Gen Digital Inc. 10-Q

Item 1. Financial Statements (Unaudited) NORTONLIFELOCK INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in millions, except par value per share amounts) July 1, 2022 April 1, 2022 ASSETS Current assets: Cash and cash equivalents $ 1,291 $ 1,887 Short-term investments — 4 Accounts receivable, net 102 120 Other current assets 180 193 Assets held for sale 56 56 Total current assets 1,629 2,260 Property and equipment, net 56 60 Operating lease assets 70 74 Intangible assets, net 993 1,023 Goodwill 2,861 2,873 Other long-term assets 638 653 Total assets $ 6,247 $ 6,943 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 71 $ 63 Accrued compensation and benefits 48 81 Current portion of long-term debt 614 1,000 Contract liabilities 1,183 1,264 Current operating lease liabilities 19 18 Other current liabilities 689 639 Total current liabilities 2,624 3,065 Long-term debt 2,714 2,736 Long-term contract liabilities 37 42 Deferred income tax liabilities 63 75 Long-term income taxes payable 996 996 Long-term operating lease liabilities 69 75 Other long-term liabilities 43 47 Total liabilities 6,546 7,036 Commitments and contingencies (Note 18) Stockholders’ equity (deficit): Common stock and additional paid-in capital, $ 0.01 par value: 3,000 shares authorized; 571 and 580 shares issued and outstanding as of July 1, 2022 and April 1, 2022, respectively 1,479 1,851 Accumulated other comprehensive income (loss) ( 44 ) ( 4 ) Retained earnings (accumulated deficit) ( 1,734 ) ( 1,940 ) Total stockholders’ equity (deficit) ( 299 ) ( 93 ) Total liabilities and stockholders’ equity (deficit) $ 6,247 $ 6,943 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in millions, except per share amounts) Three Months Ended July 1, 2022 July 2, 2021 Net revenues $ 707 $ 686 Cost of revenues 102 102 Gross profit 605 584 Operating expenses: Sales and marketing 156 156 Research and development 61 68 General and administrative 104 45 Amortization of intangible assets 21 21 Restructuring and other costs 2 7 Total operating expenses 344 297 Operating income (loss) 261 287 Interest expense ( 31 ) ( 32 ) Other income (expense), net ( 1 ) ( 3 ) Income (loss) before income taxes 229 252 Income tax expense (benefit) 29 71 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 Diluted 604 591 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHEN SIVE INCOME (LOSS) (Unaudited, in millions) 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 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. 5 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited, in millions, except share amounts) 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) Shares Amount Balance as of April 1, 2022 582 $ 1,851 $ ( 4 ) $ ( 1,940 ) $ ( 93 ) Net income (loss) — — — 200 200 Other comprehensive income (loss), net of taxes — — ( 40 ) — ( 40 ) Common stock issued under employee stock incentive plans 2 — — — — Shares withheld for taxes related to vesting of restricted stock units ( 1 ) ( 16 ) — — ( 16 ) Repurchases of common stock ( 12 ) ( 300 ) — — ( 300 ) Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued — ( 73 ) — — ( 73 ) Stock-based compensation — 24 — — 24 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) Shares Amount Balance as of April 2, 2021 580 $ 2,229 $ 47 $ ( 2,776 ) $ ( 500 ) 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 ) Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued — ( 74 ) — — ( 74 ) Stock-based compensation — 20 — — 20 Extinguishment of convertible debt — ( 112 ) — — ( 112 ) 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. 6 Table of Contents NORTONLIFELOCK INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in millions) Three Months Ended July 1, 2022 July 2, 2021 OPERATING ACTIVITIES: Net income (loss) $ 200 $ 181 Adjustments: Amortization and depreciation 29 36 Stock-based compensation expense 24 20 Deferred income taxes ( 32 ) 1 Loss (gain) on extinguishment of debt — 5 Non-cash operating lease expense 4 5 Other ( 26 ) 7 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable, net 13 12 Accounts payable 9 24 Accrued compensation and benefits ( 32 ) ( 42 ) Contract liabilities ( 53 ) ( 34 ) Income taxes payable 60 21 Other assets — 41 Other liabilities 19 ( 19 ) Net cash provided by (used in) operating activities 215 258 INVESTING ACTIVITIES: Purchases of property and equipment ( 2 ) ( 1 ) Proceeds from the maturities and sales of short-term investments 4 4 Other 2 ( 4 ) Net cash provided by (used in) investing activities 4 ( 1 ) FINANCING ACTIVITIES: 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 vesting of restricted stock units ( 16 ) ( 13 ) Dividends and dividend equivalents paid ( 81 ) ( 84 ) Repurchases of common stock ( 300 ) — Net cash provided by (used in) financing activities ( 807 ) 44 Effect of exchange rate fluctuations on cash and cash equivalents ( 8 ) ( 4 ) Change in cash and cash equivalents ( 596 ) 297 Beginning cash and cash equivalents 1,887 933 Ending cash and cash equivalents $ 1,291 $ 1,230 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 7 Table of Contents NORTONLIFELOCK INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Description of Business and Significant Accounting Policies Business NortonLifeLock, Inc. is a 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 The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America for interim financial information. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended April 1, 2022. 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 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 The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying Notes. Such estimates include, but are not limited to, valuation of business combinations including acquired intangible assets and goodwill, loss contingencies, the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, and valuation of assets and liabilities. 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 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 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. 8 Table of Contents Note 2. Recent Accounting Standards Recently adopted authoritative guidance Debt with Conversion and Other Options . 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, 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. In March 2020, the FASB issued new guidance providing temporary optional expedients and exceptions to ease the financial reporting burden of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. The standard was effective upon issuance and may generally be applied through December 31, 2022, to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. We continue to evaluate our contractual arrangements and hedging relationships that reference LIBOR. Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our Condensed Consolidated Financial Statements and disclosures . Note 3. 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 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 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. Note 4. Business Combinations Proposed Merger with Avast On August 10, 2021, we announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in England and Wales and a global leader of digital security and privacy headquartered in Prague, Czech Republic (Avast and such transaction, the Proposed Merger). The Proposed Merger will be implemented by means of a court-sanctioned scheme of arrangement under the UK Companies Act 2006, as amended (the Scheme), and remains subject to a certain number of conditions. Under the terms of the Proposed Merger, Avast shareholders will be entitled to elect to receive, for each ordinary share of Avast held, in respect of their entire holding of Avast shares, either: (i) $ 7.61 in cash and 0.0302 of a new share of our common stock (such option, the Majority Cash Option); or (ii) $ 2.37 in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option ). 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 9 Table of Contents 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, 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, 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. Note 5. Revenues Contract liabilities 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 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. Note 6. Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill were as follows: (In millions) Balance as of April 1, 2022 $ 2,873 Translation adjustments ( 12 ) Balance as of July 1, 2022 $ 2,861 Intangible assets, net July 1, 2022 April 1, 2022 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 583 $ ( 403 ) $ 180 $ 583 $ ( 382 ) $ 201 Developed technology 217 ( 148 ) 69 217 ( 143 ) 74 Other 8 ( 3 ) 5 8 ( 3 ) 5 Total finite-lived intangible assets 808 ( 554 ) 254 808 ( 528 ) 280 Indefinite-lived trade names 739 — 739 743 — 743 Total intangible assets $ 1,547 $ ( 554 ) $ 993 $ 1,551 $ ( 528 ) $ 1,023 10 Table of Contents Amortization expense for purchased intangible assets is summarized below: 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 Developed technology 5 10 Cost of revenues Total $ 26 $ 31 As of July 1, 2022, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year: (In millions) Remainder of 2023 $ 79 2024 93 2025 32 2026 26 2027 12 Thereafter 12 Total $ 254 Note 7. Supplementary Information Cash and cash equivalents: (In millions) July 1, 2022 