What changed in this filing

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Item 1. Financial Statements

2022-08-05 compared with 2022-02-04 · 250 added, 426 removed, 499 unchanged (58% of the section changed)

Financial Statements

Financial Statements (Unaudited)

NORTONLIFELOCK INC.

1 unchanged sentence

(Unaudited, in millions, except par value per share amounts)

December 31, 2021 April 2, 2021

July 1, 2022 April 1, 2022

Current assets:

31 unchanged sentences

3,000 shares authorized;

582 and 580 shares issued and outstanding as of December 31, 2021 and April 2, 2021, respectively

Accumulated other comprehensive income 22 47

571 and 580 shares issued and outstanding as of July 1, 2022 and April 1, 2022, respectively

Accumulated other comprehensive income (loss) ( 44 ) ( 4 )

Retained earnings (accumulated deficit) ( 1,734 ) ( 1,940 )

5 unchanged sentences

(Unaudited, in millions, except per share amounts)

Three Months Ended Nine Months Ended

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

Three Months Ended

July 1, 2022 July 2, 2021

Net revenues $ 707 $ 686

6 unchanged sentences

Amortization of intangible assets 21 21

Restructuring, transition and other costs 12 1 24 142

Restructuring and other costs 2 7

Total operating expenses 344 297

Operating income 302 280 876 630

Operating income (loss) 261 287

Interest expense ( 31 ) ( 32 )

Other income (expense), net ( 1 ) ( 3 )

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

Income (loss) before income taxes 229 252

Income tax expense (benefit) 29 71

Income (loss) from continuing operations 202 173 716 488

Income (loss) from discontinued operations — 5 — ( 128 )

Net income $ 202 $ 178 $ 716 $ 360

Income (loss) per share - basic:

Continuing operations $ 0.35 $ 0.29 $ 1.23 $ 0.83

Discontinued operations $ — $ 0.01 $ — $ ( 0.22 )

Net income per share - basic $ 0.35 $ 0.30 $ 1.23 $ 0.61

Income (loss) per share - diluted:

Continuing operations $ 0.34 $ 0.29 $ 1.21 $ 0.81

Discontinued operations $ — $ 0.01 $ — $ ( 0.21 )

Net income per share - diluted $ 0.34 $ 0.30 $ 1.21 $ 0.60

Net income (loss) $ 200 $ 181

Net income (loss) per share - basic $ 0.35 $ 0.31

Net income (loss) per share - diluted $ 0.33 $ 0.31

Weighted-average shares outstanding:

582 593 581 591

591 597 591 604

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

NORTONLIFELOCK INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHEN SIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHEN SIVE INCOME (LOSS)

(Unaudited, in millions)

Three Months Ended Nine Months Ended

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

Net income $ 202 $ 178 $ 716 $ 360

Other comprehensive income, net of taxes:

Three Months Ended

July 1, 2022 July 2, 2021

Net income (loss) $ 200 $ 181

Other comprehensive income (loss), net of taxes:

Foreign currency translation adjustments ( 40 ) 2

Net unrealized gain (loss) on available-for-sale securities — ( 1 ) — —

Other comprehensive income, net of taxes ( 12 ) 36 ( 25 ) 74

Comprehensive income $ 190 $ 214 $ 691 $ 434

Other comprehensive income (loss), net of taxes ( 40 ) 2

Comprehensive income (loss) $ 160 $ 183

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2 unchanged sentences

(Unaudited, in millions, except share amounts)

Three months ended December 31, 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 October 1, 2021 582 $ 1,996 $ 34 $ ( 2,262 ) $ ( 232 )

Net income — — — 202 202

Other comprehensive income, net of taxes — — ( 12 ) — ( 12 )

Shares withheld for taxes related to vesting of restricted stock units — ( 1 ) — — ( 1 )

Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued

— ( 73 ) — — ( 73 )

Stock-based compensation — 18 — — 18

Balance as of December 31, 2021 582 $ 1,940 $ 22 $ ( 2,060 ) $ ( 98 )

Nine months ended December 31, 2021

Three months ended July 1, 2022

Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit)

1 unchanged sentence

Balance as of April 1, 2022 582 $ 1,851 $ ( 4 ) $ ( 1,940 ) $ ( 93 )

Net income — — — 716 716

Other comprehensive income, net of taxes — — ( 25 ) — ( 25 )

Common stock issued under employee stock incentive plans 3 8 — — 8

Shares withheld for taxes related to vesting of restricted stock units ( 1 ) ( 16 ) — — ( 16 )

Cash dividends declared ($ 0.375 per share of common stock) and dividend equivalents accrued

— ( 220 ) — — ( 220 )

Stock-based compensation — 51 — — 51

Extinguishment of convertible debt — ( 112 ) — — ( 112 )

Balance as of December 31, 2021 582 $ 1,940 $ 22 $ ( 2,060 ) $ ( 98 )

NORTONLIFELOCK INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited, in millions, except share amounts)

Three months ended January 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 October 2, 2020 592 $ 2,650 $ 22 $ ( 3,148 ) $ ( 476 )

Net income — — — 178 178

Other comprehensive income, net of taxes — — 36 — 36

Net income (loss) — — — 200 200

Other comprehensive income (loss), net of taxes — — ( 40 ) — ( 40 )

Common stock issued under employee stock incentive plans 2 — — — —

4 unchanged sentences

Stock-based compensation — 24 — — 24

Balance as of January 1, 2021 587 $ 2,420 $ 58 $ ( 2,970 ) $ ( 492 )

Nine months ended January 1, 2021

Cumulative effect adjustment from adoption of ASU 2020-06 (1)

— ( 7 ) — 6 ( 1 )

Balance as of July 1, 2022 571 $ 1,479 $ ( 44 ) $ ( 1,734 ) $ ( 299 )

Three months ended July 2, 2021

Common Stock and Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity (Deficit)

1 unchanged sentence

Balance as of April 2, 2021 580 $ 2,229 $ 47 $ ( 2,776 ) $ ( 500 )

Net income — — — 360 360

Other comprehensive income, net of taxes — — 74 — 74

Net income (loss) — — — 181 181

Other comprehensive income (loss), net of taxes — — 2 — 2

Common stock issued under employee stock incentive plans 2 1 — — 1

Shares withheld for taxes related to vesting of restricted stock units ( 1 ) ( 15 ) — — ( 15 )

Repurchases of common stock ( 7 ) ( 158 ) — — ( 158 )

Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued

2 unchanged sentences

Extinguishment of convertible debt — ( 112 ) — — ( 112 )

Balance as of January 1, 2021 587 $ 2,420 $ 58 $ ( 2,970 ) $ ( 492 )

Balance as of July 2, 2021 581 $ 2,049 $ 49 $ ( 2,595 ) $ ( 497 )

(1) Effective on April 2, 2022, the Company adopted ASU 2020-06 ( Debt with Conversion and Other Options, ASC 470-20 ) using a modified retrospective method.

See Note 2 for further information about this recently adopted guidance.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2 unchanged sentences

(Unaudited, in millions)

Nine Months Ended

December 31, 2021 January 1, 2021

Three Months Ended

July 1, 2022 July 2, 2021

OPERATING ACTIVITIES:

Net income $ 716 $ 360

Net income (loss) $ 200 $ 181

Amortization and depreciation 29 36

Impairments and write-offs of current and long-lived assets 8 88

Stock-based compensation expense 24 20

1 unchanged sentence

Loss (gain) on extinguishment of debt — 5

Gain on sale of property ( 175 ) ( 35 )

Non-cash operating lease expense 4 5

Other ( 26 ) 7

Changes in operating assets and liabilities, net of acquisitions:

9 unchanged sentences

Purchases of property and equipment ( 2 ) ( 1 )

Payments for acquisitions, net of cash acquired ( 39 ) —

Proceeds from the maturities and sales of short-term investments 4 4

Proceeds from the sale of property 355 118

Other 2 ( 4 )

1 unchanged sentence

FINANCING ACTIVITIES:

Repayments of debt and related equity component ( 391 ) ( 1,929 )

Repayments of debt ( 410 ) ( 372 )

Proceeds from issuance of debt, net of issuance costs — 512

Net proceeds from sales of common stock under employee stock incentive plans — 1

Tax payments related to restricted stock units ( 15 ) ( 57 )

Tax payments related to vesting of restricted stock units ( 16 ) ( 13 )

Dividends and dividend equivalents paid ( 81 ) ( 84 )

10 unchanged sentences

NortonLifeLock, Inc.

is a leading provider of consumer Cyber Safety solutions globally.

We help customers protect their devices, online privacy, identity and home networks.

is a global, leading provider of consumer Cyber Safety solutions.

Our portfolio provides protection across three Cyber Security categories:

security, identity protection and online privacy.

We help customers protect their computer and mobile devices from online threats, safeguard their identity and personal information and strengthen online privacy capabilities and functionalities.

Basis of presentation

2 unchanged sentences

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 1, 2022.

The results of operations for the nine months ended December 31, 2021 are not necessarily indicative of the results expected for the entire fiscal year.

The results of operations for the three months ended July 1, 2022 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 nine month periods in this report relate to fiscal periods ended December 31, 2021 and January 1, 2021.

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.

Unless otherwise stated, references to three month periods in this report relate to fiscal periods ended July 1, 2022 and July 2, 2021.

The three months ended July 1, 2022 and July 2, 2021 each consisted of 13 weeks.

Our 2023 fiscal year consists of 52 weeks and ends on March 31, 2023.

Use of estimates

1 unchanged sentence

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.

Actual results could differ from such estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment as a result of the COVID-19 pandemic and continuing Russia-Ukraine conflict, 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 nine months ended December 31, 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.

With the exception of those discussed in Note 2, there have been no material changes to our significant accounting policies as of and for the three months ended July 1, 2022, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended April 1, 2022.

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 and disclosures.

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.

On October 2, 2021, the first day of the third quarter of fiscal 2022, we elected to early adopt this guidance retrospectively for all acquisitions in fiscal 2022 and going forward.

The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements and disclosures.

Recently issued authoritative guidance not yet adopted

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.

In August 2020, the FASB issued Accounting Standards Update 2020-06 (ASU 2020-06) which 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.

As a result, entities will no longer separately present embedded conversion features in equity.

A convertible debt instrument will be accounted for wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging , or (2) a convertible debt instrument was issued at a substantial premium.

In addition, the debt discount, which is equal to the carry value of the embedded conversion feature upon issuance, will no longer be amortized as interest expense over the life of the instrument.

The new guidance also requires the use of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share and include the effect of share settlement for instruments that may be settled in cash or shares.

See Note 16 for further information related to the diluted earnings per share calculation.

We adopted this standard as of April 2, 2022, the first day of fiscal 2023, using a modified retrospective method of transition, under which, financial results and earnings per share amounts reported in prior periods were not adjusted or restated in the Condensed Consolidated Financial Statements.

As such, the new guidance was applied to the convertible debt instruments outstanding as of the beginning of this fiscal year, with the cumulative effect of adoption recognized through an adjustment to the opening balance of retained earnings.

We increased the carrying amount of the New 2.00 % Convertible Notes (as defined in Note 10) by approximately $ 1 million and reduced additional paid-in capital by approximately $ 7 million, net of tax.

The net effect of these adjustments was recorded as an increase to retained earnings as of April 2, 2022.

Recently issued authoritative guidance not yet adopted

Reference Rate Reform.

3 unchanged sentences

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 .

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 nine months ended January 1, 2021, 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 $ 0 million and $ 9 million during the three and nine months ended January 1, 2021, 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 nine months ended January 1, 2021.

There was no discontinued operations activity during the three and nine months ended December 31, 2021.

Three Months Ended Nine Months Ended

(In millions)

January 1, 2021 January 1, 2021

Operating income (loss) $ 1 $ ( 174 )

Income (loss) before income taxes $ 1 $ ( 172 )

Income tax expense (benefit) $ ( 4 ) $ ( 44 )

Income (loss) from discontinued operations $ 5 $ ( 128 )

Assets Held for Sale

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 continue to actively market the remaining properties for sale;

however, during fiscal 2023, the commercial real estate market continues to be adversely affected by the COVID-19 pandemic, which 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 December 31, 2021, these assets are classified as assets held for sale.

During the three and nine months ended December 31, 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.

As of July 1, 2022, these assets are classified as assets held for sale.

During the three months ended July 1, 2022 , there were no impairments because the fair value of the properties less costs to sell either equals or exceeds their carrying value.

Business Combinations

4 unchanged sentences

(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.

or (ii) $ 2.37 in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option ).

Based on our undisturbed closing share price of $ 27.20 on July 13, 2021, and depending on the Avast shareholder elections, the estimated purchase price range for the Avast shares under the Proposed Merger is $ 8.1 billion to $ 8.6 billion.

Each of the directors of Avast who holds shares has undertaken to elect for the Majority Stock Option in respect of their entire benefi cial 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 (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.

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.

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.

On January 28, 2022, Bank of America N.A.

and Wells Fargo Bank N.A.

agreed to arrange, on a best efforts basis, additional term loans under the Definitive Facilities in an amount up to $ 500 million.

The Interim Facilities Agreement contains, and any definitive financing documentation for the Definitive Facilities entered into in connection with the Commitment Letter (the Facilities Agreement) will contain, customary representations and warranties, events of default and covenants for transactions of this type.

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

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 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 U.S.

Hart-Scott-Rodino Antitrust Improvements Act of 1976 (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.

Fiscal 2022 acquisition

On September 15, 2021, we completed an acquisition of an online reputation management and digital privacy solutions company for total aggregate consideration of $ 39 million, net of $ 1 million cash acquired.

The purchase price was primarily allocated to intangible assets and goodwill during the nine months ended December 31, 2021.

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 final allocation of the aggregate purchase price for the acquisition as of January 8, 2021, is as follows:

(In millions) January 8, 2021

Current assets $ 12

Intangible assets 162

Other long-term asset 21

Total assets acquired 456

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 initially based upon a preliminary valuation performed during the fourth quarter of fiscal 2021 and reflects adjustments made during the nine months ended December 31, 2021.

Our estimates and assumptions are subject to refinement within the measurement period, which is up to one year from the acquisition date.

Adjustments to the purchase price during the measurement period required adjustments to be made to goodwill.

The measurement period ended on January 7, 2022, and there were no additional adjustments between December 31, 2021 and January 7, 2022.

The Co-operation Agreement also provides that, subject to certain exceptions, if we fail to receive approval from the U.K.

Competition and Markets Authority and cannot consummate the Proposed Merger, we may be required to pay Avast a break fee of up to $ 200 million.

The Proposed Merger was approved by our Board of Directors and by our shareholders, the Board of Directors and shareholders of Avast, and regulators including the Federal Trade Commission under the U.S.

Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act) and in Europe, the German Federal Cartel Office and the Spanish National Markets and Competition Commission.

On August 3, 2022, the U.K.

Competition and Markets Authority (CMA) provisionally cleared the Proposed Merger.

Subject to final approval by the CMA and changes based on operational considerations mutually agreed upon by the parties and other requirements, the closing is anticipated to be between mid-September to early October 2022, given the CMA’s published schedule and the currently scheduled U.K.

Court Hearing to approve the scheme.

Contract liabilities

During the three and nine months ended December 31, 2021, we recognized $ 505 million and $ 1,093 million from the contract liabilities balance at October 1, 2021 and April 2, 2021, respectively.

During the three and nine months ended January 1, 2021, we recognized $ 450 million and $ 971 million from the contract liabilities balance at October 2, 2020 and April 3, 2020, respectively.

During the three months ended July 1, 2022, we recognized $ 508 million from the contract liabilities balance as of April 1, 2022.

During the three months ended July 2, 2021, we recognized $ 498 million from the contract liabilities balance as of April 2, 2021.

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 December 31, 2021, we had $ 785 million of remaining performance obligations, excluding customer deposit liabilities of $ 472 million, of which we expect to recognize approximately 93 % as revenue over the next 12 months.

As of July 1, 2022, we had $ 783 million of remaining performance obligations, excluding customer deposit liabilities of $ 437 million, of which we expect to recognize approximately 94 % as revenue over the next 12 months.

See Note 17 for tabular disclosures of disaggregated revenue by solution and geographic region.

3 unchanged sentences

Balance as of April 1, 2022 $ 2,873

Acquisition 25

Purchase accounting adjustment ( 7 )

Translation adjustments

Balance as of December 31, 2021 $ 2,876

Balance as of July 1, 2022 $ 2,861

Intangible assets, net

December 31, 2021 April 2, 2021

July 1, 2022 April 1, 2022

(In millions) Gross

10 unchanged sentences

Amortization expense for purchased intangible assets is summarized below:

Three Months Ended Nine Months Ended Condensed Statements of Operations Classification

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

Three Months Ended Condensed Consolidated Statements of Operations Classification

(In millions) July 1, 2022 July 2, 2021

Customer relationships and other $ 21 $ 21 Operating expenses

1 unchanged sentence

Total $ 26 $ 31

As of December 31, 2021, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:

As of July 1, 2022, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:

(In millions)

3 unchanged sentences

Cash and cash equivalents:

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

(In millions) July 1, 2022 April 1, 2022

Cash $ 509 $ 609

2 unchanged sentences

Accounts receivable, net:

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

(In millions) July 1, 2022 April 1, 2022

Accounts receivable $ 103 $ 121

2 unchanged sentences

Other current assets:

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

(In millions) July 1, 2022 April 1, 2022

Prepaid expenses $ 113 $ 107

3 unchanged sentences

Property and equipment, net:

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

(In millions) July 1, 2022 April 1, 2022

Computer hardware and software 464 462

7 unchanged sentences

Other long-term assets:

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

(In millions) July 1, 2022 April 1, 2022

Non-marketable equity investments $ 178 $ 178

4 unchanged sentences

Short-term contract liabilities:

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

(In millions) July 1, 2022 April 1, 2022

Deferred revenue $ 746 $ 743

2 unchanged sentences

Other current liabilities:

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

(In millions) July 1, 2022 April 1, 2022

Income taxes payable $ 148 $ 109

2 unchanged sentences

Accrued royalties 46 49

Other 103 123

Total other current liabilities $ 689 $ 639

Long-term income taxes payable:

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

(In millions) July 1, 2022 April 1, 2022

Deemed repatriation tax payable $ 437 $ 437

3 unchanged sentences

Other income (expense), net:

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Interest income $ 2 $ —

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Gain (loss) on early extinguishment of debt — ( 5 )

Gain on sale of property — — 175 35

Transition service expense, net — — — ( 9 )

Other ( 2 ) 1

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Supplemental cash flow information:

Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Income taxes paid, net of refunds $ 1 $ 14

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Cash paid for amounts included in the measurement of operating lease liabilities $ 6 $ 8

Non-cash operating activities:

Operating lease assets obtained in exchange for operating lease liabilities 35 29

Reduction of operating lease assets as a result of lease terminations and modifications 16 24

Non-cash investing and financing activities:

Purchases of property and equipment in current liabilities 1 —

Extinguishment of debt with borrowings from same creditors $ — $ 494

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The following table summarizes our financial instruments measured at fair value on a recurring basis:

December 31, 2021 April 2, 2021

July 1, 2022 April 1, 2022

(In millions) Fair Value Level 1 Level 2 Fair Value Level 1 Level 2

Money market funds $ 782 $ 782 $ — $ 1,278 $ 1,278 $ —

Certificates of deposit — — — 1 — 1

Corporate bonds — — — 4 — 4

Total $ 782 $ 782 $ — $ 1,282 $ 1,278 $ 4

The following table presents the contractual maturities of our investments in debt securities as of December 31, 2021:

(In millions) Fair Value

Due in one year or less $ 10

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 December 31, 2021 and April 2, 2021, the carrying value of our non-marketable equity investments was $ 176 million and $ 185 million, respectively.

As of July 1, 2022 and April 1, 2022, the carrying value of our non-marketable equity investments was $ 178 million.

Current and long-term debt

As of December 31, 2021 and April 2, 2021, the total fair value of our fixed rate debt was $ 2,141 million and $ 2,400 million, respectively.

As of July 1, 2022 and April 1, 2022, the total fair value of our fixed rate debt was $ 1,597 million and $ 2,021 million, respectively.

The fair value of our variable rate debt approximated its carrying value.

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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 Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Operating lease costs $ 4 $ 4

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Three Months Ended

December 31, 2021 January 1, 2021

July 1, 2022 July 2, 2021

Weighted-average remaining lease term 4.6 years 4.2 years

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See Note 7 for cash flow information related to our operating leases.

As of December 31, 2021, the maturities of our lease liabilities by fiscal year are as follows:

As of July 1, 2022, the maturities of our lease liabilities by fiscal year are as follows:

(In millions)

Remainder of 2023 $ 16

Thereafter 19

Total lease payments 96

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(In millions, except percentages)

December 31, 2021 April 2, 2021 Effective

July 1, 2022 April 1, 2022 Effective

Interest Rate

New 2.50 % Convertible Senior Notes due April 1, 2022

$ — $ 250 2.63 %

3.95 % Senior Notes due June 15, 2022

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unamortized discount and issuance costs

( 12 ) ( 19 )

Total debt 3,328 3,736

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The interest rates for the outstanding term loans are as follows:

December 31, 2021 April 2, 2021

July 1, 2022 April 1, 2022

Initial Term Loan due May 7, 2026 2.94 % 1.75 %

Delayed Term Loan due May 7, 2026 2.94 % 1.75 %

As of December 31, 2021, the future contractual maturities of debt by fiscal year are as follows:

As of July 1, 2022, the future contractual maturities of debt by fiscal year are as follows:

(In millions)

Remainder of 2023 $ 592

Thereafter 1,379

Total future maturities of debt $ 3,336

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.

As of December 31, 2021 and April 2, 2021, our Convertible Senior Notes consisted of the following:

December 31, 2021 April 2, 2021

Credit facility

We have 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).

An amendment to the agreement (the First Amendment) also provides for an incremental increase under the Initial Term Loan of $ 525 million.

All term loans and revolver credit facilities mature in May 2026, and 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 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 in an amount equal to 1.25 % of aggregate principal amount as of the borrowing date of the Delayed Draw Term Loan.

We may voluntarily repay outstanding principal balances without penalty.

As of July 1, 2022, 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.

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 July 1, 2022 , we were in compliance with all debt covenants.

Interim facilities

O n August 10, 2021, 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 (the Interim Facility B), (ii) a 60-day term loan interim facility A1 of $ 750 million (the Interim Facility A1) and 5-year term loan interim facility A2 of $ 3,500 million (the Interim Facility A2), and (iii) a 5-year interim revolving facility of $ 1,500 million (the Interim Revolving Facility) (collectively, the Interim Facilities) and the Commitment Letter (as amended, the Commitment Letter) with certain financial institutions, in which the 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, Bank of America, N.A.

and Wells Fargo Bank N.A.

agreed to arrange, on a best efforts basis, additional term loans under the Definitive Facilities in an amount up to $ 500 million.

The Facilities Agreement will replace the existing credit facility agreement upon the close of the transactions contemplated thereby.

On June 1, 2022, we fully repaid the principal and accrued interest under the 3.95 % Senior Notes due June 2022, which had an aggregate principal amount outstanding of $ 400 million.

In addition, we paid $ 7 million of accrued and unpaid interest through the redemption date.

Accounting for the New 2.00 % Convertible Notes

As described in Note 2, on April 2, 2022, we adopted ASU 2020-06 using the modified retrospective method.

Prior to the adoption of this guidance, we accounted for our convertible debt instruments under the cash conversion model, requiring the convertible notes to be separated into an equity and liability component.

W e recognized $ 56 million in equity, net of tax, which consisted of $ 9 million in debt discount, representing the difference between the fair value of the liability component and par value, and $ 47 million in substantial premium due to the fiscal year 2020 amendment, which was accounted for as a debt extinguishment and resulted in the recognition of the New 2.00 % Convertible Notes.

Upon adoption of ASU 2020-06, the cash conversion model is now eliminated.

We de-recognized the remaining unamortized debt discount of $ 1 million on the New 2.00 % Convertible Notes and therefore will no longer recognize the related amortization as interest expense.

Additionally, we recorded a cumulative adjustment to retained earnings of $ 6 million, net of tax, for the debt discount amortization incurred from issuance through April 2, 2022.

The remaining $ 47 million of substantial premium will remain in equity, as the new guidance did not eliminate the substantial premium model for convertible instruments.

Under this new guidance, the New 2.00 % Convertible Notes included in our Condensed Consolidated Balance Sheet reflect the par value of the liability

In accordance with the New 2.00 % Convertible Notes agreement, we communicated our intent to the convertible note holders to settle the principal and conversion rights in cash upon maturity in August 2022.

This election did not have a material impact on our financial results.

As of July 1, 2022 and April 1, 2022, our Convertible Senior Notes consisted of the following:

July 1, 2022 April 1, 2022

(In millions) New 2.00 % Convertible Notes

New 2.00 % Convertible Notes

Liability components:

Principal $ 525 $ 525

Unamortized discount and issuance costs ( 3 ) — ( 5 )

Unamortized debt discount — ( 1 )

Net carrying amount $ 525 $ 524

Equity component net of tax $ 56 $ 43 $ 56

Based on the closing price of our common stock of $ 25.98 on December 31, 2021, the if-converted value of the New 2.0 % Convertible Notes exceeded the principal amount by approximately $ 170 million.

Based on the closing price of our common stock of $ 22.28 on July 1, 2022, the if-converted value of the New 2.00 % Convertible Notes exceeded the principal amount by approximately $ 48 million.

The following table sets forth total interest expense recognized related to our Convertible Senior Notes:

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Contractual interest expense $ 3 $ 3

Amortization of debt discount and issuance costs $ 1 $ 1 $ 3 $ 3

Amortization of debt discount $ — $ 1

Payments in lieu of conversion price adjustments (1)

$ 2 $ 2 $ 6 $ 7

(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 December 31, 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.

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 (the Interim Facility B), (ii) a 60-day term loan interim facility A1 of $ 750 million (the Interim Facility A1) and 5-year term loan interim facility A2 of $ 3,500 million (the Interim Facility A2), and (iii) a 5-year interim revolving facility of $ 1,500 million (the 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.

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.

Debt covenant compliance

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

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.

As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts.

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.

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These forward contracts are not designated as hedging instruments.

As of December 31, 2021 and April 2, 2021, the fair value of these contracts was immaterial.

As of July 1, 2022 and April 1, 2022, 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 Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Foreign exchange forward contracts gain (loss) $ ( 7 ) $ 3

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 December 31, 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) December 31, 2021 April 2, 2021

(In millions) July 1, 2022 April 1, 2022

Foreign exchange forward contracts purchased $ 156 $ 155

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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.

Our restructuring costs consist primarily of severance and termination benefits, contract cancellation charges, asset write-offs and impairments and other exit and disposal costs.

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.

Other exit and disposal costs include costs to exit and consolidate facilities in connection with restructuring events.

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 $ 25 million.

These actions are expected to be completed in fiscal 2022.

As of December 31, 2021, we have incurred total costs of $ 24 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 2022.

Any remaining costs or adjustments are immaterial.

We incurred total costs of $ 521 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 December 31, 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.

We incurred total costs of $ 24 million under the December 2020 Plan.

Restructuring and other costs summary

Our restructuring and other costs attributable to continuing operations are presented in the table below:

Three Months Ended Nine Months Ended

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

Severance and termination benefit costs $ 1 $ — $ 5 $ 18

Contract cancellation charges 1 — 2 49

Stock-based compensation charges — 1 — 9

Asset write-offs — — — 58

Other exit and disposal costs 10 — 17 8

Total restructuring and other costs $ 12 $ 1 $ 24 $ 142

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 nine months ended January 1, 2021.

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 nine months ended December 31, 2021 and three months ended January 1, 2021.

Nine Months Ended

(In millions) January 1, 2021

Severance and termination benefit costs $ 64

Separation costs 2

Total restructuring and other costs $ 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 Non-Cash Items Liability Balance as of December 31, 2021

Severance and termination benefit costs $ 3 $ 5 $ ( 6 ) $ — $ 2

Other exit and disposal costs — 7 ( 1 ) ( 6 ) —

Total $ 3 $ 12 $ ( 7 ) $ ( 6 ) $ 2

The restructuring liabilities are included in Other current liabilities in our Condensed Consolidated Balance Sheets.

During the three months ended July 1, 2022 and July 2, 2021, we incurred total restructuring costs of $ 2 million and $ 7 million , respectively.

The following table summarizes our effective tax rate for the periods presented:

Three Months Ended Nine Months Ended

Three Months Ended

(In millions, except 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

July 1, 2022 July 2, 2021

Income (loss) before income taxes $ 229 $ 252

Income tax expense (benefit) $ 29 $ 71

Effective tax rate 13 % 28 %

Our effective tax rate 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 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.

Our effective tax rate for the three months ended July 1, 2022 differs from the federal statutory income tax rate primarily due to tax benefits related to the foreign currency remeasurement of an Irish deferred tax asset and discrete legal expenses booked during the quarter, partially offset by state taxes.

Our effective tax rate for the three months ended July 2, 2021 differs from the federal statutory income tax rate primarily due to state taxes, partially offset by the benefits of lower-tax international earnings and various permanent differences.

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.

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.

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Stockholders' Equity

On February 3, 2022, we announced that our Board of Directors declared a cash dividend of $ 0.125 per share of common stock to be paid in March 2022.

On August 4, 2022, we announced that our Board of Directors declared a cash dividend of $ 0.125 per share of common stock to be paid in September 2022.

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.

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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 December 31, 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 three and nine months ended December 31, 2021.

The following table summarizes activity related to this program during the three and nine months ended January 1, 2021:

Three Months Ended Nine Months Ended

Under our stock repurchase program, we may purchase shares of our outstanding common stock on the open market and through accelerated stock repurchase transactions.

As of July 1, 2022, we had $ 1,474 million remaining under the authorization to be completed in future periods with no expiration date.

No shares were repurchased during the three months ended July 2, 2021.

The following table summarizes activity related to this program during the three months ended July 1, 2022:

Three Months Ended

(In millions, except per share amounts)

January 1, 2021 January 1, 2021

Number of shares repurchased 12

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Aggregate purchase price $ 300

During the three and nine months ended January 1, 2021, we executed repurchases of $ 20 million for 1 million shares that settled after January 1, 2021.

Accumulated other comprehensive income (loss)

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Balance as of April 1, 2022 $ ( 4 )

Other comprehensive income before reclassifications ( 25 )

Balance as of December 31, 2021 $ 22

Other comprehensive income (loss), net of taxes ( 40 )

Balance as of July 1, 2022 $ ( 44 )

Stock-Based Compensation

The following table sets forth the stock-based compensation expense recognized for our equity incentive plans:

Three Months Ended Nine Months Ended

Three Months Ended

(In millions)

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

July 1, 2022 July 2, 2021

Cost of revenues $ 1 $ —

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General and administrative 10 9

Restructuring and other costs — 1 — 9

Other income (expense), net — — — ( 1 )

Total stock-based compensation from continuing operations 18 21 51 65

Discontinued operations — — — 1

Total stock-based compensation expense $ 24 $ 20

Income tax benefit for stock-based compensation expense $ ( 4 ) $ ( 4 )

As of December 31, 2021, the total unrecognized stock-based compensation costs related to our unvested stock-based awards was $ 173 million, which will be recognized over an estimated weighted-average amortization period of 2.25 years.

