What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-04 compared with 2021-11-08 · 100 added, 96 removed, 238 unchanged (45% of the section changed)

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

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

the consummation of or anticipated impacts of acquisitions (including the recent acquisition of Avira and the Proposed Merger with Avast and related financing), divestitures, restructurings, stock repurchases, and investment activities;

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

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

The three and six months ended October 1, 2021 and October 2, 2020 each consisted of 13 and 26 weeks, respectively.

The three and nine months ended December 31, 2021 and January 1, 2021 each consisted of 13 and 39 weeks, respectively.

Our 2022 fiscal year consists of 52 weeks and ends on April 1, 2022.

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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 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended Nine Months Ended

(In millions, except for per share amounts) December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Net revenues $ 702 $ 639 $ 2,080 $ 1,879

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Net cash provided by (used in) operating activities $ 330 $ 293 $ 648 $ 350

(In millions) October 1, 2021 April 2, 2021

(In millions) December 31, 2021 April 2, 2021

Cash, cash equivalents and short-term investments $ 1,781 $ 951

Contract liabilities $ 1,257 $ 1,265

Below are our financial highlights for the second quarter of fiscal 2022, compared to the corresponding period in the prior year:

Below are our financial highlights for the third quarter of fiscal 2022, compared to the corresponding period in the prior year:

• Net revenues increased $63 million, due to higher sales in both our consumer security products and our identity and information protection products.

This was driven by an increase in our direct customer count year-over-year and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.

• Operating income increased $57 million, primarily due to the increase in revenue, partially offset by an increase in related cost of revenue, and the decrease in restructuring costs for which the related activities were completed in fiscal 2021 and continued general and administrative efficiencies.

The increase was also partially offset by our investment in advertising during fiscal 2022.

• Income (loss) from continuing operations increased $167 million, primarily due to the increase in operating income partially offset by an increase in income tax expense.

• Income (loss) from discontinued operations, net of tax, decreased from a loss of $102 million, primarily due to the completion of the discontinued operations activities during fiscal 2021.

• Net income increased $269 million and net income per share increased $0.45, primarily due to the increase in income from continuing operations discussed above, partially offset by the $35 million increase in income tax expense.

Below are our financial highlights for the first six months of fiscal 2022, compared to the corresponding period in the prior year:

• Operating income increased $22 million, primarily due to the increase in revenue, partially offset by an increase in related cost of revenue and our investment in advertising during fiscal 2022.

• Income (loss) from continuing operations increased $29 million, primarily due to the increase in operating income partially offset by a decrease in income tax expense.

• Net income increased $24 million and net income per share - diluted increased $0.04, due to the increase in income from continuing operations discussed above.

Below are our financial highlights for the first nine months of fiscal 2022, compared to the corresponding period in the prior year:

• Net revenues increased $201 million, due to higher sales in both our consumer security products and our identity and information protection products.

This was driven by an increase in our direct customer count year-over-year and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.

• Operating income increased $224 million, primarily due to the increase in revenue, partially offset by an increase in related cost of revenue, the decrease in restructuring costs for which the related activities were completed in fiscal 2021 and continued general and administrative efficiencies.

The increase was also partially offset by our investment in advertising during fiscal 2022.

• Operating income increased $246 million, primarily due to the increase in revenue, the decrease in restructuring costs for which the related activities were completed in fiscal 2021 and continued general and administrative efficiencies.

This is partially offset by an increase in related cost of revenue and our investment in advertising during fiscal 2022.

• Income (loss) from continuing operations increased $228 million, primarily due to the increase in operating income partially offset by an increase in income tax expense.

• Income (loss) from discontinued operations, net of tax, decreased from a loss of $133 million, primarily due to the completion of the discontinued operations activities during fiscal 2021.

• Net income increased $332 million and net income per share increased $0.57, primarily due to the increase in income from continuing operations discussed above, partially offset by the 156 million increase in income tax expense.

• Cash, cash equivalents and short-term investments increased by $590 million compared to April 2, 2021, primarily due to cash generated by operations during the first six months of fiscal 2022 and proceeds from sale of certain Mountain View, California properties.

