Gen Digital Inc. 10-Q

Item 1. Financial Statements NORTONLIFELOCK INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in millions, except par value per share amounts) October 1, 2021 April 2, 2021 ASSETS Current assets: Cash and cash equivalents $ 1,526 $ 933 Short-term investments 15 18 Accounts receivable, net 108 117 Other current assets 243 237 Assets held for sale 58 233 Total current assets 1,950 1,538 Property and equipment, net 67 78 Operating lease assets 93 76 Intangible assets, net 1,064 1,116 Goodwill 2,896 2,867 Other long-term assets 663 686 Total assets $ 6,733 $ 6,361 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 81 $ 52 Accrued compensation and benefits 72 107 Current portion of long-term debt 1,073 313 Contract liabilities 1,159 1,210 Current operating lease liabilities 20 26 Other current liabilities 409 428 Total current liabilities 2,814 2,136 Long-term debt 2,779 3,288 Long-term contract liabilities 54 55 Deferred income tax liabilities 140 137 Long-term income taxes payable 1,034 1,119 Long-term operating lease liabilities 88 66 Other long-term liabilities 56 60 Total liabilities 6,965 6,861 Commitments and contingencies (Note 18) Stockholders’ equity (deficit): Common stock and additional paid-in capital, $ 0.01 par value: 3,000 shares authorized; 582 and 580 shares issued and outstanding as of October 1, 2021 and April 2, 2021, respectively 1,996 2,229 Accumulated other comprehensive income 34 47 Retained earnings (accumulated deficit) ( 2,262 ) ( 2,776 ) Total stockholders’ equity (deficit) ( 232 ) ( 500 ) Total liabilities and stockholders’ equity (deficit) $ 6,733 $ 6,361 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in millions, except per share amounts) Three Months Ended Six Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Net revenues $ 692 $ 626 $ 1,378 $ 1,240 Cost of revenues 100 90 202 176 Gross profit 592 536 1,176 1,064 Operating expenses: Sales and marketing 150 143 306 288 Research and development 66 63 134 128 General and administrative 63 68 108 121 Amortization of intangible assets 21 18 42 36 Restructuring, transition and other costs 5 14 12 141 Total operating expenses 305 306 602 714 Operating income 287 230 574 350 Interest expense ( 31 ) ( 37 ) ( 63 ) ( 77 ) Other income (expense), net 177 38 174 57 Income (loss) from continuing operations before income taxes 433 231 685 330 Income tax expense (benefit) 100 65 171 15 Income (loss) from continuing operations 333 166 514 315 Income (loss) from discontinued operations — ( 102 ) — ( 133 ) Net income $ 333 $ 64 $ 514 $ 182 Income (loss) per share - basic: Continuing operations $ 0.57 $ 0.28 $ 0.88 $ 0.53 Discontinued operations $ — $ ( 0.17 ) $ — $ ( 0.23 ) Net income per share - basic (1) $ 0.57 $ 0.11 $ 0.88 $ 0.31 Income (loss) per share - diluted: Continuing operations $ 0.56 $ 0.28 $ 0.87 $ 0.52 Discontinued operations $ — $ ( 0.17 ) $ — $ ( 0.22 ) Net income per share - diluted $ 0.56 $ 0.11 $ 0.87 $ 0.30 Weighted-average shares outstanding: Basic 582 592 581 591 Diluted 591 600 591 607 (1) Net income per share amounts may not add due to rounding. The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHEN SIVE INCOME (Unaudited, in millions) Three Months Ended Six Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Net income $ 333 $ 64 $ 514 $ 182 Other comprehensive income, net of taxes: Foreign currency translation adjustments ( 15 ) 26 ( 13 ) 37 Net unrealized gain (loss) on available-for-sale securities — — — 1 Other comprehensive income, net of taxes ( 15 ) 26 ( 13 ) 38 Comprehensive income $ 318 $ 90 $ 501 $ 220 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited, in millions, except per share amounts) Three months ended October 1, 2021 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit) Shares Amount Balance as of July 2, 2021 581 $ 2,049 $ 49 $ ( 2,595 ) $ ( 497 ) Net income — — — 333 333 Other comprehensive income, net of taxes — — ( 15 ) — ( 15 ) Common stock issued under employee stock incentive plans 1 7 — — 7 Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued — ( 73 ) — — ( 73 ) Stock-based compensation — 13 — — 13 Balance as of October 1, 2021 582 $ 1,996 $ 34 $ ( 2,262 ) $ ( 232 ) Six months ended October 1, 2021 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit) Shares Amount Balance as of April 2, 2021 580 $ 2,229 $ 47 $ ( 2,776 ) $ ( 500 ) Net income — — — 514 514 Other comprehensive income, net of taxes — — ( 13 ) — ( 13 ) Common stock issued under employee stock incentive plans 3 8 — — 8 Shares withheld for taxes related to vesting of restricted stock units ( 1 ) ( 15 ) — — ( 15 ) Cash dividends declared ($ 0.250 per share of common stock) and dividend equivalents accrued — ( 147 ) — — ( 147 ) Stock-based compensation — 33 — — 33 Extinguishment of convertible debt — ( 112 ) — — ( 112 ) Balance as of October 1, 2021 582 $ 1,996 $ 34 $ ( 2,262 ) $ ( 232 ) 6 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited, in millions, except per share amounts) Three months ended October 2, 2020 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit) Shares Amount Balance as of July 3, 2020 591 $ 2,713 $ ( 4 ) $ ( 3,212 ) $ ( 503 ) Net income — — — 64 64 Other comprehensive income, net of taxes — — 26 — 26 Common stock issued under employee stock incentive plans 1 8 — — 8 Shares withheld for taxes related to vesting of restricted stock units — ( 4 ) — — ( 4 ) Repurchases of common stock — ( 5 ) — — ( 5 ) Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued — ( 82 ) — — ( 82 ) Stock-based compensation — 20 — — 20 Balance as of October 2, 2020 592 $ 2,650 $ 22 $ ( 3,148 ) $ ( 476 ) Six months ended October 2, 2020 Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit) Shares Amount Balance as of April 3, 2020 589 $ 3,356 $ ( 16 ) $ ( 3,330 ) $ 10 Net income — — — 182 182 Other comprehensive income, net of taxes — — 38 — 38 Common stock issued under employee stock incentive plans 4 10 — — 10 Shares withheld for taxes related to vesting of restricted stock units ( 1 ) ( 21 ) — — ( 21 ) Repurchases of common stock — ( 5 ) — — ( 5 ) Cash dividends declared ($ 0.250 per share of common stock) and dividend equivalents accrued — ( 154 ) — — ( 154 ) Stock-based compensation — 45 — — 45 Extinguishment of convertible debt — ( 581 ) — — ( 581 ) Balance as of October 2, 2020 592 $ 2,650 $ 22 $ ( 3,148 ) $ ( 476 ) The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 7 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in millions) Six Months Ended October 1, 2021 October 2, 2020 OPERATING ACTIVITIES: Net income $ 514 $ 182 Adjustments: Amortization and depreciation 71 85 Impairments and write-offs of current and long-lived assets 3 88 Stock-based compensation expense 33 45 Deferred income taxes 13 30 Loss (gain) on extinguishment of debt 5 ( 20 ) Gain on sale of property ( 175 ) ( 35 ) Non-cash operating lease expense 11 11 Other 5 38 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable, net 9 13 Accounts payable 27 ( 24 ) Accrued compensation and benefits ( 36 ) ( 36 ) Contract liabilities ( 47 ) ( 25 ) Income taxes payable ( 97 ) ( 299 ) Other assets ( 5 ) 21 Other liabilities ( 13 ) ( 17 ) Net cash provided by (used in) operating activities 318 57 INVESTING ACTIVITIES: Purchases of property and equipment ( 2 ) ( 3 ) Payments for acquisition, net of cash acquired ( 40 ) — Proceeds from the maturities and sales of short-term investments 4 47 Proceeds from the sale of property 355 118 Other ( 4 ) ( 5 ) Net cash provided by (used in) investing activities 313 157 FINANCING ACTIVITIES: Repayments of debt and related equity component ( 382 ) ( 1,929 ) Proceeds from issuance of debt, net of issuance costs 512 750 Net proceeds from sales of common stock under employee stock incentive plans 8 10 Tax payments related to restricted stock units ( 14 ) ( 30 ) Dividends and dividend equivalents paid ( 157 ) ( 187 ) Repurchases of common stock — ( 5 ) Net cash provided by (used in) financing activities ( 33 ) ( 1,391 ) Effect of exchange rate fluctuations on cash and cash equivalents ( 5 ) 9 Change in cash and cash equivalents 593 ( 1,168 ) Beginning cash and cash equivalents 933 2,177 Ending cash and cash equivalents $ 1,526 $ 1,009 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 8 Table of Contents NORTONLIFELOCK INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Description of Business and Significant Accounting Policies Business NortonLifeLock, Inc. is a leading provider of consumer Cyber Safety solutions globally. We help customers protect their devices, online privacy, identity and home networks. Basis of presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America for interim financial information. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 2, 2021. The results of operations for the six months ended October 1, 2021 are not necessarily indicative of the results expected for the entire fiscal year. Fiscal calendar We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to three and six month periods in this report relate to fiscal periods ended October 1, 2021 and October 2, 2020. The three and six months ended October 1, 2021 and October 2, 2020 each consisted of 13 and 26 weeks, respectively. Our 2022 fiscal year consists of 52 weeks and ends on April 1, 2022. Use of estimates The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Such estimates include, but are not limited to, valuation of business combinations including acquired intangible assets and goodwill, loss contingencies, the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions and valuation of assets and liabilities and results of operations of our discontinued operations. On an ongoing basis, management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Third-party valuation specialists are also utilized for certain estimates. Actual results could differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the COVID-19 pandemic, and such differences may be material to the Condensed Consolidated Financial Statements. Significant accounting policies There have been no material changes to our significant accounting policies as of and for the six months ended October 1, 2021, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended April 2, 2021. 9 Table of Contents Note 2. Recent Accounting Standards Recently adopted authoritative guidance Income Taxes . In December 2019, the FASB issued new guidance that simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also clarifies and amends existing guidance to improve consistent application. On April 3, 2021, the first day of fiscal 2022, we adopted this guidance prospectively. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements. Recently issued authoritative guidance not yet adopted Business Combinations, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In October 2021, the FASB issued new guidance which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers . Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. This new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The standard will be effective for us in our first quarter of fiscal 2024, with early adoption permitted. The guidance will be applied prospectively to acquisitions occurring on or after the effective date. We are currently evaluating the impact of the adoption of this guidance on our Condensed Consolidated Financial Statements and disclosures. Debt with Conversion and Other Options . In August 2020, the FASB issued new guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The new guidance removes from GAAP the separation models for convertible debt with embedded conversion features. As a result, after adopting the guidance, entities will no longer separately present embedded conversion features in equity. Instead, they will account for the convertible debt wholly as debt. The new guidance also requires use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. The standard will be effective for us in our first quarter of fiscal 2023. It may be applied retrospectively to each prior period presented or retrospectively with cumulative effect recognized in retained earnings as of the date of adoption. We are currently evaluating the impact of the adoption of this guidance on our Condensed Consolidated Financial Statements and disclosures. Reference Rate Reform. In March 2020, the FASB issued new guidance providing temporary optional expedients and exceptions to ease the financial reporting burden of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. The standard was effective upon issuance and may generally be applied through December 31, 2022, to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. We continue to evaluate our contractual arrangements and hedging relationships that reference LIBOR. Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our Condensed Consolidated Financial Statements and disclosures . Note 3. Discontinued Operations and Assets Held for Sale Discontinued operations On November 4, 2019, we completed the sale of certain of our Enterprise Security assets and certain liabilities to Broadcom Inc. (the Broadcom sale). Certain costs associated with the divestiture of our Enterprise Security business are classified as discontinued operations in our Condensed Consolidated Statements of Operations. During the three and six months ended October 2, 2020, costs included severance and termination benefits as part of our November 2019 restructuring plan. These activities were completed during fiscal 2021. See Note 12 for information associated with our restructuring activities. On October 1, 2020, we entered into multiple agreements with Broadcom for an aggregate amount of $ 200 million. We licensed Broadcom’s enterprise software, multiple security engines and related telemetry for 5.6 years, which will be amortized to continuing operations over the term of license. In addition, we resolved all outstanding payments and certain claims related to the asset purchase and transition services agreements, which is included in discontinued operations. In connection with the Broadcom sale, we entered into a transition services agreement under which we provided assistance to Broadcom including, but not limited to, business support services and information technology services. During fiscal 2021, the transition services were completed. Dedicated direct costs, net of charges to Broadcom, for these transition services were $ 1 million and $ 9 million during the three and six months ended October 2, 2020, respectively. These direct costs were presented as part of Other income (expense), net in the Condensed Consolidated Statements of Operations. The following table presents information regarding certain components of incom e (loss) from discontinued operations, net of income taxes during the three and six months ended October 2, 2020. There was no discontinued operations activity during the three and six months ended October 1, 2021. 10 Table of Contents Three Months Ended Six Months Ended (In millions) October 2, 2020 October 2, 2020 Net revenues $ — $ — Gross profit $ — $ — Operating income (loss) $ ( 133 ) $ ( 175 ) Income (loss) before income taxes $ ( 132 ) $ ( 173 ) Income tax expense (benefit) $ ( 30 ) $ ( 40 ) Income (loss) from discontinued operations $ ( 102 ) $ ( 133 ) Assets held for sale During fiscal 2020, we reclassified certain land and buildings previously reported as property and equipment to assets held for sale when the properties were approved for immediate sale in their present condition and the sale was expected to be completed within one year. We continue to actively market the properties for sale; however, during fiscal 2022, the commercial real estate market continues to be adversely affected by the COVID-19 pandemic, which has delayed the expected timing of sale. We have taken into consideration the current real estate values and demand, and continue to execute plans to sell these properties. As of October 1, 2021, these assets are classified as assets held for sale. During the three and six months ended October 1, 2021 , there were no impairments because the fair value of the properties less costs to sell either equals or exceeds their carrying value. On July 14, 2021, we completed the sale of certain land and buildings in Mountain View, California for cash consideration of $ 355 million, net of selling costs. We recognized a gain of $ 175 million on the sale. In conjunction with the sale, we signed a 7-year leaseback agreement for a portion of the property. See Note 9 for further information related to the sale leaseback. Note 4. Business Combinations Proposed Merger with Avast On August 10, 2021, we announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Proposed Merger). The Proposed