The following table summarizes additional information related to our stock-based awards, including awards associated with our discontinued operations:

Nine Months Ended

(In millions, except per grant data) December 31, 2021 January 1, 2021

As of July 1, 2022, the total unrecognized stock-based compensation costs related to our unvested stock-based awards was $ 213 million, which will be recognized over an estimated weighted-average amortization period of 2.4 years.

The following table summarizes additional information related to our stock-based awards:

Three Months Ended

(In millions, except per grant data) July 1, 2022 July 2, 2021

Restricted stock units (RSUs):

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Outstanding and unvested at target payout 4 2

Stock options:

Total intrinsic value of stock options exercised $ 2 $ 15

Outstanding — (1) 1

Exercisable — (1) 1

(1) The number of shares was less than 1 million.

Dividend equivalent rights (DERs)

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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 December 31, 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 nine months ended January 1, 2021:

Three Months Ended Nine Months Ended

(In millions)

January 1, 2021 January 1, 2021

Sales and marketing $ — $ 2

Research and development 4 9

General and administrative 2 8

Restructuring and other costs 1 9

Total stock-based compensation $ 7 $ 28

As of July 1, 2022 and April 1, 2022, current dividends payable related to DER was $ 3 million and $ 11 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 $ 2 million, respectively, recorded as part of Other long-term liabilities.

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.

Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding.

Dilutive potentially issuable common shares include the dilutive effect of the shares underlying convertible debt and employee equity awards.

The components of basic and diluted net income (loss) per share are as follows:

Three Months Ended Nine Months Ended

Three Months Ended

(In millions, except per share amounts)

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

Income (loss) from continuing operations $ 202 $ 173 $ 716 $ 488

Income (loss) from discontinued operations — 5 — ( 128 )

Net income $ 202 $ 178 $ 716 $ 360

Income (loss) per share - basic:

Continuing operations $ 0.35 $ 0.29 $ 1.23 $ 0.83

Discontinued operations $ — $ 0.01 $ — $ ( 0.22 )

Net income per share - basic $ 0.35 $ 0.30 $ 1.23 $ 0.61

Income (loss) per share - diluted:

Continuing operations $ 0.34 $ 0.29 $ 1.21

Discontinued operations $ — $ 0.01 $ —

Net income per share - diluted $ 0.34 $ 0.30 $ 1.21

July 1, 2022 July 2, 2021

Net income (loss) $ 200 $ 181

Net income (loss) per share - basic $ 0.35 $ 0.31

Net income (loss) per share - diluted $ 0.33 $ 0.31

Weighted-average shares outstanding - basic 578 580

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Weighted-average shares outstanding - diluted 604 591

Anti-dilutive shares excluded from diluted net income per share calculation:

Convertible debt — 31 — 10

Employee equity awards 1 — 1 —

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.

Upon adoption of ASU 2020-06 under the modified retrospective method, we are required to apply the if-converted method to our calculation of diluted earnings per share.

For the three months ended July 1, 2022, we adjust for the dilutive effect of the maximum number of potential shares to be issued upon settlement of our outstanding convertible debt instruments.

Prior period earnings per share amounts are not restated under the modified retrospective method.

For the three months ended July 2, 2021, the dilutive effect of our debt instruments is calculated using the treasury stock method, under which our convertible debt instruments generally had 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 adoption of ASU 2020-06 had a $ 0.01 impact on dilutive earnings per share for the three months ended July 1, 2022, with the dilutive shares underlying the convertible debt increasing by 18 million shares.

The conversion price of each convertible debt instrument applicable in the periods presented is as follows:

Three Months Ended Nine Months Ended

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

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

Three Months Ended

July 1, 2022 July 2, 2021

New 2.00 % Convertible Senior Notes due August 15, 2022

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The following table summarizes net revenues for our major solutions:

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Consumer security $ 413 $ 412

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Total net revenues (1)

(1) During the three months ended July 1, 2022, total net revenues include an unfavorable foreign exchange impact of $ 27 million, consisting of $ 26 million from our consumer security solutions and $ 1 million from our identity and information protection solutions.

Consumer security products include our Norton 360 Security offerings, Norton Security, Norton Secure VPN, Avira Security, and other consumer security solutions.

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The following table represents net revenues by geographic area for the periods presented:

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) July 1, 2022 July 2, 2021

Americas $ 508 $ 477

EMEA 128 102 380 296

APJ 81 78 245 226

Total net revenues (1)

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APJ includes Asia Pacific and Japan.

(1) During the three months ended July 1, 2022, total net revenues include an unfavorable foreign exchange impact of $ 27 million, consisting of $ 16 million from EMEA and $ 11 million from APJ.

Revenues from customers inside the U.S.

were $ 467 million and $ 1,383 million during the three and nine months ended December 31, 2021, respectively, and $ 439 million and $ 1,294 million during the three and nine months ended January 1, 2021, respectively.

were $ 479 million and $ 456 million during the three months ended July 1, 2022 and July 2, 2021, respectively.