• Income (loss) from discontinued operations, net of tax, increased from a loss of $128 million, primarily due to the completion of the discontinued operations activities during fiscal 2021.

• Net income increased $356 million and net income per share increased $0.61, primarily due to the increase in income from continuing operations discussed above.

• Cash, cash equivalents and short-term investments increased by $830 million compared to April 2, 2021, primarily due to cash generated by operations during the first nine months of fiscal 2022 and proceeds from sale of certain Mountain View, California properties.

• Contract liabilities were relatively flat compared to April 2, 2021.

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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.

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 (the Interim Facility B), (ii) $750 million term loan interim facility A1 (the Interim Facility A1) and $3,500 million term loan interim facility A2 (the Interim Facility A2), and (iii) a $1,500 million interim revolving facility (the Interim Revolving Facility) (collectively, the Interim Facilities) and a commitment letter (as amended, the Commitment Letter) with certain financial institutions, in which they agreed to provide us with financing no less than the financing available under the Interim Facilities (the Definitive Facilities and, together with the Interim Facilities, the Facilities) to finance the cash consideration payable in connection with the Proposed Merger.

The Definitive Facilities will be financed by a syndicate of lenders led by Bank of America, N.A.

and Wells Fargo Bank N.A.

On January 28, 2022, the syndication of the Definitive Facilities by lenders under the Commitment Letter was finalized with repriced commitments, which provided for an incremental increase of $500 million under our Interim Facilities and increased Interim Facility B to $3,690 million and Interim Facility A2 to $3,910 million.

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.

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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.

The Proposed Merger has been approved by our Board of Directors and shareholders and the Board of Directors and shareholders of Avast.

As previously reported in our Form 8-K dated November 15, 2021, the waiting period under the HSR Act in connection with the Proposed Merger expired at 11:59 P.M.

on November 12, 2021.

The Proposed Merger is currently expected to close on February 24, 2022, subject to regulatory approvals and the satisfaction or waiver of other customary closing conditions.

COVID-19 UPDATE

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A prolonged 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, 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 new variants of the disease, the extent, effectiveness and acceptance of containment actions, such as vaccination programs, and the impact of these and other factors on our employees, customers, partners and third-party service providers.

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 2, 2021.

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 1, 2021.

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 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended Nine Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Net revenues 100 % 100 % 100 % 100 %

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Percentages may not add due to rounding.

Three Months Ended Six Months Ended

(In millions, except for percentages) October 1, 2021 October 2, 2020 Change in % October 1, 2021 October 2, 2020 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 31, 2021 January 1, 2021 Change in % December 31, 2021 January 1, 2021 Change in %

Net revenues $ 702 $ 639 10 % $ 2,080 $ 1,879 11 %

Three Months Ended October 1, 2021 Compared with Three Months Ended October 2, 2020

Three Months Ended December 31, 2021 Compared with Three Months Ended January 1, 2021

Net revenues increased $63 million, due to a $40 million increase in sales of our consumer security products and a $23 million increase in sales of our identity and information protection products.

This was driven by an increase in our direct customer count year-over-year and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.

Six Months Ended October 1, 2021 Compared with Six Months Ended October 2, 2020

Nine Months Ended December 31, 2021 Compared with Nine Months Ended January 1, 2021

Net revenues increased $201 million, due to a $134 million increase in sales of our consumer security products and a $67 million increase in sales of our identity and information protection products.

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Three Months Ended

(In millions, except for per user amounts) October 1, 2021 October 2, 2020

(In millions, except for per user amounts) December 31, 2021 January 1, 2021

Direct customer revenues (1)

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$ 8.87 $ 9.10

(1) Direct customer revenues during the three months ended October 1, 2021 excludes a $3 million reduction of revenue from a contract liability purchase accounting adjustment.

(1) Direct customer revenues during the three months ended December 31, 2021 excludes a $2 million reduction of revenue from a contract liability purchase accounting adjustment.

We believe that eliminating the impact of this adjustment improves the comparability of revenues between periods.

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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.

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

We exclude users on free trials and users who have indirectly purchased our product or services through partners unless such users convert or renew their subscription directly with us, or sign up for a paid membership through our web store.

