Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements and factors that may affect future results
The discussion below contains forward-looking statements, which are subject to safe harbors under the Securities Act of 1933, as amended (the Securities Act) and the Exchange Act. Forward-looking statements include references to our ability to utilize our deferred tax assets, as well as statements including words such as “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “goal,” “intent,” “momentum,” “projects,” and similar expressions. In addition, projections of our future financial performance; anticipated growth and trends in our businesses and in our industries; the consummation of or anticipated impacts of acquisitions (including the recent Merger with Avast and related financing), divestitures, restructurings, stock repurchases, and investment activities; the outcome or impact of pending litigation, claims or disputes; our intent to pay quarterly cash dividends in the future; plans for and anticipated benefits of our solutions; anticipated tax rates, benefits and expenses; the impact of the COVID-19 pandemic on our operations and financial performance; and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions, based on our current expectations about future events and may not prove to be accurate. We do not undertake any obligation to update these forward-looking statements to reflect events occurring or circumstances arising after the date of this report. These forward-looking statements involve risks and uncertainties, and our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements on the basis of several factors, including economic recessions, inflationary pressures and those other factors that we discuss in Part II Item 1A, of this Quarterly Report on Form 10-Q. We encourage you to read that section carefully.
OVERVIEW
Gen is a global, leading provider of consumer Cyber Safety solutions, empowering over 500 million users in more than 150 countries. 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.
Merger with Avast
On September 12, 2022, we completed the Merger with Avast with the issuance of 94,201,233 shares of our common stock to Avast shareholders and cash consideration of $6,913 million, which includes repayment of Avast’s outstanding debt. As a result, we have changed our corporate name to Gen Digital Inc. and have become dual headquartered in Tempe, Arizona and Prague, Czech Republic. Avast is a global leader in consumer cybersecurity, offering a comprehensive range of digital security and privacy products and services that protect and enhance users’ online experiences. Combining Avast’s strength in privacy and our strength in identity will create a broad and complementary consumer product portfolio beyond core security and towards adjacent trust-based solutions. This Merger will provide greater geographic diversification and access to a larger user base and will accelerate the transformation of global consumer cyber safety. All financial information related to Avast that is discussed below in key financial metrics, results of operations and liquidity and capital resources is inclusive as of the Closing Date.
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Fiscal calendar
We have a 52/53-week fiscal year ending on the Friday closest to March 31. The three and six months ended September 30, 2022 and October 1, 2021 each consisted of 13 and 26 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 Six Months Ended
(In millions, except for per share amounts) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Net revenues $ 748 $ 692 $ 1,455 $ 1,378
Operating income (loss) $ 241 $ 287 $ 502 $ 574
Net income (loss) $ 69 $ 333 $ 269 $ 514
Net income (loss) per share - diluted $ 0.12 $ 0.56 $ 0.45 $ 0.87
Net cash provided by (used in) operating activities $ (88) $ 60 $ 127 $ 318
As Of
(In millions) September 30, 2022 April 1, 2022
Cash, cash equivalents and short-term investments $ 1,095 $ 1,891
Contract liabilities $ 1,684 $ 1,306
Below are our financial highlights for the second quarter of fiscal 2023, compared to the corresponding period in the prior year:
• Net revenues increased $56 million, due to revenue attributable to Avast and higher sales in our identity and information protection products.
• Operating income decreased $46 million, primarily due to the increase in transaction and integration costs related to the Merger. We anticipate an initial increase in our operating costs, which we expect to decrease as we realize synergies as a combined company.
• Net income decreased $264 million and Net income per share - diluted decreased 0.44, primarily due to the increases in operating costs, non-operating other expense and income tax expense.
Below are our financial highlights for the first six months of fiscal 2023, compared to the corresponding period in the prior year:
• Net revenues increased $77 million, due to revenue attributable to Avast and higher sales in our identity and information protection products.
• Operating income decreased $72 million, primarily due to the increase in transaction and integration costs related to the Merger. We anticipate an initial increase in our operating costs, which we expect to decrease as we realize synergies as a combined company.
• Net income decreased $245 million and Net income per share - diluted decreased $0.42, primarily due to the increases in operating costs, non-operating other expense and income tax expense.
• Cash, cash equivalents and short-term investments decreased by $796 million compared to April 1, 2022, primarily due to the completion of the Merger and repurchases of our common stock, offset by proceeds from the issuance of the senior credit facilities and the two senior unsecured notes.
• Contract liabilities increased $378 million compared to April 1, 2022, primarily due to contract liabilities assumed as part of the Merger, partially offset by seasonally lower billings than recognized revenue during the period.
The Merger has altered the size and scope of our operations, impacting our assets, liabilities, obligations, capital requirements and performance measures. We expect the key financial metrics and results of operations of the combined company to be materially different than the trends experienced during the three and six months ended September 30, 2022. As a combined company, we expect to achieve synergies, rapidly launch a broad and innovative product portfolio, expand into new and diversified sales channels and enhance customer experience and retention. Refer to Note 4 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information about this business combination.
COVID-19 UPDATE
The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and business practices.
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
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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.
RUSSIA-UKRAINE CONFLICT
Due to the ongoing conflict between Russia and Ukraine and the related sanctions and other penalties imposed on Russia and Belarus by the United States, the European Union, the United Kingdom and other countries, we suspended our business operations in Russia commencing in the fourth quarter of fiscal 2022. We do not have operations or employees in Ukraine. The suspension of our business operations in Russia has not had a material impact on our business, financial condition, or results of operations as our operations in Russia and our sales to customers in Russia and Belarus do not constitute a material portion of our business. Further, unless and until the U.S. government lifts its sanctions on Russia and Belarus, which are restricting the export of a broad range of U.S. technologies to those countries, we will continue to be unable to ship such technologies or provide support to anyone in Russia or Belarus. We are actively monitoring the Russia-Ukraine conflict and the potential impact it could have on our business, employees and our ability to sell our products and services to our customers. See Part II, Item 1A, Risk Factors for further discussion of the possible impact of the Russia-Ukraine Conflict on our business, operations and financial condition.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Condensed Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S. requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.
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 three and six months ended September 30, 2022.
RESULTS OF OPERATIONS
The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:
Three Months Ended Six Months Ended
September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Net revenues 100 % 100 % 100 % 100 %
Cost of revenues 16 14 15 15
Gross profit 84 86 85 85
Operating expenses:
Sales and marketing 22 22 22 22
Research and development 10 10 9 10
General and administrative 15 9 15 8
Amortization of intangible assets 4 3 3 3
Restructuring and other costs 1 1 1 1
Total operating expenses 52 44 50 44
Operating income (loss) 32 41 35 42
Interest expense (6) (4) (5) (5)
Other income (expense), net — 26 — 13
Income (loss) before income taxes 26 63 29 50
Income tax expense (benefit) 17 14 11 12
Net income (loss) 9 % 48 % 18 % 37 %
Note: Percentages may not add due to rounding.
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Net revenues
Three Months Ended Six Months Ended
(In millions, except for percentages) September 30, 2022 October 1, 2021 Change in % September 30, 2022 October 1, 2021 Change in %
Net revenues $ 748 $ 692 8 % $ 1,455 $ 1,378 6 %
Three Months Ended September 30, 2022 Compared with Three Months Ended October 1, 2021
Net revenues increased $56 million, primarily due to $48 million of revenue attributable to Avast and an increase in sales of our identity and information protection products. Net revenues were impacted by $31 million of foreign exchange headwinds, primarily in our consumer security solutions.
Six Months Ended September 30, 2022 Compared with Six Months Ended October 1, 2021
Net revenues increased $77 million, primarily due to $48 million of revenue attributable to Avast and an increase in sales of our identity and information protection products. Net revenues were impacted by $58 million of foreign exchange headwinds, primarily in our consumer security solutions.
Performance Metrics
We regularly monitor a number of metrics in order to measure our current performance and estimate our future performance. Our metrics may be calculated in a manner different than similar metrics used by other companies.
The following table summarizes supplemental key performance metrics:
Three Months Ended (2)
(In millions, except for per user amounts) September 30, 2022 (3)
October 1, 2021
Direct customer revenues (1)
$ 660 $ 619
Partner revenues $ 74 $ 64
Total Cyber Safety revenues $ 734 $ 683
Legacy revenues $ 14 $ 12
Direct customer count (at quarter end)
38.6 24.0
Direct average revenue per user (ARPU) $ 6.98 $ 8.63
(1) Direct customer revenues during the three months ended October 1, 2021 excludes a $3 million reduction of revenue, from contract liability purchase accounting adjustments. We believe that eliminating the impact of these adjustments improves the comparability of revenues between periods. In addition, although the adjustment amounts will never be recognized in our GAAP financial statements, we do not expect the acquisitions to affect the future renewal rates of revenues excluded by the adjustments.
(2) From time to time, changes in our product hierarchy cause changes to the revenue channels above. When changes occur, we recast historical amounts to match the current revenue channels. Direct revenues currently includes Mobile App Store customers, and legacy revenues includes revenues from products or solutions that are no longer in operations in exited markets, have been discontinued or identified to be discontinued, or remain in maintenance mode as a result of integration and product portfolio decisions. As such, the changes to historical revenue amounts and the other performance metrics, including direct customer count and ARPU, are reflected for all periods presented above.
(3) The performance metrics for the three months ended September 30, 2022 include the revenues earned and customers acquired through our Merger with Avast. ARPU is based on average customer count and assumes full quarter of revenue for both companies.
We define direct customer revenues as revenues from sales of our consumer solutions to direct customers, which we define as active paid users who have a direct billing relationship with the Company at the end of the reported period. We exclude users on free trials and users who have indirectly purchased our product or services through partners unless such users convert or renew their subscription directly with us, or sign up for a paid membership through our web store or third party app stores.
Average direct customer count presents the average of the total number of direct customers at the beginning and end of the fiscal quarter.
ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure. Non-GAAP estimated direct customer revenues and ARPU have limitations as analytical tools and should not be considered in isolation or as a substitute for GAAP estimated direct customer revenues or other GAAP measures. We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer customer base.
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Net revenues by geographical region
Three Months Ended Six Months Ended
September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Americas 71 % 70 % 71 % 70 %
EMEA 18 % 18 % 18 % 18 %
APJ 11 % 12 % 11 % 12 %
The Americas include the U.S., Canada and Latin America; EMEA includes Europe, the Middle East and Africa; APJ includes Asia Pacific and Japan.
Percentage of revenue by geographic region in the three and six months ended September 30, 2022 remained consistent with the corresponding period in the prior year.
Cost of revenues
Three Months Ended Six Months Ended
(In millions, except for percentages) September 30, 2022 October 1, 2021 Change in % September 30, 2022 October 1, 2021 Change in %
Cost of revenues $ 119 $ 100 19 % $ 221 $ 202 9 %
Three Months Ended September 30, 2022 Compared with Three Months Ended October 1, 2021
Our cost of revenues increased $19 million, primarily due to higher revenue share costs and payment processing fees associated with year-over-year business growth and costs incurred by Avast subsequent to the completion of the Merger.
Six Months Ended September 30, 2022 Compared with Six Months Ended October 1, 2021
Our cost of revenues increased $19 million, primarily due to higher revenue share costs and payment processing fees associated with year-over-year business growth and costs incurred by Avast subsequent to the completion of the Merger.
Operating expenses
Three Months Ended Six Months Ended
(In millions, except for percentages) September 30, 2022 October 1, 2021 Change in % September 30, 2022 October 1, 2021 Change in %
Sales and marketing $ 167 $ 150 11 % $ 323 $ 306 6 %
Research and development 73 66 11 % 134 134 0 %
General and administrative 110 63 75 % 214 108 98 %
Amortization of intangible assets 29 21 38 % 50 42 19 %
Restructuring and other costs 9 5 80 % 11 12 (8) %
Total operating expenses $ 388 $ 305 27 % $ 732 $ 602 22 %
Three Months Ended September 30, 2022 Compared with Three Months Ended October 1, 2021
Sales and marketing expense increased $17 million, primarily due an increase in stock-based compensation charges and the additional expenses incurred by Avast subsequent to the completion of the Merger.
General and administrative expense increased $47 million, primarily due to transaction and integration costs incurred in connection with the Merger, which consisted of legal and professional services and other regulatory closing fees.
Research and development, amortization of intangible assets and restructuring and other costs remained relatively flat.
Six Months Ended September 30, 2022 Compared with Six Months Ended October 1, 2021
Sales and marketing expense increased $17 million, primarily due an increase in stock-based compensation charges and the additional expenses incurred by Avast subsequent to the completion of the Merger.
General and administrative expense increased $106 million, primarily due to transaction and integration costs incurred in connection with the Merger and a $54 million legal accrual, of which $47 million was prejudgment interest, relating to an ongoing patent infringement lawsuit and the corresponding legal fees.
Research and development, amortization of intangible assets and restructuring and other costs remained relatively flat.
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Non-operating income (expense), net
Three Months Ended Six Months Ended
(In millions) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Interest expense $ (48) $ (31) $ (79) $ (63)
Interest income 3 — 5 —
Foreign exchange gain (loss) 2 1 1 2
Gain (loss) on early extinguishment of debt (9) — (9) (5)
Gain on sale of properties — 175 — 175
Other 6 1 4 2
Total non-operating income (expense), net $ (46) $ 146 $ (78) $ 111
Three Months Ended September 30, 2022 Compared with Three Months Ended October 1, 2021
Non-operating income (expense), net, increased by $192 million in expense, primarily due to the $175 million gain on sale of certain land and buildings in Mountain View, California during the second quarter of fiscal 2022 and an increase in interest expense during the second quarter of fiscal 2023 associated with our new senior credit facilities and two unsecured senior notes.
Six Months Ended September 30, 2022 Compared with Six Months Ended October 1, 2021
Non-operating income (expense), net, increased by $189 million in expense, primarily due to the absence of the $175 million gain on sale of certain land and buildings in Mountain View, California during the second quarter of fiscal 2022 and an increase in interest expense during the second quarter of fiscal 2023 associated with our new senior credit facilities and two unsecured senior notes.
Provision for income taxes
Three Months Ended Six Months Ended
(In millions, except for percentages) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021
Income (loss) before income taxes $ 195 $ 433 $ 424 $ 685
Income tax expense (benefit) $ 126 $ 100 $ 155 $ 171
Effective tax rate 65 % 23 % 37 % 25 %
Our effective tax rate for income for the three and six months ended September 30, 2022 differs from the federal statutory income tax rate primarily due to state taxes and the U.S. taxation on foreign earnings, and certain discrete items this quarter including the tax impacts of internal restructuring, deductibility of transaction costs from the Merger, and the limitations of foreign taxes due to the increase of interest expense.
Our effective tax rate for the three and six months ended October 1, 2021 differs from the federal statutory income tax rate primarily due to state taxes and U.S. taxation on foreign earnings.
We are a multinational company dual headquartered in the U.S. and Czech Republic, subject to tax in multiple U.S. and international tax jurisdictions. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Our results can also be impacted by the costs incurred and the potential deductibility of the expenses. Any change in our mix of earnings is dependent upon many factors and therefore, is difficult to predict.
In connection with the Merger, we established $345 million of net deferred tax liabilities primarily related to the excess of book basis over the tax basis of acquired identified intangible assets. The net deferred tax liabilities are based upon certain assumptions underlying our preliminary purchase price allocation. Upon finalization of the purchase price allocation, additional adjustments to the amount of our net deferred taxes may be required.
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.
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LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS
Liquidity and Capital Resources
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 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.
Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our Revolving Facility, will be sufficient to meet our working capital needs, support on-going business activities and finance the expected synergy costs related to the Merger through at least the next 12 months and to meet our known long-term contractual obligations. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. However, our future liquidity and capital requirements may vary materially from those as of September 30, 2022 depending on several factors, including, but not limited to, economic conditions; political climate; the expansion of sales and marketing activities; the costs to acquire or invest in businesses; and the risks and uncertainties discussed in “Risk Factors” in Part II, Item 1A below.
Cash flows
The following summarizes our cash flow activities:
Six Months Ended
(In millions) September 30, 2022 October 1, 2021
Net cash provided by (used in):
Operating activities $ 127 $ 318
Investing activities $ (6,546) $ 313
Financing activities $ 5,649 $ (33)
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 $191 million, primarily due to an increase of cash payments during the first six months of fiscal 2023, including payments of federal income taxes, debt interest, and transaction costs and other regulatory closing fees in connection with the Merger, all of which was partially offset by collections of receivables.
Cash from investing activities
Our cash flows used in investing activities increased by $6,859 million, primarily due to the $6,550 million total cash consideration paid for the Avast Merger, net of $363 million cash acquired and $2,141 million non-cash consideration transferred, as well as the absence of $355 million in proceeds from the sale of certain Mountain View, California properties during the first six months of fiscal 2022.
Cash from financing activities
Our cash flows provided by financing activities increased $5,682 million, primarily due to proceeds from the issuance of debt, partially offset by repayment of debt and the continuation of our stock repurchase program. The first six months of fiscal 2023 reflects $8,954 million of aggregate proceeds: $3,910 million from Term Facility A, $3,690 million from Term Facility B, $900 million from the 6.75% Senior Notes and $600 million from the 7.125% Senior Notes, net of $146 million of debt issuance costs. This was partially offset by the $400 million repayment of our 3.95% Senior Notes, $1,010 million repayment of our Initial Draw Term Loan, $703 million repayment of our Delayed Draw Term Loan and the settlement of the $525 million principal and $100 million equity rights associated with our New 2.0% Convertible Notes. In contrast, the first three months of fiscal 2022 reflects $512 million of proceeds from the issuance of our Initial Term Loan, partially offset by the $364 million settlement of our New 2.5% Convertible Notes.
Cash and cash equivalents
As of September 30, 2022, we had cash, cash equivalents and short-term investments of $1,095 million, of which $451 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. The participation exemption system under current U.S. federal tax regulations generally allows us to make distributions of non-U.S. earnings to the U.S. without incurring additional U.S. federal tax, however, these distributions may be subject to applicable state or foreign taxes.
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Debt
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.
On August 15, 2022, we settled the $525 million principal and conversion rights of our New 2.0% Convertible Notes in cash. The aggregate settlement amount of $630 million was based on $20.41 per underlying share into which the New 2.0% Convertible Notes were convertible. In addition, we paid $5 million of accrued and unpaid interest through the date of settlement.
On September 12, 2022, upon close of the Merger with Avast, we entered into the Amended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $1,500 million revolving credit facility (Revolving Facility), a $3,910 million term loan A facility (Term A Facility), (iii) a $3,690 million term loan B facility (Term B Facility) and (iv) a $750 million tranche A bridge loan (Bridge Loan) (collectively, the senior credit facilities). The Bridge Loan was undrawn and immediately terminated upon the Merger’s close. We drew down the aggregate principal amounts of the Term A Facility and Term B Facility to finance the cash consideration payable for the transaction and to fully repay the outstanding principal of $1,703 million and accrued and unpaid interest of $3 million under the Initial Term Loan and Delay Draw Term Loan from the existing credit facilities. The Credit Agreement replaced the existing credit facilities upon the close of the transaction. During three and six months ended September 30, 2022, we paid an aggregate $145 million in debt issuance costs associated with the senior credit facilities.
O n September 19, 2022, we issued two series of senior notes, consisting of 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030, for an aggregate principal of $1,500 million. They are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and may be redeemed at any time, subject to the make-whole provisions contained in the applicable indenture relating to such series of notes. Interest on these series of notes is payable semi-annually in arrears on March 31 and September 30 for both the 6.75% Senior Notes and 7.125% Senior Notes, commencing on March 31, 2023. During three and six months ended September 30, 2022, we paid an aggregate $14 million in debt issuance costs associated with the two senior notes.