April 1, 2022 Cash $ 509 $ 609 Cash equivalents 782 1,278 Total cash and cash equivalents $ 1,291 $ 1,887 Accounts receivable, net: (In millions) July 1, 2022 April 1, 2022 Accounts receivable $ 103 $ 121 Allowance for doubtful accounts ( 1 ) ( 1 ) Total accounts receivable, net $ 102 $ 120 Other current assets: (In millions) July 1, 2022 April 1, 2022 Prepaid expenses $ 113 $ 107 Income tax receivable and prepaid income taxes 26 35 Other tax receivable 19 27 Other 22 24 Total other current assets $ 180 $ 193 Property and equipment, net: (In millions) July 1, 2022 April 1, 2022 Land $ 2 $ 2 Computer hardware and software 464 462 Office furniture and equipment 26 27 Buildings 25 27 Leasehold improvements 54 56 Construction in progress 1 1 Total property and equipment, gross 572 575 Accumulated depreciation and amortization ( 516 ) ( 515 ) Total property and equipment, net $ 56 $ 60 11 Table of Contents Other long-term assets: (In millions) July 1, 2022 April 1, 2022 Non-marketable equity investments $ 178 $ 178 Long-term income tax receivable and prepaid income taxes 23 25 Deferred income tax assets 344 351 Long-term prepaid royalty 48 53 Other 45 46 Total other long-term assets $ 638 $ 653 Short-term contract liabilities: (In millions) July 1, 2022 April 1, 2022 Deferred revenue $ 746 $ 743 Customer deposit liabilities 437 521 Total short-term contract liabilities $ 1,183 $ 1,264 Other current liabilities: (In millions) July 1, 2022 April 1, 2022 Income taxes payable $ 148 $ 109 Other taxes payable 70 87 Accrued legal fees 330 273 Accrued royalties 46 49 Other 95 121 Total other current liabilities $ 689 $ 639 Long-term income taxes payable: (In millions) July 1, 2022 April 1, 2022 Deemed repatriation tax payable $ 437 $ 437 Other long-term income taxes 3 3 Uncertain tax positions (including interest and penalties) 556 556 Total long-term income taxes payable $ 996 $ 996 Other income (expense), net: Three Months Ended (In millions) July 1, 2022 July 2, 2021 Interest income $ 2 $ — Foreign exchange gain (loss) ( 1 ) 1 Gain (loss) on early extinguishment of debt — ( 5 ) Other ( 2 ) 1 Other income (expense), net $ ( 1 ) $ ( 3 ) Supplemental cash flow information: Three Months Ended (In millions) July 1, 2022 July 2, 2021 Income taxes paid, net of refunds $ 1 $ 14 Interest expense paid $ 46 $ 44 Cash paid for amounts included in the measurement of operating lease liabilities $ 6 $ 8 Non-cash investing and financing activities: Extinguishment of debt with borrowings from same creditors $ — $ 494 12 Table of Contents Note 8. Financial Instruments and Fair Value Measurements For financial instruments measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability. The three levels of inputs that may be used to measure fair value are: • Level 1: Quoted prices in active markets for identical assets or liabilities. • Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. • Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes. Assets measured and recorded at fair value on a recurring basis The following table summarizes our financial instruments measured at fair value on a recurring basis: July 1, 2022 April 1, 2022 (In millions) Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 Assets: Money market funds $ 782 $ 782 $ — $ 1,278 $ 1,278 $ — Corporate bonds — — — 4 — 4 Total $ 782 $ 782 $ — $ 1,282 $ 1,278 $ 4 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 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 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. The fair values of all our debt obligations were based on Level 2 inputs. Note 9. Leases We lease certain of our facilities, equipment, and data center co-locations under operating leases that expire on various dates through fiscal 2029. Our leases generally have terms that range from 1 year to 8 years for our facilities, 1 year to 3 years for equipment and 1 year to 5 years for data center co-locations. Some of our leases contain renewal options, escalation clauses, rent concessions and leasehold improvement incentives. The following summarizes our lease costs: Three Months Ended (In millions) July 1, 2022 July 2, 2021 Operating lease costs $ 4 $ 4 Short-term lease costs 1 1 Variable lease costs 1 1 Total lease costs $ 6 $ 6 Other information related to our operating leases was as follows: Three Months Ended July 1, 2022 July 2, 2021 Weighted-average remaining lease term 4.6 years 4.2 years Weighted-average discount rate 4.05 % 4.11 % See Note 7 for cash flow information related to our operating leases. 13 Table of Contents As of July 1, 2022, the maturities of our lease liabilities by fiscal year are as follows: (In millions) Remainder of 2023 $ 16 2024 26 2025 21 2026 15 2027 15 Thereafter 3 Total lease payments 96 Less: Imputed interest ( 8 ) Present value of lease liabilities $ 88 Note 10. Debt The following table summarizes components of our debt: (In millions, except percentages) July 1, 2022 April 1, 2022 Effective Interest Rate 3.95 % Senior Notes due June 15, 2022 $ — $ 400 4.05 % New 2.00 % Convertible Unsecured Notes due August 15, 2022 525 525 2.62 % 5.00 % Senior Notes due April 15, 2025 1,100 1,100 5.00 % Initial Term Loan due May 7, 2026 1,009 1,010 LIBOR plus (1) Delayed Term loan due May 7, 2026 694 703 LIBOR plus (1) 0.95 % Avira Mortgage due December 30, 2030 4 4 0.95 % 1.29 % Avira Mortgage due December 30, 2029 4 5 1.29 % Total principal amount 3,336 3,747 Less: unamortized discount and issuance costs ( 8 ) ( 11 ) Total debt 3,328 3,736 Less: current portion ( 614 ) ( 1,000 ) Total long-term debt $ 2,714 $ 2,736 (1) The term loans bear interest at a rate equal to LIBOR plus a margin based either on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt or consolidated adjusted leverage as defined in the underlying loan agreement. The interest rates for the outstanding term loans are as follows: 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 July 1, 2022, the future contractual maturities of debt by fiscal year are as follows: (In millions) Remainder of 2023 $ 592 2024 89 2025 89 2026 1,189 2027 1,374 Thereafter 3 Total future maturities of debt $ 3,336 14 Table of Contents 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 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 transactions contemplated thereby. Senior notes 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. 15 Table of Contents 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 debt discount — ( 1 ) Net carrying amount $ 525 $ 524 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 (In millions) July 1, 2022 July 2, 2021 Contractual interest expense $ 3 $ 3 Amortization of debt discount $ — $ 1 Payments in lieu of conversion price adjustments (1) $ 1 $ 2 (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. Note 11. Derivatives We conduct business in numerous currencies throughout our worldwide operations and our entities hold monetary assets or liabilities, earn revenues or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses, which impact our operating results. As part of our foreign currency risk mitigation strategy, we have entered into 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. We enter into foreign currency forward contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as hedging instruments. As of 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 (In millions) July 1, 2022 July 2, 2021 Foreign exchange forward contracts gain (loss) $ ( 7 ) $ 3 The notional amount of our outstanding foreign exchange forward contracts in U.S. dollar equivalent was as follows: (In millions) July 1, 2022 April 1, 2022 Foreign exchange forward contracts purchased $ 156 $ 155 Foreign exchange forward contracts sold $ 82 $ 191 Note 12. Restructuring and Other Costs 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. These actions were completed in fiscal 2022. Any remaining costs or adjustments are immaterial. We incurred total costs of $ 24 million under the December 2020 Plan. Restructuring and other costs summary During the three months ended July 1, 2022 and July 2, 2021, we incurred total restructuring costs of $ 2 million and $ 7 million , respectively. 16 Table of Contents Note 13. Income Taxes The following table summarizes our effective tax rate for the periods presented: Three Months Ended (In millions, except 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 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. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Given the potential resolution of uncertain tax positions involves multiple tax periods and jurisdictions, we are unable to accurately estimate when these unrecognized tax benefits will be realized or released. However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next 12 months. We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. Note 14. Stockholders' Equity Dividends On 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. Any future dividends and DERs will be subject to the approval of our Board of Directors. Stock repurchase program Under our stock repurchase program, we may purchase shares of our outstanding common stock 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) July 1, 2022 Number of shares repurchased 12 Average price per share $ 24.35 Aggregate purchase price $ 300 Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss), net of taxes, consisted of foreign currency translation adjustments: (In millions) Foreign Currency Translation Adjustments Balance as of April 1, 2022 $ ( 4 ) Other comprehensive income (loss), net of taxes ( 40 ) Balance as of July 1, 2022 $ ( 44 ) 17 Table of Contents Note 15. Stock-Based Compensation The following table sets forth the stock-based compensation expense recognized for our equity incentive plans: Three Months Ended (In millions) July 1, 2022 July 2, 2021 Cost of revenues $ 1 $ — Sales and marketing 7 5 Research and development 6 6 General and administrative 10 9 Total stock-based compensation expense $ 24 $ 20 Income tax benefit for stock-based compensation expense $ ( 4 ) $ ( 4 ) 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): Weighted-average fair value per award granted $ 24.51 $ 21.29 Awards granted 2 3 Total fair value of awards released $ 46 $ 49 Outstanding and unvested 6 6 Performance-based restricted stock units (PRUs): Weighted-average fair value per award granted $ 33.04 $ 28.84 Awards granted 1 1 Total fair value of awards released $ 2 $ — Outstanding and unvested at target payout 4 2 Dividend equivalent rights (DERs) Our RSUs and PRUs contain DERs that entitles the recipient of an award to receive cash dividend payments if and when the underlying shares are released. The amount of DERs equals the amount of cumulated dividends on the issued number of common stock that would have been payable since the date the associated award was granted. As of 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. Note 16. Net Income Per Share Basic income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share also includes the incremental effect of dilutive potentially issuable common shares outstanding. 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 (In millions, except per share amounts) 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 Dilutive potentially issuable shares: Convertible debt 22 7 Employee equity awards 4 4 Weighted-average shares outstanding - diluted 604 591 18 Table of Contents 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 July 1, 2022 July 2, 2021 New 2.00 % Convertible Senior Notes due August 15, 2022 $ 20.41 $ 20.41 Note 17. Segment and Geographic Information We operate as one reportable segment. Our Chief Operating Decision Maker reviews financial information presented on a consolidated basis to evaluate company performance and to allocate resources. The following table summarizes net revenues for our major solutions: Three Months Ended (In millions) July 1, 2022 July 2, 2021 Consumer security $ 413 $ 412 Identity and information protection 294 274 Total net revenues (1) $ 707 $ 686 (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. Identity and information protection products include our Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection solutions. Geographic information Net revenues by geography are based on the billing addresses of our customers. The following table represents net revenues by geographic area for the periods presented: Three Months Ended (In millions) July 1, 2022 July 2, 2021 Americas $ 508 $ 477 EMEA 120 127 APJ 79 82 Total net revenues (1) $ 707 $ 686 Note: The Americas include U.S., Canada and Latin America; EMEA includes Europe, Middle East and Africa; 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 $ 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. The table below represents cash, cash equivalents and short-term investments held in the U.S. and internationally in various foreign subsidiaries. (In millions) July 1, 2022 April 1, 2022 U.S. $ 597 $ 1,220 International 694 671 Total cash, cash equivalents and short-term investments $ 1,291 $ 1,891 19 Table of Contents 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) July 1, 2022 April 1, 2022 U.S. $ 16 $ 16 Ireland 25 27 Germany 12 13 Other countries (1) 3 4 Total property and equipment, net $ 56 $ 60 (1) No other individual country represented more than 10% of the respective totals. 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) July 1, 2022 April 1, 2022 U.S. $ 63 $ 66 Other countries (1) 7 8 Total operating lease assets $ 70 $ 74 (1) No other individual country represented more than 10% of the respective totals. Significant customers No customer accounted for 10% or more of our net revenues during the 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 10 % 13 % Note 18. Commitments and Contingencies Indemnifications In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In addition, our bylaws contain indemnification obligations to our directors, officers, employees, and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements, and we have not accrued any material liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements. In connection with the sale of Veritas and the sale of our Enterprise Security business to Broadcom, we assigned several leases to Veritas Technologies LLC or Broadcom and/or their related subsidiaries. As a condition to consenting to the assignments, certain lessors required us to agree to indemnify the lessor under the applicable lease with respect to certain matters, including, but not limited to, losses arising out of Veritas Technologies LLC, Broadcom, or their related subsidiaries’ breach of payment obligations under the terms of the lease. As with our other indemnification obligations discussed above and in general, it is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. As with our other indemnification obligations, such indemnification agreements might not be subject to maximum loss clauses, and to date, generally under our real estate obligations, we have not incurred material costs as a result of such obligations under our leases and have not accrued any liabilities related to such indemnification obligations in our Condensed Consolidated Financial Statements. We provide limited product warranties, and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Such indemnification provisions may not be subject to maximum loss clauses. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred. 20 Table of Contents 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. Patent Nos. 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. Patent No. 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 As previously disclosed in our public filings, the Audit Committee of our Board of Directors (the Audit Committee) completed its internal investigation (the Audit Committee Investigation) in September 2018. In connection with the Audit Committee Investigation, we voluntarily contacted the U.S. Securities and Exchange Commission (SEC) in April 2018. The SEC commenced a formal investigation 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 Securities class action lawsuits, which have since been consolidated, were filed in May 2018 against us and certain of our former officers, in the U.S. District Court for the Northern District of California. The lead plaintiff’s consolidated amended complaint alleged that, during a purported class period of May 11, 2017 to August 2, 2018, defendants made false and misleading statements in violation of Sections 10(b) and 20(a), and that certain individuals violated Section 20A, of the Securities Exchange Act. Defendants filed motions to dismiss, which the Court granted in an order dated June 14, 2019. Pursuant to that order, plaintiff filed a motion seeking leave to amend and a proposed first amended complaint on July 11, 2019. The Court granted the motion in part on October 2, 2019, and the first amended complaint was filed on October 11, 2019. The Court’s order dismissed certain claims against certain of our former officers. Defendants filed answers on November 7, 2019. On April 20, 2021, to resolve an alleged conflict of interest raised with respect to the lead plaintiff and its counsel, the Court ordered a second Class Notice disclosing the circumstances of the alleged conflict and providing a further period for class members to opt out, which closed on July 2, 2021. The initial class opt out period closed on August 25, 2020. On May 24, 2021, the parties reached a proposed settlement and release of all claims in the class action, for $ 70 million, and on June 8, 2021, the parties executed a Stipulation and Agreement of Settlement, subject to Court approval and exclusive of any claims that may be brought by shareholders who opted out of the class action. Of the $ 70 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 our common stock during the class period. 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. District Courts for the District of Delaware and the Northern District of California, Delaware Chancery Court, and Delaware Superior Court, arising generally out of the same facts and circumstances as alleged in the securities class action and alleging claims for breach of fiduciary duty and related claims; these lawsuits include an action brought derivatively on behalf of our 2008 Employee Stock Purchase Plan. No specific amount of damages has been alleged in these lawsuits. We have also received demands from purported stockholders to inspect corporate books and records under Delaware law. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the derivative lawsuits or estimate the range of any potential loss. 21 Table of Contents We will continue to incur legal fees in connection with these pending cases and demands, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we will be successful in any defense. If any of the lawsuits are decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations, and cash flows. GSA During the first quarter of fiscal 2013, we were advised by the Commercial Litigation Branch of the Department of Justice’s (DOJ) Civil Division and the Civil Division of the U.S. Attorney’s Office for the District of Columbia that the government is investigating our compliance with certain provisions of our U.S. General Services Administration (GSA) Multiple Award Schedule Contract No. GS-35F-0240T effective January 24, 2007, including provisions relating to pricing, country of origin, accessibility, and the disclosure of commercial sales practices. As reported on the GSA’s publicly-available database, our total sales under the GSA Schedule contract were approximately $ 222 million from the period beginning January 2007 and ending September 2012. We fully cooperated with the government throughout its investigation, and in January 2014, representatives of the government indicated that their initial analysis of our actual damages exposure from direct government sales under the GSA Schedule contract was approximately $ 145 million; since the initial meeting, the government’s analysis of our potential damages exposure relating to direct sales has increased. The government also indicated they would pursue claims for certain sales to California, Florida, and New York as well as sales to the federal government through reseller GSA Schedule contracts, which could significantly increase our potential damages exposure. In 2012, a sealed civil lawsuit was filed against us related to compliance with the GSA Schedule contract and contracts with California, Florida, and New York. On July 18, 2014, the Court-imposed seal expired, and the government intervened in the lawsuit. On September 16, 2014, the states of California and Florida intervened in the lawsuit, and the state of New York notified the Court that it would not intervene. On October 3, 2014, the DOJ filed an amended complaint, which did not state a specific damages amount. On October 17, 2014, California and Florida combined their claims with those of the DOJ and the relator on behalf of New York in an Omnibus Complaint, and a First Amended Omnibus Complaint was filed on October 8, 2015; the state claims also do not state specific damages amounts. On June 6, 2019, we filed a motion seeking summary judgment on all claims asserted by all plaintiffs, and the plaintiffs filed a motion for partial summary judgment on elements of liability on their claims. On October 21, 2019, the DOJ moved for a Prejudgment Writ of Sequestration for the Company to set aside $ 1,090 million to pay a judgment, should the United States prevail in this litigation, under the Federal Debt Collection Procedures Act. The Writ was sought in response to the Company’s announcement of its plans to distribute the after-tax proceeds of the sale of the Symantec enterprise business to Broadcom to its shareholders via a special dividend. The Court denied the Writ on December 12, 2019, on the basis of the Government’s failure to establish the “probable validity” of the debt, the amount sought to be sequestered, and the Company’s available cash, cash equivalents and short-term investments. The Court permitted the DOJ limited discovery of facts relevant to the Company’s financial state and financial projections and the option to renew its motion if appropriate and supported by the analysis of its own financial expert. That discovery period has now closed. On March 30, 2020, the Court issued an Order granting in part and denying in part our motion for summary judgment and granting in part and denying in part the United States’ motion for partial summary judgment. On September 30, 2020, the Company filed a Motion for Reconsideration of certain rulings in the Court’s March 30 Summary Judgment Order. A second Motion for Reconsideration of certain rulings in the Summary Judgement Order based on significant change in the law was filed on July 23, 2021. Both Motions for Reconsideration were denied. Court ordered mediations in July 2020 and February 2021 were not successful. 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 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. Other We are involved in a number of other judicial and administrative proceedings that are incidental to our business. Although adverse decisions (or settlements) may occur in one or more of the cases, it is not possible to estimate the possible loss or losses from each of these cases. The final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on our business, results of operations, financial condition or cash flows. 22 Table of Contents