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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Net revenues by geographical region

Three Months Ended Six Months Ended

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended Nine Months Ended

December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Americas 70 % 72 % 70 % 72 %

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APJ includes Asia Pacific and Japan.

Percentage of revenue by geographic region in the three and six months ended October 1, 2021 remains primarily in the Americas but is beginning to shift into the international markets, which is consistent with our stated strategy.

Percentage of revenue by geographic region in the three and nine months ended December 31, 2021 remains primarily in the Americas but is beginning to shift into the international markets, which is consistent with our stated strategy.

Cost of revenues

Three Months Ended Six Months Ended

(In millions, except for percentages) October 1, 2021 October 2, 2020 Change in % October 1, 2021 October 2, 2020 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 31, 2021 January 1, 2021 Change in % December 31, 2021 January 1, 2021 Change in %

Cost of revenues $ 105 $ 87 21 % $ 307 $ 263 17 %

Three Months Ended October 1, 2021 Compared with Three Months Ended October 2, 2020

Our cost of revenues increased $10 million, primarily due to higher revenue share costs, payment processing fees and technical support costs associated with year-over-year business growth.

Six Months Ended October 1, 2021 Compared with Six Months Ended October 2, 2020

Our cost of revenues increased $26 million, primarily due to higher revenue share costs, payment processing fees and technical support costs associated with year-over-year business growth.

Three Months Ended December 31, 2021 Compared with Three Months Ended January 1, 2021

Our cost of revenues increased $18 million, primarily due to higher revenue share costs, payment processing fees, technical support costs associated with year-over-year business growth and costs attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.

Nine Months Ended December 31, 2021 Compared with Nine Months Ended January 1, 2021

Our cost of revenues increased $44 million, primarily due to higher revenue share costs, payment processing fees, technical support costs associated with year-over-year business growth and costs attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.

Operating expenses

Three Months Ended Six Months Ended

(In millions, except for percentages) October 1, 2021 October 2, 2020 Change in % October 1, 2021 October 2, 2020 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 31, 2021 January 1, 2021 Change in % December 31, 2021 January 1, 2021 Change in %

Sales and marketing $ 160 $ 140 14 % $ 466 $ 428 9 %

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Total operating expenses $ 295 $ 272 8 % $ 897 $ 986 (9) %

Three Months Ended October 1, 2021 Compared with Three Months Ended October 2, 2020

Sales and marketing expense increased $7 million, primarily due to a $17 million increase in advertising and promotional expenses as a result of increased investment in advertising.

This is partially offset by a $6 million decrease in IT and related support costs from corporate restructuring and cost reduction efforts in fiscal 2021.

Research and development expense increased $3 million, primarily due to an increase in compensation and benefits as a result of the Avira acquisition.

General and administrative expense decreased $5 million, primarily due to IT asset restructuring and write-offs in connection with our November 2019 restructuring plan (the November 2019 Plan) as well as a decrease in outside services.

Amortization of intangible assets increased by $3 million as a result of the Avira acquisition.

Restructuring and other costs decreased $9 million, in connection with the November 2019 Plan, which was substantially completed in the second quarter of fiscal 2021.

Three Months Ended December 31, 2021 Compared with Three Months Ended January 1, 2021

Sales and marketing expense increased $20 million, primarily due to a $21 million increase in advertising and promotional expenses as a result of increased investment in advertising, partially offset by a $6 million decrease in IT and related support costs from corporate restructuring and cost reduction efforts in fiscal 2021.

Research and development expense decreased $11 million, primarily due to a decrease in compensation and benefits, as a result of decreased stock based compensation, and shared facility and IT costs.

General and administrative expense remained consistent, primarily due to a decrease in compensation and benefits which was offset by an increase in outside services and occupancy expense.

Amortization of intangible assets increased $3 million primarily as a result of the Avira acquisition.

Restructuring and other costs increased $11 million, in connection with the December 2020 Plan.

See Note 12 of the Notes to the Condensed Consolidated Financial Statements for details of the fiscal 2022 restructuring activities.

Six Months Ended October 1, 2021 Compared with Six Months Ended October 2, 2020

Nine Months Ended December 31, 2021 Compared with Nine Months Ended January 1, 2021

Sales and marketing expense increased $38 million, primarily due to a $57 million increase in advertising and promotional expenses as a result of increased investment in advertising.

This is partially offset by a $15 million decrease in IT costs from corporate restructuring and cost reduction efforts in fiscal 2021.

Research and development expense increased $6 million, primarily due to a $18 million increase in compensation and benefits primarily as a result of the Avira acquisition.

This partially offset by a $8 million decrease in shared facility and IT costs.

Research and development expense remained consistent, primarily due to a $13 million decrease in shared facility and IT costs partially offset by a $14 million increase in compensation and benefits primarily as a result of the Avira acquisition.

General and administrative expense decreased $13 million, primarily due to IT asset restructuring and write-offs in connection with our November 2019 restructuring plan (the November 2019 Plan) as well as a decrease in outside services and compensation and benefits.

Amortization of intangible assets increased by $6 million as a result of the Avira acquisition.

Amortization of intangible assets increased $9 million primarily as a result of the Avira acquisition.

Restructuring and other costs decreased $118 million, in connection with the November 2019 Plan, which was substantially completed in the second quarter of fiscal 2021.

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Non-operating income (expense), net

Three Months Ended Six Months Ended

(In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended Nine Months Ended

(In millions) December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Interest expense $ (32) $ (32) $ (95) $ (109)

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Total non-operating income (expense), net $ (41) $ (27) $ 70 $ (47)

Three Months Ended October 1, 2021 Compared with Three Months Ended October 2, 2020

Non-operating income (expense), net, increased by $145 million in expense, primarily due to a $175 million gain on the sale of certain land and buildings in Mountain View, California during the second quarter of fiscal 2022 compared to the gain on sale of our Culver City property in the second quarter of fiscal 2021.

Six Months Ended October 1, 2021 Compared with Six Months Ended October 2, 2020

Non-operating income (expense), net, increased by $131 million in expense, primarily due to a $175 million gain on the sale of certain land and buildings in Mountain View during the second quarter of fiscal 2022 compared to the gain on sale of our Culver City property in the second quarter of fiscal 2021.

This is partially offset by the absence of gain on early extinguishment of debt of $20 million during the first quarter of fiscal 2021, which was partially offset by a $3 million loss on the amendment and extension of our credit facility and a $2 million loss on early extinguishment of our $250 million New 2.5% Convertible Notes during the first quarter of fiscal 2022.

Three Months Ended December 31, 2021 Compared with Three Months Ended January 1, 2021

Non-operating income (expense), net, decreased by $14 million in expense, due to a $9 million impairment of long term assets primarily associated with our equity investments which are measured at cost minus impairment.

Nine Months Ended December 31, 2021 Compared with Nine Months Ended January 1, 2021

Non-operating income (expense), net, increased by $117 million, primarily due to a $175 million gain on the sale of certain land and buildings in Mountain View during the second quarter of fiscal 2022 compared to the gain on sale of our Culver City property in the second quarter of fiscal 2021.

This is partially offset by a $9 million impairment of long term assets primarily

associated with one of our equity investments which is measured at cost minus impairment as well as the absence of gain on early extinguishment of debt of $20 million during the first quarter of fiscal 2021.

Provision for income taxes

Three Months Ended Six Months Ended

(In millions, except for percentages) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Income (loss) from continuing operations before income taxes $ 261 $ 253 $ 946 $ 583

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Effective tax rate 23 % 32 % 24 % 16 %

Our effective tax rate for income 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.

Our effective tax rate for income for the three and nine months ended December 31, 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.

Our effective tax rate for the three months ended January 1, 2021 differs from the federal statutory income tax rate primarily due to state taxes and U.S.

taxation on foreign earnings, partially offset by the benefits of lower-tax international earnings and stock-based compensation.

Our effective tax rate 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, state taxes and U.S.

taxation on foreign earnings, partially offset by the benefits of lower-tax international earnings, a favorable withholding tax ruling in Japan and stock-based compensation.

We are a U.S.-based multinational company subject to tax in multiple U.S.

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Cash and cash equivalents

As of October 1, 2021, we had cash, cash equivalents and short-term investments of $1,541 million, of which $538 million was held by our foreign subsidiaries.

As of December 31, 2021, we had cash, cash equivalents and short-term investments of $1,781 million, of which $644 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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On May 7, 2021, we entered into the first amendment to our credit agreement (the First Amendment), which provided for an incremental increase under the Initial Term Loan, and extended the maturity date of the Initial Term Loan, the Delayed Draw Term Loan, and revolving credit facility from November 2024 to May 2026.

We borrowed $525 million under the First Amendment of

our Initial Term Loan.

We borrowed $525 million under the First Amendment of our Initial Term Loan.

For additional discussion on the amendment, see Note 10 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

On May 20, 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.

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.

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In conjunction with the Proposed Merger, we and certain financial institution parties entered into an Interim Facilities Agreement, under which Bank of America, N.A.

and Wells Fargo Bank N.A., as interim lenders, agreed to provide us with certain term loan and revolving facilities in order to finance the cash consideration payable and based on the terms and conditions set forth in a commitment letter.

The Interim Facilities Agreement includes (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) which, on or before the final repayment date, are to be repaid/replaced in full by loans made under the definitive financing documentation for the Facilities Agreement.

The obligations under the Facilities Agreement will be guaranteed, jointly and severally, by all of our present and future domestic subsidiaries, with certain exceptions, as applicable.

The Interim Facilities Agreement will replace the existing credit facility agreement upon the close of the transaction.

The Interim Facilities Agreement includes (i) Interim Facility B, (ii) Interim Facility A1 and Interim Facility A2, and (iii) Interim Revolving Facility which, on or before the final repayment date, are to be repaid/replaced in full by loans made under the definitive financing documentation for the Facilities.

The obligations under the Interim Facilities Agreement will be guaranteed, jointly and severally, by all of our present and future domestic subsidiaries, with certain exceptions, as applicable.

Definitive financing documentation entered into connection with the Commitment Letter will replace the existing credit facility agreement upon the close of the transaction.

Sale of certain assets

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The following summarizes our cash flow activities:

Six Months Ended

(In millions) October 1, 2021 October 2, 2020

Nine Months Ended

(In millions) December 31, 2021 January 1, 2021

Net cash provided by (used in):

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Cash from operating activities

Our cash flows provided by operating activities increased by $261 million, primarily due to higher profit before taxes adjusted by non-cash items and a decrease in tax payments compared to the first six months of fiscal 2021.

Our cash flows provided by operating activities increased by $298 million, primarily due to higher profit before taxes adjusted by non-cash items compared to the first nine months of fiscal 2021.

Cash from investing activities

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Our cash flows used in financing activities decreased $1,542 million, primarily due to $512 million of proceeds from the issuance of our Initial Term Loan and decreases in repayments of debt and payments of dividends and dividend equivalents.

The first six months of fiscal 2022 reflects the settlement of our New 2.5% Convertible Notes of $364 million and payment of dividends and dividend equivalents of $157 million, compared to the settlement of our 2.0% Convertible Notes and repayment of our 4.2% Senior Notes of $1,929 million and payment of dividends and dividend equivalents of $187 million during the first six months of fiscal 2021.

Dividend equivalents paid during the first six months of fiscal 2021 included a larger portion of awards released that were entitled to the special $12 dividend declared in fiscal 2020.

The first nine months of fiscal 2022 reflects the settlement of our New 2.5% Convertible Notes of $364 million and payment of dividends and dividend equivalents of $230 million, compared to the settlement of our 2.0% Convertible Notes and repayment of our 4.2% Senior Notes of $1,929 million and payment of dividends and dividend equivalents of $300 million during the first nine months of fiscal 2021.

Dividend equivalents paid during the first nine months of fiscal 2021 included a larger portion of awards released that were entitled to the special $12 dividend declared in fiscal 2020.

Cash Requirements

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

As of December 31, 2021, our total outstanding principal amount of indebtedness is summarized as follows.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information on our debt.

(In millions) October 1, 2021

(In millions) December 31, 2021

Term Loans $ 1,723

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The credit agreement we entered into in November 2019, which was amended and extended through May 2026 on May 7, 2021, 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 1, 2021, we were in compliance with all debt covenants.

As of December 31, 2021, we were in compliance with all debt covenants.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding financial ratios and debt covenant compliance

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

On February 3, 2022, we announced the declaration of a cash dividend of $0.125 per share of common stock to be paid in March 2022.

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

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On May 4, 2021, our Board of Directors approved an incremental share repurchase authorization of $1,500 million.

No shares were repurchased during the six months ended October 1, 2021.

As of October 1, 2021, the remaining balance of our stock repurchase authorization was $1,774 million and does not have an expiration date.

No shares were repurchased during the nine months ended December 31, 2021.

As of December 31, 2021, the remaining balance of our stock repurchase authorization was $1,774 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.

Restructuring.

Under our restructuring plans approved by our Board of Directors in December 2020, we have incurred cash expenditures primarily for severance and termination benefits.

As of October 1, 2021, we estimate remaining costs of up to $3 million in connection with the December 2020 Plan.

During the six months ended October 1, 2021, we made $7 million in cash payments related to the December 2020 Plan.

Under our restructuring plan approved by our Board of Directors in December 2020, we have incurred cash expenditures primarily for severance and termination benefits.

As of December 31, 2021, we estimate remaining costs of up to $1 million in connection with the December 2020 Plan.

During the nine months ended December 31, 2021, we made $7 million in cash payments related to the December 2020 Plan.

Actions under the December 2020 Plan are expected to be completed in fiscal 2022.

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Our principal commitments consist of principal and interest payments related to our debt instruments, obligations under our purchase agreements, repatriation tax payments under the Tax Cuts and Jobs Acts and obligations under various non-cancellable 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 1, 2021, 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 December 31, 2021, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $571 million in long-term income taxes payable has been excluded from our quarterly review of timing of contractual obligations.

Commitments related to the principal payments of our debt instruments increased $235 million from our Annual Report on Form 10-K for the fiscal year ended April 2, 2021 primarily due to additional borrowings under our Initial Term Loan, partially offset by the repayment of our New 2.5% Convertible Notes.

In addition, commitments related to repatriation tax payments under the Tax Cuts and Jobs Acts decreased $88 million from our fiscal year ended April 2, 2021 due to adjustments and payments made during the six months ended October 1, 2021.

Commitments related to repatriation tax payments under the Tax Cuts and Jobs Acts decreased $88 million from our fiscal year ended April 2, 2021 due to adjustments and payments made during the nine months ended December 31, 2021.

In addition, obligations under our purchase agreements decreased $83 million from our fiscal year ended April 2, 2021 due to billings for actual services rendered during the nine months ended December 31, 2021.

There have been no other material changes, outside the ordinary course of business, to the contractual obligations reported in our Annual Report.

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Business Combinations.

Under the terms of the Proposed Merger, we expect to pay a purchase price for the Avast shares ranging from $8.1 billion to $8.6 billion upon the completion of the transaction in mid-calendar year 2022.

Under the terms of the Proposed Merger, we expect to pay a purchase price for the Avast shares ranging from $8.1 billion to $8.6 billion upon the completion of the transaction, which is currently expected to occur on February 24, 2022.

In conjunction with the Proposed Merger, we have secured debt under the Interim Facilities which will be available upon the close of the transaction.

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We plan to finance the cash consideration payable to Avast primarily with borrowings under our Interim Facilities.

We believe that our existing cash and cash to be generated by operations, along with amounts available under the new credit facility, will satisfy our long-term cash requirements for this transaction.

However, our future liquidity and capital requirements may vary materially from those as of October 1, 2021 depending on several factors, including, but not limited to, economic conditions;

expansion of sales and marketing activities;

We believe that our existing cash and cash to be generated by operations, along with amounts available under the new credit facility,

will satisfy our long-term cash requirements for this transaction.

However, our future liquidity and capital requirements may vary materially from those as of December 31, 2021 depending on several factors, including, but not limited to, economic conditions;

the expansion of sales and marketing activities;

the costs to acquire or invest in businesses;

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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 2022, 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 2, 2021.

There have been no significant changes to our market risk exposures during the first nine months of fiscal 2022, 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 2, 2021.

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