statements for further information on the Senior Notes, Convertible Senior Notes and Term loans.

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See Note 8 to the Condensed Consolidated Financial Statements for further information on leases.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of October 2, 2020, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

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 January 1, 2021, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $580 million in long-term income taxes payable has been excluded from the contractual obligations table.

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Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes to our market risk exposures during the first six months of fiscal 2021, as compared to those discussed in Quantitative and Qualitative Disclosures About Market Risk, set forth in Part II, Item 7A, of our Annual Report on Form 10-K for the fiscal year ended April 3, 2020.

There have been no significant changes to our market risk exposures during the first nine months of fiscal 2021, as compared to those discussed in Quantitative and Qualitative Disclosures About Market Risk, set forth in Part II, Item 7A, of our Annual Report on Form 10-K for the fiscal year ended April 3, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis