What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-06 compared with 2022-11-09 · 112 added, 114 removed, 224 unchanged (50% of the section changed)

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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;

In addition, projections of our future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, paying users, annual recurring revenue, average revenue per user, free cash flow, and the assumptions underlying such trends;

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 consummation of or anticipated impacts of acquisitions (including our ability to achieve synergies from the Merger with Avast), divestitures, restructurings, stock repurchases, financings, debt repayments 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;

plans for and anticipated benefits of our products and solutions;

anticipated tax rates, benefits and expenses;

the impact of the COVID-19 pandemic on our operations and financial performance;

the impact of inflation, fluctuations in foreign currency exchange rates, changes in interest rates, Russia’s invasion of Ukraine, the COVID-19 pandemic and other global macroeconomic factors on our operations and financial performance;

and other characterizations of future events or circumstances are forward-looking statements.

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On September 12, 2022, we completed the Merger with Avast with the issuance of 94,201,223 shares of our common stock to Avast shareholders and cash consideration of $6,910 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.

In connection with the Merger, we changed our corporate name to Gen Digital Inc.

and became dual headquartered in Tempe, Arizona and Prague, Czech Republic.

Prior to the Merger, Avast was a global leader in consumer cybersecurity, offering a comprehensive range of digital security and privacy products and services that protected and enhanced users’ online experiences.

We believe combining Avast’s strength in privacy and our strength in identity creates a broad and complementary consumer product portfolio beyond core security and towards adjacent trust-based solutions.

We also believe the Merger provides 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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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.

The three and nine months ended December 30, 2022 and December 31, 2021 each consisted of 13 and 39 weeks, respectively.

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

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

Three Months Ended Six Months Ended

(In millions, except for per share amounts) September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

Three Months Ended Nine Months Ended

(In millions, except for per share amounts) December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Net revenues $ 936 $ 702 $ 2,391 $ 2,080

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Net cash provided by (used in) operating activities $ 306 $ 330 $ 433 $ 648

(In millions) September 30, 2022 April 1, 2022

(In millions) December 30, 2022 April 1, 2022

Cash, cash equivalents and short-term investments $ 812 $ 1,891

Contract liabilities $ 1,729 $ 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.

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

• Net revenues increased $234 million and Operating income increased $66 million, primarily due to revenue attributable to Avast and higher sales in our identity and information protection products, offset by FX headwinds.

• Net income decreased $37 million and Net income per share - diluted decreased 0.09, primarily due to an increase in interest expense associated with our new senior credit facilities and two senior notes.

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

• Net revenues increased $311 million, primarily due to revenue attributable to Avast and higher sales in our identity and information protection products, offset by FX headwinds.

• Net income decreased $282 million and Net income per share - diluted decreased $0.51, primarily due to the increase in non-operating other expense.

• Cash, cash equivalents and short-term investments decreased by $1,079 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 notes.

Additionally, subsequent to December 30, 2022, we made a voluntary prepayment of $250 million for our senior credit facilities, which was applied exclusively to the Term B Facility.

• Contract liabilities increased $423 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.

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 nine months ended December 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

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.

GLOBAL MACROECONOMIC CONDITIONS

Our results of operations and cash flows are subject to fluctuations due to inflation, changes in foreign currency exchange rates relative to U.S.

dollars, our reporting currency, as well as changes in interest rates.

Volatile market conditions related to Russia’s invasion of Ukraine and retaliatory sanctions against the Russian Federation and Belarus, the COVID-19 pandemic and other macroeconomic events have, at times, and may in the future negatively impact our results of operations and cash flows.

Conversely, we have seen and may continue to see cost savings from the shift to remote and distributed work for certain of our employees in areas including events, travel, utilities and other benefits.

Due to our subscription-based business model, the effect of recent macroeconomic events may not be fully reflected in our results of operations until future periods, if at all.

For a further discussion of the potential impacts of the global macroeconomic conditions on our business, please see “Risk Factors” in Part II, Item 1A below.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Management believes that the accounting estimates employed and the resulting amounts are reasonable;

however, actual results may differ from these estimates.

however, actual results may differ from these

Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control.

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Our critical accounting policies and estimates were disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended April 1, 2022.

There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our Condensed Consolidated Financial Statements during the 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

Three Months Ended Nine Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Net revenues 100 % 100 % 100 % 100 %

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Percentages may not add due to rounding.

Three Months Ended Six Months Ended

(In millions, except for percentages) September 30, 2022 October 1, 2021 Change in % September 30, 2022 October 1, 2021 Change in %

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 30, 2022 December 31, 2021 Change in % December 30, 2022 December 31, 2021 Change in %

Net revenues $ 936 $ 702 33 % $ 2,391 $ 2,080 15 %

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.

