What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-02-04 · 114 added, 173 removed, 165 unchanged (63% of the section changed)

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plans for and anticipated benefits of our solutions;

matters arising out of the ongoing U.S.

Securities and Exchange Commission (the SEC) investigation;

anticipated tax rates, benefits and expenses;

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

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.

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

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

Key financial metrics

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

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

Three Months Ended

(In millions, except for per share amounts) July 1, 2022 July 2, 2021

Net revenues $ 707 $ 686

Operating income $ 302 $ 280 $ 876 $ 630

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

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

Net income $ 202 $ 178 $ 716 $ 360

Net income per share from continuing operations - diluted $ 0.34 $ 0.29 $ 1.21 $ 0.81

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

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

Operating income (loss) $ 261 $ 287

Net income (loss) $ 200 $ 181

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

Net cash provided by (used in) operating activities $ 215 $ 258

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

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

Cash, cash equivalents and short-term investments $ 1,291 $ 1,891

Contract liabilities $ 1,220 $ 1,306

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 $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:

Below are our financial highlights for the first quarter of fiscal 2023, compared to the corresponding period in the prior year:

• Net revenues increased $21 million, due to higher sales in both our consumer security products and 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 $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, 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.

• Net income increased $19 million, primarily due to a decrease in income tax expense.

• Net income per share - diluted increased $0.02, due to the increase in net income, offset by the adoption of ASU 2020-06.

• Cash, cash equivalents and short-term investments decreased by $600 million compared to April 1, 2022, primarily due to the repayment of our Senior 3.95% Senior Notes and repurchases of common stock during the first three months of fiscal 2023.

• Contract liabilities decreased $86 million compared to April 1, 2022, primarily due to a decline in billings due to seasonality and fluctuations in foreign currency rates.

Proposed Merger with Avast

On August 10, 2021, we announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Proposed Merger).

The Proposed Merger will be implemented by means of a court-sanctioned scheme of arrangement under the UK Companies Act 2006, as amended (the Scheme), and remains subject to a number of conditions.

The Proposed Merger will be implemented by means of a court-sanctioned scheme of arrangement under the UK Companies Act 2006, as amended (the Scheme), and remains subject to a certain number of conditions.

Under the terms of the Proposed Merger, Avast shareholders will be entitled to elect to receive, for each ordinary share of Avast held, in respect of their entire holding of Avast shares, either:

(i) $7.61 in cash and 0.0302 of a new share of our common stock (such option, the Majority Cash Option);

or (ii) $2.37 in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option).The estimated purchase price range, based on our undisturbed closing share price of $27.20 on July, 13 2021, for the Avast shares under the Proposed Merger is $8.1 billion to $8.6 billion, depending on the Avast shareholders elections.

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 beneficial holdings of Avast shares.

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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 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.

The Co-operation Agreement also provides that, 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.

COVID-19 UPDATE

The COVID-19 pandemic is having widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices.

To protect the health and well-being of our employees, partners and third-party service providers, we implemented a work-from-home requirement for most employees, established site-specific COVID-19 prevention protocols, made substantial modifications to employee travel policies and cancelled or shifted our conferences and other marketing events to virtual-only.

We continue to monitor the situation and plan to adjust our current policies as recommendations and public health guidance is changing.

To date, we have not seen any meaningful negative impact on our customer success efforts, sales and marketing efforts or employee productivity.

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

and global economies have experienced a recession due to the economic impacts of the COVID-19 pandemic.

Although we did not experience a material increase in cancellations by customers or a material reduction in our retention rate in 2021, we may experience such an increase or reduction in the future, especially in the event of a prolonged recession as a result of the COVID-19 pandemic.

The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices.

At the onset of the pandemic, to protect the health and well-being of our employees, partners and third-party service providers, we facilitated a work-from-home requirement for most employees and established site-specific COVID-19 prevention protocols.

We continue to monitor the situation and over the past several months have adjusted our policies and protocols to reflect changes to public health regulations and guidance.