In connection with the financing provided for Term B Facility, we incurred customary ticking fees with respect to the undrawn commitments that began accruing on the 61st day post-syndication. The ticking fees were accrued at the per annum rate of (i) 50% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans for 61-90 days from January 28, 2022, the syndication date, and (ii) 100% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans on and after 91 days from the syndication date. Ticking fees were payable on the closing date of the transaction. During three and six months ended September 30, 2022, we paid $31 million in ticking fees.
Share repurchases
During the three months ended September 30, 2022, we executed repurchases of 17 million shares of our common stock under our existing share repurchase program for an aggregate amount of $404 million.
Merger with Avast
On September 12, 2022, we completed the Merger with Avast for a total cash consideration of approximately $6,550 million, net $363 million of cash acquired and $2,141 million non-cash consideration transferred. The cash consideration included repayment of outstanding Avast debt totaling $942 million. See Note 4 of the Notes to the Condensed Consolidated Financial Statements for further information about this business combination.
Material 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.
Debt instruments
As of September 30, 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) September 30, 2022
Term Loans $ 7,600
Senior Notes 2,600
Mortgage Loans 7
Total debt $ 10,207
Our Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including compliance with specified financial ratios . As of September 30, 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.
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Dividends
On November 8, 2022, we announced a cash dividend of $0.125 per share of common stock to be paid in December 2022. Any future dividends and dividend equivalents will be subject to the approval of our Board of Directors.
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 September 30, 2022, the remaining balance of our stock repurchase authorization was $1,370 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.
Subsequent to September 30, 2022, we executed repurchases of $14 million shares of our common stock for an aggregate amount of $308 million. As a result, we have $1,062 million remaining under our existing share repurchase program.
Restructuring
In connection with the Merger, our Board of Directors approved a restructuring plan (the September 2022 Plan) to realize cost savings and operational synergies, which became effective upon the close of the Merger on September 12, 2022. We have incurred or expect to incur cash expenditures for severance and termination benefits, contract terminations, facilities closures, and the sale of underutilized facilities. As of September 30, 2022, we expect that we will incur total costs up to $280 million, with $180 million and $100 million estimated to be incurred within the first and second full years, respectively, following the completion of the Merger. These actions are expected to be completed by fiscal 2024.
Contractual obligations
The following is a schedule of our significant contractual obligations and commitments as of September 30, 2022, including those associated with our Merger with Avast. The expected timing and amount of short-term and long-term payments of the obligations in the following table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for certain obligations.
Short-Term Payments Long-Term Payments Total
(In millions)
Contractual obligations:
Debt (principal payments) (1)
$ 175 $ 10,032 $ 10,207
Interest payments on debt (2)
588 2,573 3,161
Purchase obligations (3)
316 122 438
Deemed repatriation taxes (4)
128 309 437
Operating leases (5)
26 43 69
Total $ 1,233 $ 13,079 $ 14,312
(1) As of September 30, 2022, our total outstanding principal amount of indebtedness is comprised of $7,600 million in Term Loans, $2,600 million in Senior Notes and $7 million in Mortgage Loans. See Note 10 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information about our debt and debt covenants.
The Credit Agreement contains customary representations and warranties and 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 September 30, 2022 , we were in compliance with all debt covenants.
(2) Interest payments calculated based on the contractual terms of the related debt instruments. Interest on variable rate debt was calculated using the interest rate in effect as of September 30, 2022. See Note 10 of the Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information on the Term Loans and Senior Notes.
(3) Agreements for purchases of goods or services, with terms that are enforceable and legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. These amounts include agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included because management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials.
(4) Transition tax payments on previously untaxed foreign earnings of foreign subsidiaries under the Tax Cuts and Jobs Act, which may be paid through July 2025.
(5) Payments for various non-cancelable operating lease agreements that expire on various dates through fiscal 2028. The amounts in the table above exclude expected sublease income. See Note 9 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information on 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 September 30, 2022, we are unable to make reasonably reliable estimates of the period of cash settlement
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with the respective taxing authorities. Therefore, $595 million in long-term income taxes payable has been excluded from our quarterly review of timing of contractual obligations.