Merger will be implemented by means of a court-sanctioned scheme of arrangement under the UK Companies Act 2006, as amended (the Scheme), and remains subject to a certain number of conditions. Under the terms of the Proposed Merger, Avast shareholders will be entitled to elect to receive, for each ordinary share of Avast held, in respect of their entire holding of Avast shares, either: (i) $ 7.61 in cash and 0.0302 of a new share of our common stock (such option, the Majority Cash Option); or (ii) $ 2.37 in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option).The estimated purchase price range, based on our undisturbed closing share price of $ 27.20 on July,13 2021, for the Avast shares under the Proposed Merger is $ 8.1 billion to $ 8.6 billion, depending on the Avast shareholders elections. Each of the directors of Avast who holds shares has undertaken to elect for the Majority Stock Option in respect of their entire beneficial holdings of Avast shares. We plan to finance the Proposed Merger with existing cash, cash to be generated by operations and new debt financing. In conjunction with the Proposed Merger, on August 10, 2021, we entered into an agreement (as amended, the Interim Facilities Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $ 3,600 million term loan interim facility B (Interim Facility B), (ii) $ 750 million term loan interim facility A1 (Interim Facility A1) and $ 3,500 million term loan interim facility A2 (Interim Facility A2), and (iii) a $ 1,500 million interim revolving facility (Interim Revolving Facility) (collectively, the Interim Facilities) and a commitment letter (as amended, the Commitment Letter) to finance the cash consideration payable in connection with the Proposed Merger. The Interim Facilities will be financed by a syndicate of lenders led by Bank of America, N.A. and Wells Fargo Bank N.A. The Interim Facilities Agreement contains, and any definitive financing documentation entered into in connection with the Commitment Letter will contain, customary representations and warranties, events of default and covenants for transactions of this type. Definitive financing documentation entered into in connection with the Commitment Letter will replace the existing credit facility agreement upon the close of the transactions contemplated thereby. In conjunction with the Proposed Merger, on August 10, 2021, we entered into a Co-operation Agreement (the Co-operation Agreement) with Nitro Bidco Limited, our wholly-owned subsidiary (Bidco), and Avast, pursuant to which we and Bidco agreed to, among other things, use all reasonable endeavors for the purposes of obtaining any regulatory authorizations which are required to implement the Proposed Merger, and we, Bidco and Avast agreed to cooperate with each other in preparing required transaction documents and certain other matters in connection with the Proposed Merger. The Co-operation Agreement also contains certain termination rights. The Co-operation Agreement also provides that, subject to certain exceptions, in connection with a failure to satisfy specified events, conditions or regulatory approvals, we may be required to pay Avast a break fee ranging from $ 100 million to $ 300 million. The Proposed Merger has been approved by our Board of Directors, the Board of Directors of Avast and our shareholders. The Proposed Merger is subject to approval by the Avast shareholders. The Proposed Merger is expected to close by mid-calendar year 2022, subject to regulatory approvals and the satisfaction or waiver of other customary closing conditions. 11 Table of Contents Fiscal 2021 Avira acquisition On January 8, 2021, we completed our acquisition of Avira. Avira provides a consumer-focused portfolio of cybersecurity and privacy solutions primarily in Europe and key emerging markets. The total aggregate consideration for the acquisition was $ 344 million, net of $ 32 million cash acquired. Our current allocation of the aggregate purchase price for the acquisition as of January 8, 2021, is as follows: (In millions) January 8, 2021 Assets: Current assets $ 12 Intangible assets 162 Goodwill 261 Other long-term asset 21 Total assets acquired 456 Liabilities: Current liabilities 29 Contract liabilities 54 Other long-term obligations 29 Total liabilities assumed 112 Total purchase price $ 344 The allocation of the purchase price above was based upon a preliminary valuation performed during the fourth quarter of fiscal 2021 and reflects adjustments made during the six months ended October 1, 2021. Our estimates and assumptions are subject to refinement within the measurement period, which may be up to one year from the acquisition date. Adjustments to the purchase price may require adjustments to goodwill prospectively. The primary area of purchase price allocation that is not yet finalized relates to certain tax matters. Note 5. Revenues Contract liabilities During the three and six months ended October 1, 2021, we recognized $ 506 million and $ 858 million from the contract liabilities balance at July 2, 2021 and April 2, 2021, respectively. During the three and six months ended October 2, 2020, we recognized $ 452 million and $ 762 million from the contract liabilities balance at July 3, 2020 and April 3, 2020, respectively. Remaining performance obligations Remaining performance obligations represent contract revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of October 1, 2021, we had $ 794 million of remaining performance obligations, excluding customer deposit liabilities of $ 419 million, of which we expect to recognize approximately 93 % as revenue over the next 12 months. See Note 17 for tabular disclosures of disaggregated revenue by solution and geographic region. Note 6. Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill were as follows: (In millions) Balance as of April 2, 2021 $ 2,867 Acquisition 40 Purchase accounting adjustment ( 7 ) Translation adjustments ( 4 ) Balance as of October 1, 2021 $ 2,896 On September 15, 2021, we completed an acquisition of an online reputation management and digital privacy solutions company for total aggregate consideration of $ 40 million. The purchase price was preliminarily allocated to goodwill and will be finalized during the third quarter of fiscal 2022. 12 Table of Contents Intangible assets, net October 1, 2021 April 2, 2021 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 567 $ ( 340 ) $ 227 $ 556 $ ( 299 ) $ 257 Developed technology 210 ( 125 ) 85 210 ( 104 ) 106 Other 7 ( 1 ) 6 7 ( 1 ) 6 Total finite-lived intangible assets 784 ( 466 ) 318 773 ( 404 ) 369 Indefinite-lived trade names 746 — 746 747 — 747 Total intangible assets $ 1,530 $ ( 466 ) $ 1,064 $ 1,520 $ ( 404 ) $ 1,116 Amortization expense for purchased intangible assets is summarized below: Three Months Ended Six Months Ended Condensed Statements of Operations Classification (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Customer relationships and other $ 21 $ 18 $ 42 $ 36 Operating expenses Developed technology 11 7 21 14 Cost of revenues Total $ 32 $ 25 $ 63 $ 50 As of October 1, 2021, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year: (In millions) Remainder of 2022 $ 59 2023 101 2024 88 2025 29 2026 24 Thereafter 17 Total $ 318 Note 7. Supplementary Information Cash and cash equivalents: (In millions) October 1, 2021 April 2, 2021 Cash $ 767 $ 650 Cash equivalents 759 283 Total cash and cash equivalents $ 1,526 $ 933 Accounts receivable, net: (In millions) October 1, 2021 April 2, 2021 Accounts receivable $ 109 $ 118 Allowance for doubtful accounts ( 1 ) ( 1 ) Total accounts receivable, net $ 108 $ 117 Other current assets: (In millions) October 1, 2021 April 2, 2021 Prepaid expenses $ 97 $ 95 Income tax receivable and prepaid income taxes 112 96 Other tax receivable 16 31 Other 18 15 Total other current assets $ 243 $ 237 13 Table of Contents Property and equipment, net: (In millions) October 1, 2021 April 2, 2021 Land $ 2 $ 3 Computer hardware and software 465 479 Office furniture and equipment 28 63 Buildings 28 29 Leasehold improvements 58 58 Construction in progress 1 1 Total property and equipment, gross 582 633 Accumulated depreciation and amortization ( 515 ) ( 555 ) Total property and equipment, net $ 67 $ 78 Other long-term assets: (In millions) October 1, 2021 April 2, 2021 Non-marketable equity investments $ 185 $ 185 Long-term income tax receivable and prepaid income taxes 30 30 Deferred income tax assets 341 355 Long-term prepaid royalty 61 70 Other 46 46 Total other long-term assets $ 663 $ 686 Short-term contract liabilities: (In millions) October 1, 2021 April 2, 2021 Deferred revenue $ 740 $ 795 Customer deposit liabilities 419 415 Total short-term contract liabilities $ 1,159 $ 1,210 Other current liabilities: (In millions) October 1, 2021 April 2, 2021 Income taxes payable $ 99 $ 111 Other taxes payable 69 82 Accrued legal fees 76 66 Accrued royalties 36 46 Other 129 123 Total other current liabilities $ 409 $ 428 Long-term income taxes payable: (In millions) October 1, 2021 April 2, 2021 Deemed repatriation tax payable $ 438 $ 525 Other long-term income taxes 25 29 Uncertain tax positions (including interest and penalties) 571 565 Total long-term income taxes payable $ 1,034 $ 1,119 14 Table of Contents Other income (expense), net: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Interest income $ — $ 1 $ — $ 3 Foreign exchange gain (loss) 1 — 2 1 Gain (loss) on early extinguishment of debt — — ( 5 ) 20 Gain on sale of property 175 35 175 35 Transition service expense, net — ( 1 ) — ( 9 ) Other 1 3 2 7 Other income (expense), net $ 177 $ 38 $ 174 $ 57 Supplemental cash flow information: Six Months Ended (In millions) October 1, 2021 October 2, 2020 Income taxes paid, net of refunds $ 273 $ 235 Interest expense paid $ 60 $ 76 Cash paid for amounts included in the measurement of operating lease liabilities $ 14 $ 17 Non-cash operating activities: Operating lease assets obtained in exchange for operating lease liabilities $ 35 $ 28 Reduction of operating lease assets as a result of lease terminations and modifications $ 8 $ 22 Non-cash investing and financing activities: Extinguishment of debt with borrowings from same creditors $ 494 $ — Note 8. Financial Instruments and Fair Value Measurements For financial instruments measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. The three levels of inputs that may be used to measure fair value are: • Level 1: Quoted prices in active markets for identical assets or liabilities. • Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. • Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes. Assets measured and recorded at fair value on a recurring basis The following table summarizes our financial instruments measured at fair value on a recurring basis: October 1, 2021 April 2, 2021 (In millions) Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 Assets: Money market funds $ 759 $ 759 $ — $ 284 $ 284 $ — Certificates of deposit 1 — 1 1 — 1 Corporate bonds 14 — 14 17 — 17 Total $ 774 $ 759 $ 15 $ 302 $ 284 $ 18 The following table presents the contractual maturities of our investments in debt securities as of October 1, 2021: (In millions) Fair Value Due in one year or less $ 15 Total $ 15 15 Table of Contents Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations. Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments and long-term debt. Non-marketable equity investments As of October 1, 2021 and April 2, 2021, the carrying value of our non-marketable equity investments was $ 185 million and $ 185 million, respectively. Current and long-term debt As of October 1, 2021 and April 2, 2021, the total fair value of our fixed rate debt was $ 2,149 million and $ 2,400 million, respectively. The fair value of our variable rate debt approximated its carrying value. The fair values of all our debt obligations were based on Level 2 inputs. Note 9. Leases We lease certain of our facilities, equipment, and data center co-locations under operating leases that expire on various dates through fiscal 2029. Our leases generally have terms that range from 1 year to 8 years for our facilities, 1 year to 6 years for equipment, and 1 year to 6 years for data center co-locations. Some of our leases contain renewal options, escalation clauses, rent concessions and leasehold improvement incentives. On July 14, 2021, we completed the sale of certain land and buildings in Mountain View, California for cash consideration of $ 355 million, net of selling costs. In conjunction with the sale, we signed a 7-year leaseback agreement for a portion of the property, with an option to extend the lease for an additional 5 years. The leaseback agreement is effective as of the date of sale. The sale transaction and immediate leaseback qualified as a completed sale and we recognized a gain of $ 175 million on the sale. The following summarizes our lease costs: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Operating lease costs $ 4 $ 5 $ 8 $ 9 Short-term lease costs 1 1 2 2 Variable lease costs 2 2 3 5 Total lease costs $ 7 $ 8 $ 13 $ 16 Other information related to our operating leases was as follows: Three Months Ended October 1, 2021 October 2, 2020 Weighted-average remaining lease term 4.9 years 4.7 years Weighted-average discount rate 4.05 % 4.04 % See Note 7 for cash flow information related to our operating leases. As of October 1, 2021, the maturities of our lease liabilities by fiscal year are as follows: (In millions) Remainder of 2022 $ 13 2023 23 2024 27 2025 22 2026 16 Thereafter 19 Total lease payments 120 Less: Imputed interest ( 12 ) Present value of lease liabilities $ 108 16 Table of Contents Note 10. Debt The following table summarizes components of our debt: (In millions, except percentages) October 1, 2021 April 2, 2021 Effective Interest Rate New 2.50 % Convertible Senior Notes due April 1, 2022 $ — $ 250 2.63 % 3.95 % Senior Notes due June 15, 2022 400 400 4.05 % New 2.00 % Convertible Unsecured Notes due August 15, 2022 625 625 2.62 % 5.00 % Senior Notes due April 15, 2025 1,100 1,100 5.00 % Initial Term Loan due May 7, 2026 1,010 494 LIBOR plus (1) Delayed Term loan due May 7, 2026 722 741 LIBOR plus (1) 0.95 % Avira Mortgage due December 30, 2030 4 5 0.95 % 1.29 % Avira Mortgage due December 30, 2029 5 5 1.29 % Total principal amount 3,866 3,620 Less: unamortized discount and issuance costs ( 14 ) ( 19 ) Total debt 3,852 3,601 Less: current portion ( 1,073 ) ( 313 ) Total long-term debt $ 2,779 $ 3,288 (1) The term loans bear interest at a rate equal to LIBOR plus a margin based either on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt or consolidated adjusted leverage as defined in the underlying loan agreement. The interest rates for the outstanding term loans are as follows: October 1, 2021 April 2, 2021 Initial Term Loan due May 7, 2026 1.50 % 1.50 % Delayed Term Loan due May 7, 2026 1.50 % 1.50 % As of October 1, 2021, the future contractual maturities of debt by fiscal year are as follows: (In millions) Remainder of 2022 $ 19 2023 1,101 2024 89 2025 89 2026 1,189 Thereafter 1,379 Total future maturities of debt $ 3,866 Repayments of Convertible Senior Notes In May 2021, we settled the $ 250 million principal and conversion rights of our New 2.5 % Convertible Notes in cash. The aggregate settlement amount of $ 364 million was based on $ 24.40 per underlying share into which the New 2.5 % Convertible Notes were convertible. In addition, we paid $ 1 million of accrued and unpaid interest through the date of settlement and $ 1 million of cash dividends that we declared on May 10, 2021. The repayments resulted in an adjustment to stockholders’ equity of $ 112 million and a loss on extinguishment of $ 2 million. 