Our offices are now open to employees on a voluntary basis.

To date, we have not seen any meaningful negative impact on our employee productivity.

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

While the COVID-19 pandemic has negatively impacted many sectors of the U.S.

and global economies, the consumer Cyber Safety market experienced increased demand as the pandemic greatly accelerated the digital lives of people around the world.

However, with the extended duration of the pandemic and the easing of prevention protocols and restrictions, we are seeing decreasing demand and increased competition.

In addition, while we did not experience a material increase in cancellations by customers or a material reduction in retention rate in fiscal 2022 or in the first quarter of fiscal 2023, should the negative macroeconomic impacts of the COVID-19 pandemic persist or worsen, we may experience continued slowdowns in our business activity and an increase in cancellations by customers or a material reduction in our retention rate in the future, especially in the event of a prolonged recession.

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.

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 1, 2022.

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 nine months ended December 31, 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 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 100 % 100 %

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Amortization of intangible assets 3 3

Restructuring, transition and other costs 2 — 1 8

Restructuring and other costs 0 1

Total operating expenses 49 43

Operating income 43 44 42 34

Operating income (loss) 37 42

Interest expense (4) (5)

Other income (expense), net 0 0

Income (loss) from continuing operations before income taxes 37 40 45 31

Income (loss) before income taxes 32 37

Income tax expense (benefit) 4 10

Income (loss) from continuing operations 29 27 34 26

Income (loss) from discontinued operations — 1 — (7)

Net income 29 % 28 % 34 % 19 %

Net income (loss) 28 % 26 %

Percentages may not add due to rounding.

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 %

Three Months Ended

(In millions, except for percentages) July 1, 2022 July 2, 2021 Change in %

Net revenues $ 707 $ 686 3 %

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.

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.

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.

Net revenues increased $21 million, primarily due to a $20 million increase in sales of our identity and information protection products.

Net revenues were impacted by $27 million of foreign exchange headwinds, primarily in our consumer security solutions.

Performance Metrics

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Three Months Ended

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

(In millions, except for per user amounts) July 1, 2022 July 2, 2021

Direct customer revenues (1)

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$ 8.82 $ 8.84

(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.

(1) Direct customer revenues during the three months ended July 1, 2022 and July 2, 2021 excludes a $1 million and $5 million reduction of revenue, respectively, 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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Net revenues by geographical region

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

Americas 72 % 70 %

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APJ includes Asia Pacific and Japan.

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.

Percentage of revenue by geographic region in the three months ended July 1, 2022 remained consistent with the corresponding period in the prior year.

Cost of revenues

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 %

Three Months Ended

(In millions, except for percentages) July 1, 2022 July 2, 2021 Change in %

Cost of revenues $ 102 $ 102 — %

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.

Our cost of revenues remained relatively flat.

Operating expenses

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 %

Three Months Ended

(In millions, except for percentages) July 1, 2022 July 2, 2021 Change in %

Sales and marketing $ 156 $ 156 — %

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Total operating expenses $ 344 $ 297 16 %

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.

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 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 $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.

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

Sales and marketing expense, research and development expense and amortization of intangible assets remained relatively flat.

General and administrative expense increased $59 million, primarily due to a $52 million increase of a legal accrual, of which $45 million was prejudgment interest, relating to an ongoing patent infringement lawsuit and the corresponding legal fees.

See Note 18 of the Notes to the Condensed Consolidated Financial Statements for further information.

Restructuring and other costs decreased $5 million, in connection with the December 2020 Plan, which was completed in the fourth quarter of fiscal 2022 .

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

Non-operating 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 expense $ (31) $ (32)

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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 (10) 3 (8) 10

Total non-operating income (expense), net $ (32) $ (35)

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.

Non-operating income (expense), net, remained relatively flat.

Provision for income taxes

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

Three Months Ended

(In millions, except for percentages) 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 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 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 income 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.

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We have historically relied on cash generated from operations, borrowings under credit facilities, issuances of debt and proceeds from divestitures for our liquidity needs.