No other individual country accounted for more than 10% of revenues.

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and internationally in various foreign subsidiaries.

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

(In millions) July 1, 2022 April 1, 2022

$ 597 $ 1,220

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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) December 31, 2021 April 2, 2021

(In millions) July 1, 2022 April 1, 2022

Ireland 25 27

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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) December 31, 2021 April 2, 2021

(In millions) July 1, 2022 April 1, 2022

Other countries (1)

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Significant customers

No customer accounted for 10% or more of our net revenues during the nine months ended December 31, 2021 and January 1, 2021.

Customers that accounted for over 10% of our net accounts receivable during fiscal 2022 were as follows:

December 31, 2021 April 2, 2021

No customer accounted for 10% or more of our net revenues during the three months ended July 1, 2022 and July 2, 2021.

Customers which are distributors that accounted for over 10% of our net accounts receivable were as follows:

July 1, 2022 April 1, 2022

Customer A 40 % 41 %

Customer B 9 % N/A

Customer B 10 % 13 %

Commitments and Contingencies

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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.

Such indemnification provisions may not be subject to maximum loss clauses.

Historically, payments made under these provisions have been immaterial.

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Litigation contingencies

Trustees of the University of Columbia in the City of New York v.

NortonLifeLock

As previously disclosed in our public filings, on May 2, 2022, a jury returned its verdict in a patent infringement case filed in 2013 by the Trustees of Columbia University in the City of New York in the U.S.

District Court for the Eastern District of Virginia.

Columbia originally brought suit alleging infringement of six patents owned by the university.

The Company won a favorable claim construction order on all six patents, and the claim construction was upheld by the Federal Circuit in 2016 on all but U.S.

8,601,322 and 8,074,115.

The Company also sought inter partes review by the Patent Trial and Appeal Board of the claims of the ‘322 and ‘115 Patents and all but two claims of the ‘322 Patent and three claims of the ‘115 Patent were invalidated.

The remaining claims of the ‘322 and ‘115 Patents were the only claims that remained in suit at trial.

The jury found that the Company’s Norton Security products and Symantec Endpoint Protection products (the latter of which were sold to Broadcom as part of an Asset Purchase Agreement with NortonLifeLock dated November 4, 2019) willfully infringe the ‘322 and ‘115 Patents through the use of SONAR/BASH behavioral protection technology.

The jury awarded damages in the amount of $ 185 million.

Columbia did not seek injunctive relief against the Company.

The Company intends to cease use of the technology found by the jury to infringe.

The jury also found that the Company did not fraudulently conceal its prosecution of U.S.

8,549,643 but did find that two Columbia professors were coinventors of this patent.

No damages were awarded related to this patent.

A formal judgment has not yet been entered in the case.

Post-verdict motions have been filed, and the Company intends to file an appeal challenging the verdict.

At this time, our current estimate of the low end of the range of probable estimated losses from this matter is approximately $ 230 million, reflecting the jury award and prejudgment interest, which we have accrued.

The jury’s verdict may be enhanced and, should it be upheld on appeal, could ultimately result in the payment of somewhere between one and three times the jury’s verdict, plus interest and attorneys’ fees.

There is a reasonable possibility that a loss may be incurred in excess of our accrual for this matter;

however, such loss cannot be reasonably estimated.

SEC Investigation

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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.

The SEC commenced a formal investigation with which we cooperated.

In April 2022, the SEC Staff informed the Company that it concluded its investigation and does not intend to recommend an enforcement action by the Commission against us.

Securities Class Action and Derivative Litigation

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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.

Of the $ 70 million, $ 67.1 million was covered under the applicable insurance policy with the remainder to be paid by the Company.

The Court approved the settlement on February 12, 2022.

On November 22, 2021, investment funds managed by Orbis Investment Management Ltd.

which previously opted out of the securities class action, filed suit under the Securities and Exchange Act of 1934, Arizona Securities Act, Arizona Consumer Fraud Act and certain common law causes of action to recover alleged damages for losses incurred by the funds for their purchases or acquisitions of the our common stock during the class period.

Our deadline to respond to the complaint is February 24, 2022.

At this stage, we are unable to assess whether any adverse effect is reasonably possible as a result of the Orbis lawsuit or estimate the range of any potential loss.

In the fourth quarter of fiscal 2022, we made an immaterial settlement offer in this matter, for which we have accrued.

The Company’s Motion to Dismiss is now pending.

Purported shareholder derivative lawsuits have been filed against us and certain of our former officers and current and former directors in the U.S.

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these lawsuits include an action brought derivatively on behalf 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.

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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.

On March 23, 2021, Plaintiffs withdrew their demand for a jury trial and the Company consented to proceed with a bench trial, which concluded on March 24, 2022.

The Court has not yet issued its judgment and post-trial motions are pending.

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, plus Relator’s statutory attorney’s fees with respect to the State of Florida’s claims.

On February 28, 2022, we reached a settlement in principle with the State of New York and Relator to resolve all of the New York claims asserted in the litigation for $ 5 million.

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 States of Florida and New York, 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.

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.

§ 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 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.

There is a reasonable possibility that a loss may have been incurred in excess of our accrual for this matter;

however, such loss cannot be reasonably estimated.

We are involved in a number of other judicial and administrative proceedings that are incidental to our business.

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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 1. Financial Statements