17 Table of Contents As of October 1, 2021 and April 2, 2021, our Convertible Senior Notes consisted of the following: October 1, 2021 April 2, 2021 (In millions) New 2.00 % Convertible Notes New 2.50 % Convertible Notes New 2.00 % Convertible Notes Liability components: Principal $ 625 $ 250 $ 625 Unamortized discount and issuance costs ( 3 ) — ( 5 ) Net carrying amount $ 622 $ 250 $ 620 Equity component net of tax $ 56 $ 43 $ 56 Based on the closing price of our common stock of $ 25.56 on October 1, 2021, the if-converted value of the New 2.0 % Convertible Notes exceeded the principal amount by approximately $ 158 million. The following table sets forth total interest expense recognized related to our Convertible Senior Notes: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Contractual interest expense $ 3 $ 4 $ 6 $ 10 Amortization of debt discount and issuance costs $ 1 $ 1 $ 2 $ 2 Payments in lieu of conversion price adjustments (1) $ 2 $ 3 $ 4 $ 5 (1) Payments in lieu of conversion price adjustments consist of amounts paid to holders of the Convertible Senior Notes when our quarterly dividend to our common stockholders exceeds the amounts defined in the Convertible Senior Notes agreements. Credit facility On November 4, 2019, we entered into a credit agreement with financial institutions, which provides a revolving line of credit of $ 1 billion, a 5-year term loan of $ 500 million (the Initial Term Loan) and a delayed draw 5-year term loan commitment of $ 750 million (the Delayed Draw Term Loan). On September 14, 2020, we drew $ 750 million on the Delayed Draw Term Loan. On May 7, 2021, we entered into the first amendment to the credit agreement with financial institutions (the First Amendment), which extended the maturity of all term loans and revolver credit facilities from November 2024 to May 2026. The First Amendment also provided for an incremental increase under the Initial Term Loan of $ 525 million. This transaction was accounted for as a debt extinguishment of the Initial Term Loan and resulted in accelerated recognition of interest expense for unamortized debt issuance costs, which was immaterial. At the closing of the First Amendment, we did not borrow any funds under the revolving line of credit and fully borrowed the First Amendment under the Initial Term Loan, such that loans in an aggregate principal amount of $ 1,741 million were outstanding. The credit facilities remain senior secured. The principal amount of the Initial Term Loan and the additional borrowings under the First Amendment must be repaid in quarterly installments on the last business day of each calendar quarter commencing with the quarter ended September 30, 2022 in an amount equal to 1.25 % of the aggregate principal amount, as of the date of the first amendment. The principal amount of the Delayed Draw Term Loan must be repaid in quarterly installments on the last business day of each calendar quarter commencing with the later of (i) the quarter ended March 31, 2021 and (ii) the first full fiscal quarter ended following the Borrowing of the Delayed Draw Term Loans in an amount equal to 1.25 % of aggregate principal amount that are outstanding immediately after the borrowing of the Delayed Draw Term Loan. We may voluntarily repay outstanding principal balances without penalty. As of October 1, 2021, there were no borrowings outstanding under our revolving credit facilities. Interest on borrowings under the credit agreement can be based on a base rate or the LIBOR at our election. Based on our debt ratings and our consolidated leverage ratios as determined in accordance with the credit agreement, loans borrowed bear interest, in the case of base rate loans, at a per annum rate equal to the applicable base rate plus a margin ranging from 0.125 % to 0.75 %, and in the case of LIBOR loans, LIBOR, as adjusted for statutory reserves, plus a margin ranging from 1.125 % to 1.75 %. The unused revolving line of credit is subject to a commitment fee ranging from 0.125 % to 0.30 % per annum. In conjunction with the Proposed Merger, we entered into the Interim Facilities Agreement with certain financial institutions, in which they agreed to provide us with (i) a 7-year term loan interim facility B of $ 3,600 million (Interim Facility B), (ii) a 60-day term loan interim facility A1 of $ 750 million (Interim Facility A1) and 5-year term loan interim facility A2 of $ 3,500 million (Interim Facility A2), and (iii) a 5-year interim revolving facility of $ 1,500 million (Interim Revolving Facility) (collectively, the Interim Facilities) and the Commitment Letter to finance the cash consideration payable in connection with the Proposed Merger. The Interim Facilities will be financed by a syndicate of lenders led by Bank of America, N.A. and Wells Fargo Bank N.A. The Interim Facilities Agreement contains, and any definitive financing documentation entered into in connection with the Commitment Letter will contain, customary representations and warranties, events of default and covenants for transactions of this type. Definitive financing documentation entered into in connection with the Commitment Letter will replace the existing credit facility agreement upon the close of the transactions contemplated thereby. 18 Table of Contents Debt covenant compliance The credit agreement contains customary representations and warranties, non-financial covenants for financial reporting, affirmative and negative covenants, including a covenant that we maintain a consolidated leverage ratio of not more than 5.25 to 1.0, or 5.75 to 1.0 if we acquire assets or business in an aggregate amount greater than $ 250 million, and restrictions on indebtedness, liens, investments, stock repurchases, and dividends (with exceptions permitting our regular quarterly dividend and other specific capital returns). As of October 1, 2021 , we were in compliance with all debt covenants. Note 11. Derivatives We conduct business in numerous currencies throughout our worldwide operations and our entities hold monetary assets or liabilities, earn revenues or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses, which impact our operating results. As part of our foreign currency risk mitigation strategy, we have entered into foreign exchange forward contracts with up to 12 months in duration. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates. We enter into foreign currency forward contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as hedging instruments. As of October 1, 2021 and April 2, 2021, the fair value of these contracts was immaterial. The related gain (loss) recognized in Other income (expense), net in our Condensed Consolidated Statements of Operations was as follows: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Foreign exchange forward contracts gain (loss) $ ( 3 ) $ 1 $ — $ 11 The fair value of our foreign exchange forward contracts is presented on a gross basis in our Condensed Consolidated Balance Sheets. To mitigate losses in the event of nonperformance by counterparties, we have entered into master netting arrangements with our counterparties that allow us to settle payments on a net basis. The effect of netting on our derivative assets and liabilities was immaterial as of October 1, 2021 and April 2, 2021. The notional amount of our outstanding foreign exchange forward contracts in U.S. dollar equivalent was as follows: (In millions) October 1, 2021 April 2, 2021 Foreign exchange forward contracts purchased $ 347 $ 270 Foreign exchange forward contracts sold $ 141 $ 68 Note 12. Restructuring and Other Costs Our restructuring and other costs consist primarily of severance and termination benefits, contract cancellation charges and asset write-offs and impairments. Severance costs generally include severance payments, outplacement services, health insurance coverage and legal costs. Contract cancellation charges primarily include penalties for early termination of contracts and write-offs of related prepaid assets. December 2020 Plan In December 2020, our Board of Directors approved a restructuring plan (the December 2020 Plan) to consolidate facilities and reduce operating costs in connection with our acquisition of Avira. We estimate that we will incur total costs of up to $ 20 million. These actions are expected to be completed in fiscal 2022. As of October 1, 2021, we have incurred total costs of $ 17 million under the December 2020 Plan. November 2019 Plan In November 2019, our Board of Directors approved a restructuring plan (the November 2019 Plan) in connection with the strategic decision to divest our Enterprise Security business. Actions under this plan included the reduction of our workforce as well as asset write-offs and impairments, contract terminations, facilities closures, and the sale of underutilized facilities. These actions were completed in fiscal 2021. Any remaining costs or adjustments are immaterial. We incurred total costs of $ 516 million, excluding stock-based compensation expense, under the November 2019 Plan. In connection with the Broadcom sale, our Board of Directors also approved an equity-based severance program under which certain equity awards held by certain terminated employees were accelerated. As of October 1, 2021, we have incurred $ 127 million of stock-based compensation related to our equity-based severance program. See Note 15 for further information on the impact of this program. 19 Table of Contents Restructuring and other costs summary Our restructuring and other costs attributable to continuing operations are presented in the table below: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Severance and termination benefit costs $ 1 $ 4 $ 4 $ 18 Contract cancellation charges — 1 1 49 Stock-based compensation charges — 1 — 8 Asset write-offs — 3 — 58 Other exit and disposal costs 4 5 7 8 Total restructuring and other costs $ 5 $ 14 $ 12 $ 141 In connection with the agreement to sell certain assets of our Enterprise Security business, a portion of our restructuring and other costs were classified to discontinued operations during the three and six months ended October 2, 2020. Our restructuring and other costs attributable to discontinued operations are presented in the table below. There was no discontinued operations activity during the three and six months ended October 1, 2021. Three Months Ended Six Months Ended (In millions) October 2, 2020 October 2, 2020 Severance and termination benefit costs $ 27 $ 64 Separation costs 1 2 Total restructuring and other costs $ 28 $ 66 Restructuring summary Our activities and liabilities related to our December 2020 Plan are presented in the table below: (in millions) Liability Balance as of April 2, 2021 Costs, Net of Adjustments Cash Payments Liability Balance as of October 1, 2021 Severance and termination benefit costs $ 3 $ 4 $ ( 6 ) $ 1 Other exit and disposal costs — 1 ( 1 ) — Total $ 3 $ 5 $ ( 7 ) $ 1 The restructuring liabilities are included in Other current liabilities in our Condensed Consolidated Balance Sheets. Note 13. Income Taxes The following table summarizes our effective tax rate for the periods presented: Three Months Ended Six Months Ended (In millions, except percentages) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Income (loss) from continuing operations before income taxes $ 433 $ 231 $ 685 $ 330 Income tax expense (benefit) $ 100 $ 65 $ 171 $ 15 Effective tax rate 23 % 28 % 25 % 5 % Our effective tax rate for the three and six months ended October 1, 2021 differs from the federal statutory income tax rate primarily due to state taxes and U.S. taxation on foreign earnings. Our effective tax rate for the three and six months ended October 2, 2020 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 six months ended October 2, 2020, we recorded a tax benefit related to a favorable tax ruling in Japan. We are a U.S.-based multinational company subject to tax in multiple U.S. and international tax jurisdictions. 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. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Given the potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, we are unable to accurately estimate when these unrecognized tax benefits will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next 12 months. 20 Table of Contents We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. Note 14. Stockholders' Equity Dividends On November 4, 2021, we announced that our Board of Directors declared a cash dividend of $ 0.125 per share of common stock to be paid in December 2021. All shares of common stock issued and outstanding and all restricted stock units (RSUs) and performance-based restricted stock units (PRUs) as of the record date will be entitled to the dividend and dividend equivalent rights (DERs), respectively, which will be paid out if and when the underlying shares are released. Any future dividends and DERs will be subject to the approval of our Board of Directors. Stock repurchase program Under our stock repurchase program, we may purchase shares of our outstanding common stock through open market and through accelerated stock repurchase transactions. On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $ 1,500 million. As of October 1, 2021, we had $ 1,774 million remaining under the authorization to be completed in future periods with no expiration date. No shares were repurchased during the six months ended October 1, 2021. The following table summarizes activity related to this program during the six months ended October 2, 2020: Six Months Ended (In millions, except per share amounts) October 2, 2020 Number of shares repurchased (1) — Average price per share $ 22.90 Aggregate purchase price $ 5 (1) The number of shares was less than 1 million. Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss), net of taxes, consisted of foreign currency translation adjustments: (In millions) Foreign Currency Translation Adjustments Balance as of April 2, 2021 $ 47 Other comprehensive income before reclassifications ( 13 ) Balance as of October 1, 2021 $ 34 Note 15. Stock-Based Compensation The following table sets forth the stock-based compensation expense recognized for our equity incentive plans: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Cost of revenues $ 1 $ 1 $ 1 $ 1 Sales and marketing 3 $ 5 8 9 Research and development 3 7 9 13 General and administrative 6 6 15 14 Restructuring and other costs — 1 — 8 Other income (expense), net — — — ( 1 ) Total stock-based compensation from continuing operations 13 20 33 44 Discontinued operations — — — 1 Total stock-based compensation expense $ 13 $ 20 $ 33 $ 45 Income tax benefit for stock-based compensation expense $ ( 3 ) $ ( 4 ) $ ( 7 ) $ ( 10 ) As of October 1, 2021, the total unrecognized stock-based compensation costs related to our unvested stock-based awards was $ 127 million, which will be recognized over an estimated weighted-average amortization period of 2 years. 21 Table of Contents The following table summarizes additional information related to our stock-based awards, including awards associated with our discontinued operations: Six Months Ended (In millions, except per grant data) October 1, 2021 October 2, 2020 Restricted stock units (RSUs): Weighted-average fair value per award granted $ 21.55 $ 20.67 Awards granted 3 3 Total fair value of awards released $ 51 $ 66 Outstanding and unvested 5 6 Performance-based restricted stock units (PRUs): Weighted-average fair value per award granted $ 28.84 $ 27.82 Awards granted 1 1 Total fair value of awards released $ — $ 3 Outstanding and unvested at target payout 2 2 Stock options: Total intrinsic value of stock options exercised $ 1 $ 4 Outstanding — (1) 1 Exercisable — (1) — (1) (1) The number of shares was less than 1 million. Dividend equivalent rights (DERs) Our RSUs and PRUs contain DERs that entitles the recipient of an award to receive cash dividend payments if and when the underlying shares are released. The amount of DERs equals the amount of cumulated dividends on the issued number of common stock that would have been payable since the date the associated award was granted. As of October 1, 2021 and April 2, 2021, current dividends payable related to DER was $ 9 million and $ 12 million, respectively, recorded as part of Other current liabilities in the Condensed Consolidated Balance Sheets, and long-term dividends payable related to DER was $ 2 million and $ 10 million, respectively, recorded as part of Other long-term liabilities. Stock-based award modifications In connection with the Broadcom sale, during the first quarter of fiscal 2021, we entered into severance and retention arrangements with certain executives. Pursuant to these agreements, these executives were entitled to receive vesting of 50 % of their unvested equity, subject to a service condition, and the remaining unvested equity was earned at levels of 0 % to 150 %, subject to market and service conditio ns. In addition, we entered into severance and retention arrangements with certain other employees in connection with restructuring activities and the Broadcom sale, which accelerated either a portion or all of the vesting of their stock-based awards. All award modifications related to the Broadcom sale were fully expensed in fiscal 2021. The following table summarizes the stock-based compensation expense recognized as a result of these modifications during the three and six months ended October 2, 2020: Three Months Ended Six Months Ended (In millions) October 2, 2020 October 2, 2020 Sales and marketing $ 1 $ 2 Research and development 3 5 General and administrative 3 6 Restructuring and other costs 1 8 Total stock-based compensation $ 8 $ 21 Note 16. Net Income Per Share Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding during the period using the treasury stock method. Dilutive potentially issuable common shares include the dilutive effect of the shares underlying convertible debt and employee equity awards. 22 Table of Contents The components of basic and diluted net income (loss) per share are as follows: Three Months Ended Six Months Ended (In millions, except per share amounts) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Income (loss) from continuing operations $ 333 $ 166 $ 514 $ 315 Income (loss) from discontinued operations — ( 102 ) — ( 133 ) Net income $ 333 $ 64 $ 514 $ 182 Income (loss) per share - basic: Continuing operations $ 0.57 $ 0.28 $ 0.88 $ 0.53 Discontinued operations $ — $ ( 0.17 ) $ — $ ( 0.23 ) Net income per share - basic (1) $ 0.57 $ 0.11 $ 0.88 $ 0.31 Income (loss) per share - diluted: Continuing operations $ 0.56 $ 0.28 $ 0.87 $ 0.52 Discontinued operations $ — $ ( 0.17 ) $ — $ ( 0.22 ) Net income per share - diluted $ 0.56 $ 0.11 $ 0.87 $ 0.30 Weighted-average shares outstanding - basic 582 592 581 591 Dilutive potentially issuable shares: Convertible debt 7 5 7 13 Employee equity awards 2 3 3 3 Weighted-average shares outstanding - diluted 591 600 591 607 Anti-dilutive shares excluded from diluted net income per share calculation: Employee equity awards 1 — 1 1 Total 1 — 1 1 (1) Net income per share amounts may not add due to rounding. Under the treasury stock method, our convertible debt instruments will generally have a dilutive impact on net income per share when our average stock price for the period exceeds the conversion prices for the convertible debt instruments. The 2.0 % Convertible Notes and New 2.5 % Convertible Senior Notes were fully repaid on May 26, 2020 and May 13, 2021, respectively. The conversion price of each convertible debt instrument applicable in the periods presented is as follows: Three Months Ended Six Months Ended October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 2.0 % Convertible Senior Notes due August 15, 2022 N/A N/A N/A $ 10.23 New 2.5 % Convertible Senior Notes due April 1, 2022 N/A $ 16.77 N/A $ 16.77 New 2.0 % Convertible Senior Notes due August 15, 2022 $ 20.41 $ 20.41 $ 20.41 $ 20.41 Note 17. Segment and Geographic Information We operate as one reportable segment. Our Chief Operating Decision Maker reviews financial information presented on a consolidated basis to evaluate company performance and to allocate resources. The following table summarizes net revenues for our major solutions: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Consumer security $ 415 $ 370 $ 827 $ 733 Identity and information protection 277 256 551 507 Total net revenues $ 692 $ 626 $ 1,378 $ 1,240 Consumer security products include our Norton 360 Security offerings, Norton Security, Norton Secure VPN, Avira Security, and other consumer security solutions. Identity and information protection products include our Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection solutions. 23 Table of Contents Geographic information Net revenues by geography are based on the billing addresses of our customers. The following table represents net revenues by geographic area for the periods presented: Three Months Ended Six Months Ended (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Americas $ 485 $ 450 $ 962 $ 898 EMEA 125 98 252 194 APJ 82 78 164 148 Total net revenues $ 692 $ 626 $ 1,378 $ 1,240 Note: The Americas include U.S., Canada and Latin America; EMEA includes Europe, Middle East and Africa; APJ includes Asia Pacific and Japan. Revenues from customers inside the U.S. were $ 460 million and $ 916 million during the three and six months ended October 1, 2021, respectively, and $ 428 million and $ 855 million during the three and six months ended October 2, 2020, respectively. No other individual country accounted for more than 10% of revenues. The table below represents cash, cash equivalents and short-term investments held in the U.S. and internationally in various foreign subsidiaries. (In millions) October 1, 2021 April 2, 2021 U.S. $ 1,003 $ 536 International 538 415 Total cash, cash equivalents and short-term investments $ 1,541 $ 951 The table below represents our property and equipment, net of accumulated depreciation and amortization, by geographic area, based on the physical location of the asset, at the end of each period presented. (In millions) October 1, 2021 April 2, 2021 U.S. $ 20 $ 28 Ireland 30 32 Germany 14 14 Other countries 3 4 Total property and equipment, net $ 67 $ 78 Our operating lease assets by geographic area, based on the physical location of the asset, at the end of each period presented, are as follows: (In millions) October 1, 2021 April 2, 2021 U.S. $ 84 $ 55 India 6 9 Other countries (1) 3 12 Total operating lease assets $ 93 $ 76 (1) No other individual country represented more than 10% of the respective totals. Significant customers No customer accounted for 10% or more of our net revenues during the six months ended October 1, 2021 and October 2, 2020. Customers that accounted for over 10% of our net accounts receivable were as follows: October 1, 2021 April 2, 2021 Customer A 47 % 46 % Customer B 13 % N/A 24 Table of Contents Note 18. Commitments and Contingencies Indemnifications In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In addition, our bylaws contain indemnification obligations to our directors, officers, employees, and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements, and we have not accrued any material liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements. In connection with the sale of Veritas and the sale of our Enterprise Security business to Broadcom, we assigned several leases to Veritas Technologies LLC or Broadcom and/or their related subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC, Broadcom, or their related subsidiaries’ breach of payment obligations under the terms of the lease. As with our other indemnification obligations discussed above and in general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses, and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements. We provide limited product warranties, and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred. Litigation contingencies SEC Investigation As previously disclosed in our public filings, the Audit Committee of our Board of Directors (the Audit Committee) completed its internal investigation (the Audit Committee Investigation) in September 2018. In connection with the Audit Committee Investigation, we voluntarily contacted the U.S. Securities and Exchange Commission (SEC) in April 2018. The SEC commenced a formal investigation, and we continue to cooperate with that investigation. The outcome of such an investigation is difficult to predict. We have incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with the SEC investigation. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the SEC’s investigation or estimate the range of any potential loss. Securities Class Action and Derivative Litigation Securities class action lawsuits, which have since been consolidated, were filed in May 2018 against us and certain of our former officers, in the U.S. District Court for the Northern District of California. The lead plaintiff’s consolidated amended complaint alleged that, during a purported class period of May 11, 2017 to August 2, 2018, defendants made false and misleading statements in violation of Sections 10(b) and 20(a), and that certain individuals violated Section 20A, of the Securities Exchange Act. Defendants filed motions to dismiss, which the Court granted in an order dated June 14, 2019. Pursuant to that order, plaintiff filed a motion seeking leave to amend and a proposed first amended complaint on July 11, 2019. The Court granted the motion in part on October 2, 2019 and the first amended complaint was filed on October 11, 2019. The Court’s order dismissed certain claims against certain of our former officers. Defendants filed answers on November 7, 2019. On April 20, 2021, to resolve an alleged conflict of interest raised with respect to the lead plaintiff and its counsel, the Court ordered a second Class Notice disclosing the circumstances of the alleged conflict and providing a further period for class members to opt out, which closed on July 2, 2021. The initial class opt out period closed on August 25, 2020. On May 24, 2021, the parties reached a proposed settlement and release of all claims in the class action, for $ 70 million, and on June 8, 2021, the parties executed a Stipulation and Agreement of Settlement, subject to Court approval and exclusive of any claims that may be brought by shareholders who opted out of the class action. Of the $ 70 M, $ 67.1 million was covered under the applicable insurance policy with the remainder to be paid by the Company. On July 6, 2021, the plaintiff filed its Motion for Preliminary Settlement Approval and the Court preliminary approved the settlement on September 12, 2021. The Court also ordered an additional opt-out period extending until January 13, 2022. The Settlement Fairness Hearing is set for February 12, 2022. Purported shareholder derivative lawsuits have been filed against us and certain of our former officers and current and former directors in the U.S. District Courts for the District of Delaware and the Northern District of California, Delaware Chancery Court, and Delaware Superior Court, arising generally out of the same facts and circumstances as alleged in the securities class action and alleging claims for breach of fiduciary duty and related claims; these lawsuits include an action brought derivatively on behalf 25 Table of Contents of our 2008 Employee Stock Purchase Plan. The derivative actions are currently voluntarily stayed in light of the securities class action. No specific amount of damages has been alleged in these lawsuits. We have also received demands from purported stockholders to inspect corporate books and records under Delaware law. We will continue to incur legal fees in connection with these pending cases and demands, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we will be successful in any defense. If any of the lawsuits are decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations, and cash flows. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the derivative lawsuits or estimate the range of any potential loss. GSA During the first quarter of fiscal 2013, we were advised by the Commercial Litigation Branch of the Department of Justice’s (DOJ) Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the government is investigating our compliance with certain provisions of our U.S. General Services Administration (GSA) Multiple Award Schedule Contract No. GS-35F-0240T effective January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices. As reported on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $ 222 million from the period beginning January 2007 and ending September 2012. We fully cooperated with the government throughout its investigation, and in January 2014, representatives of the government indicated that their initial analysis of our actual damages exposure from direct government sales under the GSA Schedule contract was approximately $ 145 million; since the initial meeting, the government’s analysis of our potential damages exposure relating to direct sales has increased. The government also indicated they would pursue claims for certain sales to California, Florida, and New York as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure. In 2012, a sealed civil lawsuit was filed against us related to compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the lawsuit. On September 16, 2014, the states of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the DOJ filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the DOJ and the relator on behalf of New York in an Omnibus Complaint, and a First Amended Omnibus Complaint was filed on October 8, 2015; the state claims also do not state specific damages amounts. On June 6, 2019, we filed a motion seeking summary judgment on all claims asserted by all plaintiffs, and the plaintiffs filed a motion for partial summary judgment on elements of liability on their claims. On October 21, 2019, the DOJ moved for a Prejudgment Writ of Sequestration for the Company to set aside $ 1,090 million to pay a judgment, should the United States prevail in this litigation, under the Federal Debt Collection Procedures Act. The Writ was sought in response to the Company’s announcement of its plans to distribute the after-tax proceeds of the sale of the Symantec enterprise business to Broadcom to its shareholders via a special dividend. The Court denied the Writ on December 12, 2019, on the basis of the Government’s failure to establish the “probable validity” of the debt, the amount sought to be sequestered, and the Company’s available cash, cash equivalents and short-term investments. The Court permitted the DOJ limited discovery of facts relevant to the Company’s financial state and financial projections and the option to renew its motion if appropriate and supported by the analysis of its own financial expert. That discovery period has now closed. On March 30, 2020, the Court issued an Order granting in part and denying in part our motion for summary judgment and granting in part and denying in part the United States’ motion for partial summary judgment. On September 30, 2020, the Company filed a Motion for Reconsideration of certain rulings in the Court’s March 30 Summary Judgment Order. A second Motion for Reconsideration of certain rulings in the Summary Judgement Order based on significant change in the law was filed on July 23, 2021. Both Motions for Reconsideration were denied. Court ordered mediations in July 2020 and February 2021 were not successful. The trial date has now been continued until February 28, 2022. On March 23, 2021, Plaintiffs withdrew their demand for a jury trial and the Company consented to proceed with a bench trial. On May 13, 2021, we reached a settlement in principle with the State of Florida to resolve all claims it asserted in the litigation for $ 0.5 million. The issue of relator’s statutory attorney’s fees with respect to the State of Florida’s claims remains unresolved. At this time, our current estimate of the low end of the range of probable estimated losses from this matter is $ 50 million, inclusive of the settlement with the State of Florida, which we have accrued. It is possible that the litigation could lead to claims or findings of violations of the False Claims Act and could be material to our results of operations and cash flows for any period. Resolution of False Claims Act investigations can ultimately result in the payment of somewhere between one and three times the actual damages proven by the government, plus civil penalties. There is at least a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter. Holden v. NortonLifeLock On February 8, 2021, Lauren Holden filed a putative class action in the Circuit Court for Duval County, Florida alleging that the Company violated the Florida wiretapping statute, Florida Security of Communications Act, Fla. Stat. Ann. § 934.01, et. seq., through the use of session replay technology on www.us.norton.com. The complaint defines the class as consisting of Florida residents who visited the website and whose electronic communications were alleged to have been intercepted by the Company without prior consent and, on behalf of the class, seeks statutory damages, attorney’s fees and costs, and injunctive relief. On 26 Table of Contents March 12, 2021, the Company removed the case to the District Court for the Middle District of Florida and filed its Answer and Affirmative Defenses to the complaint. The Company then filed a Motion for Judgment on the Pleadings on April 20, 2021. On April 29, 2021, Plaintiff filed a Motion for Leave to File an Amended Complaint. On July 22, 2021, the Court granted Plaintiff leave to file an amended complaint and deemed the Motion for Judgment on the Pleadings moot. On August 5, 2021, the Company filed a Motion to Dismiss the First Amended Complaint. On September 9, 2021, the Plaintiff filed a Notice of Voluntary Dismissal Without Prejudice and the Court entered an Order on September 16, 2021, dismissing the case without prejudice. Other We are involved in a number of other judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it is not possible to estimate the possible loss or losses from each of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on our business, results of operations, financial condition or cash flows.