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

Our capital allocation strategy is to balance driving stockholder returns, managing financial risk and preserving our flexibility to pursue strategic options, including acquisitions and mergers.

Historically, this has included a quarterly cash dividend, the repayment of debt and the repurchase of shares of our common stock.

The following summarizes our cash flow activities:

Three Months Ended

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

Net cash provided by (used in):

Operating activities $ 215 $ 258

Investing activities $ 4 $ (1)

Financing activities $ (807) $ 44

See Note 7 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for our supplemental cash flow information.

Cash from operating activities

Our cash flows provided by operating activities decreased by $43 million, primarily due to a decrease in accounts payable as a result of higher cash payments and a decrease in contract liabilities reflecting higher revenue recognized than billings compared to the first three months of fiscal 2022.

Cash from investing activities

Our cash flows provided by investing activities remained relatively flat.

Cash from financing activities

Our cash flows used in financing activities decreased $851 million, primarily due to the absence of proceeds from issuance of debt and the continuation of our stock repurchase program.

The first three months of fiscal 2023 reflects the $400 million repayment of our 3.95% Senior Notes and $300 million of repurchases of common stock, compared to the $512 million of proceeds from the issuance of our Initial Term Loan which was partially offset by the $364 million settlement of our New 2.5% Convertible Notes during the first three months of fiscal 2022.

Cash and cash equivalents

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.

As of July 1, 2022, we had cash, cash equivalents and short-term investments of $1,291 million, of which $694 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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We have an undrawn revolving credit facility of $1 billion, which expires in May 2026.

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.

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.

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.

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.

Cash Requirements

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

Proposed Merger with Avast

On August 10, 2021, the Company announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Proposed Merger).

The 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 shareholder elections.

B ased 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 .

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 the Interim Facilities Agreement.

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

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.

The following summarizes our cash flow activities:

Nine Months Ended

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

Net cash provided by (used in):

Operating activities $ 648 $ 350

Investing activities $ 316 $ 164

Financing activities $ (116) $ (1,658)

See Note 7 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for our supplemental cash flow information.

Cash from operating activities

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

Our cash flows provided by investing activities increased $152 million, primarily due to proceeds from the sale of certain Mountain View, California properties, partially offset by payment for the business acquisition and a decrease in proceeds from maturities and sales of short-term investments.

Cash from financing activities

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

The Interim Facilities Agreement includes (i) the Interim Facility B, (ii) the Interim Facility A1 and the Interim Facility A2, and (iii) the 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 Definitive Facilities (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 Facilities Agreement will replace the existing credit facility agreement upon the close of the transaction.

Debt instruments

As of July 1, 2022, 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) December 31, 2021

(In millions) July 1, 2022

Term Loans $ 1,703

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Total debt $ 3,336

Debt covenant compliance .

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

Our credit agreement maturing in May 2026 contains customary representations and warranties, non-financial covenants for financial reporting and affirmative and negative covenants, including compliance with specified financial ratios .

As of July 1, 2022, 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 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.

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

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

Stock repurchases.

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

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

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.

Share repurchase program

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

As of July 1, 2022, the remaining balance of our stock repurchase authorization was $1,474 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 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.

See Note 12 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further cash flow information associated with our restructuring activities.

Contractual obligations

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 December 31, 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 July 1, 2022, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $556 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.

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.

Commitments related to the principal payments of our debt instruments decreased $411 million from our Annual Report on Form 10-K for the fiscal year ended April 1, 2022 primarily due to the repayment of our 3.95% Senior Notes.

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

For additional information about our debt obligations and certain other contingencies, see Note 10 and Note 18, respectively, of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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, which is currently expected to occur on February 24, 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 in late calendar year 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 December 31, 2021 depending on several factors, including, but not limited to, economic conditions;

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 July 1, 2022 depending on several factors, including, but not limited to, economic conditions;

political climate;

the expansion of sales and marketing activities;

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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 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.

There have been no significant changes to our market risk exposures during the first three months of fiscal 2023, 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 1, 2022.

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