Three Months Ended December 30, 2022 Compared with Three Months Ended December 31, 2021

Net revenues increased $234 million, primarily due to revenue attributable to Avast and an increase in sales of our identity and information protection products, offset by $34 million of foreign exchange headwinds, primarily in our consumer security solutions.

Nine Months Ended December 30, 2022 Compared with Nine Months Ended December 31, 2021

Net revenues increased $311 million, primarily due to revenue attributable to Avast and an increase in sales of our identity and information protection products, offset by $92 million of foreign exchange headwinds, primarily in our consumer security solutions.

Performance Metrics

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Three Months Ended (2)

(In millions, except for per user amounts) September 30, 2022 (3)

October 1, 2021

(In millions, except for per user amounts) December 30, 2022 (3)

September 30, 2022 (3)

December 31, 2021

Direct customer revenues (1)

$ 818 $ 660 $ 624

Partner revenues $ 95 $ 74 $ 68

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Direct customer count (at quarter end)

38.4 38.6 24.2

Direct average revenue per user (ARPU) $ 7.09 $ 6.98 $ 8.62

(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.

(1) Direct customer revenues during the three months ended December 31, 2021 excludes a $2 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.

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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.

(3) The performance metrics for the three months ended December 30, 2022 and 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.

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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.

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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

Three Months Ended Nine Months Ended

December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Americas 66 % 70 % 69 % 70 %

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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.

Percentage of revenue by geographic region in the three and nine months ended December 30, 2022 remains primarily in the Americas but is beginning to shift more into the EMEA markets, as the Merger with Avast has contributed to a stronger presence in those regional countries.

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 %

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 30, 2022 December 31, 2021 Change in % December 30, 2022 December 31, 2021 Change in %

Cost of revenues $ 178 $ 105 70 % $ 399 $ 307 30 %

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

Three Months Ended December 30, 2022 Compared with Three Months Ended December 31, 2021

Our cost of revenues increased $73 million, primarily due to a $46 million increase in the amortization of acquired intangible assets and $24 million increase in payment processing fees.

Nine Months Ended December 30, 2022 Compared with Nine Months Ended December 31, 2021

Our cost of revenues increased $92 million, primarily due to a $46 million increase in the amortization of acquired intangible assets, $29 million increase in payment processing fees, and $18 million increase in revenue share costs and royalty charges.

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 %

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 30, 2022 December 31, 2021 Change in % December 30, 2022 December 31, 2021 Change in %

Sales and marketing $ 183 $ 160 14 % $ 506 $ 466 9 %

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Total operating expenses $ 390 $ 295 32 % $ 1,122 $ 897 25 %

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

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.

Our operating expenses increased in the three and nine months ended December 30, 2022 compared to the three and nine months ended December 31, 2021 primarily due to increased headcount, IT and facility occupancy costs, as well as efforts to realize cost synergies, in connection with the Merger which was completed during the second quarter of fiscal 2023.

Three Months Ended December 30, 2022 Compared with Three Months Ended December 31, 2021

Sales and marketing expense increased $23 million, primarily due to a $21 million increase of headcount, IT and facility occupancy costs.

Research and development expense increased $31 million, primarily due to a $23 million increase of headcount, IT and facility occupancy costs, $5 million increase of outside services and software expense and $4 million increase of stock-based compensation expense.

General and administrative expense decreased $31 million, primarily due to a $42 million legal accrual reversal relating to an ongoing contract compliance lawsuit, partially offset by a $11 million increase of headcount costs.

Amortization of intangible assets increased $40 million primarily as a result of the Merger with Avast.

Restructuring and other costs increased $32 million, primarily due to severance and termination benefit costs in connection with the September 2022 Plan.

See Note 12 of the Notes to the Condensed Consolidated Financial Statements for details of the fiscal 2023 restructuring activities.

Nine Months Ended December 30, 2022 Compared with Nine Months Ended December 31, 2021

Sales and marketing expense increased $40 million, primarily due to a $28 million increase of headcount and IT costs and a $11 million increase of stock-based compensation expense.

Research and development expense increased $31 million, primarily due to a $19 million increase of headcount and IT costs, a $7 million increase of stock-based compensation expense and a $6 million increase in outside services and software expense.

General and administrative expense increased $75 million, due to a $43 million increase of transaction and integration costs incurred in connection with the Merger, a $57 million legal accrual, of which $49 million was prejudgment interest, relating to an ongoing patent infringement lawsuit and the corresponding legal fees, and a $16 million increase of stock-based compensation expense.

This was partially offset by a $42 million legal accrual reversal relating to an ongoing contract compliance lawsuit.

Amortization of intangible assets increased $48 million primarily as a result of the Merger with Avast.

Restructuring and other costs increased $31 million, primarily due to severance and termination benefit costs in connection with the September 2022 Plan.

See Note 12 of the Notes to the Condensed Consolidated Financial Statements for details of the fiscal 2023 restructuring activities.

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

Three Months Ended Nine Months Ended

(In millions) December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Interest expense $ (154) $ (32) $ (233) $ (95)

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Total non-operating income (expense), net $ (152) $ (41) $ (230) $ 70

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.

Three Months Ended December 30, 2022 Compared with Three Months Ended December 31, 2021

Non-operating income (expense), net, increased by $111 million in expense, primarily due to an increase in interest expense associated with our new senior credit facilities and two senior notes, all of which were issued during the second quarter of fiscal 2023.

Nine Months Ended December 30, 2022 Compared with Nine Months Ended December 31, 2021

Non-operating income (expense), net, increased by $300 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 associated with our new senior credit facilities and two senior notes, all of which were issued during the second quarter of fiscal 2023.

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

Three Months Ended Nine Months Ended

(In millions, except for percentages) December 30, 2022 December 31, 2021 December 30, 2022 December 31, 2021

Income (loss) before income taxes $ 216 $ 261 $ 640 $ 946

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Effective tax rate 24 % 23 % 32 % 24 %

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.

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

Our effective tax rate for the three and nine months ended December 31, 2021 differs from the federal statutory income tax rate primarily due to state taxes and U.S.

taxation on foreign earnings.

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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;

However, our future liquidity and capital requirements may vary materially from those as of December 30, 2022 depending on several factors, including, but not limited to, economic conditions;

political climate;

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The following summarizes our cash flow activities:

Six Months Ended

(In millions) September 30, 2022 October 1, 2021

Nine Months Ended

(In millions) December 30, 2022 December 31, 2021

Net cash provided by (used in):

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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.

Our cash flows provided by operating activities decreased by $215 million, primarily due to an increase in cash payments during the first nine 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.

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.

Our cash flows used in investing activities increased by $6,862 million, primarily due to the $6,547 million total cash consideration paid for the Merger with Avast, 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

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$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.

This was partially offset by the $400 million repayment of our 3.95% Senior Notes, $1,010 million repayment of our Initial Term Loan, $703 million repayment of our Delayed Draw Term Loan, settlement of the $525 million principal and $100 million equity rights associated with our New 2.0% Convertible Notes, and common stock repurchases of $904 million.

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.

As of December 30, 2022, we had cash, cash equivalents and short-term investments of $812 million, of which $440 million was held by our foreign subsidiaries.

Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity and generate investment returns.

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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.

During the nine months ended December 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.

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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.

During the nine months ended December 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.

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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.

During the nine months ended December 30, 2022, we paid $31 million in ticking fees.

Subsequent to December 30, 2022, on January 19, 2023, we made a voluntary prepayment of $250 million for our senior credit facilities, which was applied exclusively to the Term B Facility.

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.

During the three and nine months ended December 30, 2022, we executed repurchases of 23 million and 40 million shares of our common stock, respectively, under our existing share repurchase program for an aggregate amount of $500 million and $904 million, respectively.

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.

On September 12, 2022, we completed the Merger with Avast for a total cash consideration of approximately $6,547 million, net of $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.

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Debt instruments

As of September 30, 2022, our total outstanding principal amount of indebtedness is summarized as follows.

As of December 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

(In millions) December 30, 2022

Term Loans $ 7,600

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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.

The Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including compliance with specified financial ratios .

As of December 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.

On November 8, 2022, we announced a cash dividend of $0.125 per share of common stock to be paid in December 2022.

On February 2, 2023, we announced a cash dividend of $0.125 per share of common stock to be paid in March 2023.

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

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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.

As of December 30, 2022, the remaining balance of our stock repurchase authorization was $870 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.

We have incurred and expect to incur cash expenditures for severance and termination benefits, contract terminations, facilities closures, and the sale of underutilized facilities as well as stock-based compensation charges for accelerated equity awards for certain terminated employees.

As of December 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.

During the nine months ended December 30, 2022, we made $21 million in cash payments related to the September 2022 Plan.

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

Significant contractual obligations

The following is a schedule of our significant contractual obligations and commitments as of December 30, 2022, including those associated with the 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.

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Total $ 1,275 $ 12,996 $ 14,271

(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.

(1) As of December 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.

As of December 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.

Interest on variable rate debt was calculated using the interest rate in effect as of December 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.

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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

with the respective taxing authorities.

Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of December 30, 2022, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Therefore, $614 million in long-term income taxes payable has been excluded from our quarterly review of timing of contractual obligations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis