Gen Digital Inc. 10-Q

Item 1. Financial Statements (Unaudited) GEN DIGITAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in millions, except par value per share amounts) September 29, 2023 March 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 629 $ 750 Accounts receivable, net 147 168 Other current assets 278 284 Assets held for sale 22 31 Total current assets 1,076 1,233 Property and equipment, net 75 76 Operating lease assets 39 43 Intangible assets, net 2,859 3,097 Goodwill 10,199 10,217 Other long-term assets 2,163 1,281 Total assets $ 16,411 $ 15,947 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 66 $ 77 Accrued compensation and benefits 61 102 Current portion of long-term debt 175 233 Contract liabilities 1,599 1,708 Current operating lease liabilities 19 26 Other current liabilities 540 703 Total current liabilities 2,460 2,849 Long-term debt 9,333 9,529 Long-term contract liabilities 73 80 Deferred income tax liabilities 256 395 Long-term income taxes payable 1,213 820 Long-term operating lease liabilities 31 31 Other long-term liabilities 631 43 Total liabilities 13,997 13,747 Commitments and contingencies (Note 18) Stockholders’ equity (deficit): Common stock and additional paid-in capital, $ 0.01 par value: 3,000 shares authorized; 641 and 640 shares issued and outstanding as of September 29, 2023 and March 31, 2023, respectively 2,655 2,800 Accumulated other comprehensive income (loss) 6 ( 15 ) Retained earnings (accumulated deficit) ( 247 ) ( 585 ) Total stockholders’ equity (deficit) 2,414 2,200 Total liabilities and stockholders’ equity (deficit) $ 16,411 $ 15,947 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents GEN DIGITAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in millions, except per share amounts) Three Months Ended Six Months Ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Net revenues $ 948 $ 748 $ 1,894 $ 1,455 Cost of revenues 180 119 359 221 Gross profit 768 629 1,535 1,234 Operating expenses: Sales and marketing 187 167 368 323 Research and development 85 73 175 134 General and administrative 393 110 449 214 Amortization of intangible assets 61 29 122 50 Restructuring and other costs 17 9 34 11 Total operating expenses 743 388 1,148 732 Operating income (loss) 25 241 387 502 Interest expense ( 173 ) ( 48 ) ( 343 ) ( 79 ) Other income (expense), net 7 2 19 1 Income (loss) before income taxes ( 141 ) 195 63 424 Income tax expense (benefit) ( 290 ) 126 ( 275 ) 155 Net income (loss) $ 149 $ 69 $ 338 $ 269 Net income (loss) per share - basic $ 0.23 $ 0.12 $ 0.53 $ 0.46 Net income (loss) per share - diluted $ 0.23 $ 0.12 $ 0.52 $ 0.45 Weighted-average shares outstanding: Basic 640 590 640 583 Diluted 644 595 644 599 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents GEN DIGITAL INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHEN SIVE INCOME (LOSS) (Unaudited, in millions) Three Months Ended Six Months Ended September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Net income (loss) $ 149 $ 69 $ 338 $ 269 Other comprehensive income (loss), net of taxes: Foreign currency translation gain (loss) ( 36 ) 29 ( 4 ) ( 11 ) Net unrealized gain (loss) on derivative instruments 6 — 25 — Other comprehensive income (loss), net of taxes ( 30 ) 29 21 ( 11 ) Comprehensive income (loss) $ 119 $ 98 $ 359 $ 258 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents GEN DIGITAL INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited, in millions, except share amounts) Three months ended September 29, 2023 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 June 30, 2023 639 $ 2,697 $ 36 $ ( 396 ) $ 2,337 Net income (loss) — — — 149 149 Other comprehensive income (loss), net of taxes — — ( 30 ) — ( 30 ) Common stock issued under employee stock incentive plans 2 6 — — 6 Shares withheld for taxes related to vesting of stock units — ( 1 ) — — ( 1 ) Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued — ( 82 ) — — ( 82 ) Stock-based compensation — 35 — — 35 Balance as of September 29, 2023 641 $ 2,655 $ 6 $ ( 247 ) $ 2,414 Six months ended September 29, 2023 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 March 31, 2023 640 $ 2,800 $ ( 15 ) $ ( 585 ) $ 2,200 Net income (loss) — — — 338 338 Other comprehensive income (loss), net of taxes — — 21 — 21 Common stock issued under employee stock incentive plans 5 6 — — 6 Shares withheld for taxes related to vesting of stock units ( 1 ) ( 19 ) — — ( 19 ) Repurchases of common stock ( 3 ) ( 41 ) — — ( 41 ) Cash dividends declared ($ 0.250 per share of common stock) and dividend equivalents accrued — ( 163 ) — — ( 163 ) Stock-based compensation — 72 — — 72 Balance as of September 29, 2023 641 $ 2,655 $ 6 $ ( 247 ) $ 2,414 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents GEN DIGITAL INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited, in millions, except share amounts) Three months ended September 30, 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 July 1, 2022 571 $ 1,479 $ ( 44 ) $ ( 1,734 ) $ ( 299 ) Net income (loss) — — — 69 69 Other comprehensive income (loss), net of taxes — — 29 — 29 Common stock issued under employee stock incentive plans 1 6 — — 6 Repurchases of common stock ( 5 ) ( 104 ) — — ( 104 ) Cash dividends declared ($ 0.125 per share of common stock) and dividend equivalents accrued — ( 73 ) — — ( 73 ) Stock-based compensation — 29 — — 29 Extinguishment of convertible debt — ( 100 ) — — ( 100 ) Merger consideration 94 2,141 — — 2,141 Balance as of September 30, 2022 661 $ 3,378 $ ( 15 ) $ ( 1,665 ) $ 1,698 Six months ended September 30, 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) — — — 269 269 Other comprehensive income (loss), net of taxes — — ( 11 ) — ( 11 ) Common stock issued under employee stock incentive plans 3 6 — — 6 Shares withheld for taxes related to vesting of stock units ( 1 ) ( 16 ) — — ( 16 ) Repurchases of common stock ( 17 ) ( 404 ) — — ( 404 ) Cash dividends declared ($ 0.250 per share of common stock) and dividend equivalents accrued — ( 146 ) — — ( 146 ) Stock-based compensation — 53 — — 53 Extinguishment of convertible debt — ( 100 ) — — ( 100 ) Cumulative effect adjustment from adoption of ASU 2020-06 (1) — ( 7 ) — 6 ( 1 ) Merger consideration 94 2,141 — — 2,141 Balance as of September 30, 2022 661 $ 3,378 $ ( 15 ) $ ( 1,665 ) $ 1,698 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. (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. 7 Table of Contents GEN DIGITAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in millions) Six Months Ended September 29, 2023 September 30, 2022 OPERATING ACTIVITIES: Net income (loss) $ 338 $ 269 Adjustments: Amortization and depreciation 250 78 Impairments and write-offs of current and long-lived assets — ( 5 ) Stock-based compensation expense 72 53 Deferred income taxes ( 976 ) ( 51 ) Loss (gain) on extinguishment of debt — 9 Gain on sale of property ( 4 ) — Non-cash operating lease expense 11 11 Other 17 ( 45 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable, net 16 17 Accounts payable ( 15 ) ( 18 ) Accrued compensation and benefits ( 41 ) 3 Contract liabilities ( 99 ) ( 85 ) Income taxes payable 417 ( 91 ) Other assets ( 21 ) 9 Other liabilities 386 ( 27 ) Net cash provided by (used in) operating activities 351 127 INVESTING ACTIVITIES: Purchases of property and equipment ( 9 ) ( 4 ) Payments for acquisitions, net of cash acquired — ( 6,550 ) Proceeds from the maturities and sales of short-term investments — 4 Proceeds from the sale of property 13 — Other ( 1 ) 4 Net cash provided by (used in) investing activities 3 ( 6,546 ) FINANCING ACTIVITIES: Repayments of debt ( 266 ) ( 2,738 ) Proceeds from issuance of debt, net of issuance costs — 8,954 Net proceeds from sales of common stock under employee stock incentive plans 6 6 Tax payments related to vesting of stock units ( 20 ) ( 16 ) Dividends and dividend equivalents paid ( 164 ) ( 153 ) Repurchases of common stock ( 41 ) ( 404 ) Net cash provided by (used in) financing activities ( 485 ) 5,649 Effect of exchange rate fluctuations on cash and cash equivalents 10 ( 22 ) Change in cash and cash equivalents ( 121 ) ( 792 ) Beginning cash and cash equivalents 750 1,887 Ending cash and cash equivalents $ 629 $ 1,095 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 8 Table of Contents GEN DIGITAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Description of Business and Significant Accounting Policies Business Gen Digital Inc. is a global company powering Digital Freedom with a family of trusted consumer brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner. Our Cyber Safety portfolio provides protection across multiple channels and geographies, including security and performance, identity protection, and online privacy. Our technology platforms bring together software and service capabilities into comprehensive and easy-to-use products and solutions across our brands. We have also evolved beyond traditional Cyber Safety to offer adjacent trust-based solutions, including digital identity and access management, digital reputation, and restoration support services. On September 12, 2022, we completed our acquisition of Avast, plc (Avast). Avast has been included in our consolidated results of operations since the acquisition date. See Note 4 for further information about this business combination. 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 March 31, 2023. The results of operations for the three and six months ended September 29, 2023 are not necessarily indicative of the results expected for the entire fiscal year. Fiscal calendar We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to three and six month periods in this report relate to fiscal periods ended September 29, 2023 and September 30, 2022. The three and six months ended September 29, 2023 and September 30, 2022 each consisted of 13 and 26 weeks, respectively. Our 2024 fiscal year consists of 52 weeks and ends on March 29, 2024. 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 macroeconomic factors such as inflation, fluctuations in foreign currency exchange rates relative to the U.S. dollar, our reporting currency, changes in interest rates, and Russia’s invasion of Ukraine, 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 and six months ended September 29, 2023, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. Note 2. Recent Accounting Standards Recently adopted authoritative guidance There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. 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. 9 Table of Contents 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. However, the commercial real estate market was adversely affected by the COVID-19 pandemic, which delayed the expected timing of such sales. During fiscal 2023, we determined land and buildings in Dublin, Ireland, which were previously reported as property and equipment, now qualifies as held for sale. During the first quarter of fiscal 2024, we completed the sale of certain land and buildings in Dublin, Ireland, which were previously classified as held for sale as of March 31, 2023, for cash consideration of $ 13 million, net of selling costs, and recognized a gain on sale of $ 4 million. The remaining land and building in Dublin, Ireland, remains as held for sale. Subsequent to September 29, 2023, on October 12, 2023, we completed the sale of certain land and buildings in Tucson, Arizona, which were previously classified as held for sale as of September 29, 2023 and March 31, 2023, for cash consideration of $ 12 million, net of selling costs. We recognized a gain on sale of $ 5 million during the third quarter of fiscal 2024. We have taken into consideration the current real estate values and demand and continue to execute pla ns to sell the remaining property. As of September 29, 2023, the property is classified as held for sale. During the three and six months ended September 29, 2023 , there were no impairments because the fair value less costs to sell either equals or exceeds its carrying value. Note 4. Business Combinations Fiscal 2023 Avast acquisition During the second quarter of fiscal 2023, we acquired all of the outstanding common stock of Avast. Prior to the acquisition, 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. With this acquisition, we are positioned to provide a broad and complementary consumer product portfolio with greater geographic diversification and access to a larger user base. The total consideration for the acquisition of Avast was approximately $ 8,688 million, net of cash acquired. Our final allocation of the aggregate purchase price for the acquisition as of September 12, 2022, was as follows: (In millions) September 12, 2022 Assets: Accounts receivable $ 63 Other current assets 17 Property and equipment 33 Operating lease assets 18 Intangible assets 2,383 Goodwill 7,335 Other long-term assets 11 Total assets acquired 9,860 Liabilities: Current liabilities 180 Contract liabilities 509 Operating lease liabilities 18 Long-term deferred tax liabilities 419 Other long-term obligations 46 Total liabilities assumed 1,172 Total purchase price $ 8,688 Our estimates and assumptions were subject to refinement within the measurement period, which ended during the second quarter of fiscal 2024. Adjustments to the purchase price during the measurement period required adjustments to be made to goodwill. During the three and six months ended September 29, 2023, we recorded measurement period adjustments resulting in a net decrease to goodwill of $ 14 million, resulting from updated information regarding deferred tax liabilities, which resulted in a decrease of $ 14 million of long-term deferred tax liabilities. Unaudited pro forma information The following unaudited pro forma financial information represents the combined historical results for the three and six months ended September 30, 2022, as if the acquisition had been completed on April 3, 2021, the first day of fiscal 2022. The results presented below include adjustments to conform Avast financial information, prepared in accordance with International Financial Reporting Standards (IFRS), to U.S. GAAP as well as the impacts of material, nonrecurring pro forma adjustments, 10 Table of Contents including amortization of acquired intangible assets, interest on debt issued to finance the acquisition, and acquisition-related transaction costs, and the income tax effect of the other pro forma adjustments. The unaudited pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. The following table summarizes the unaudited pro forma financial information: September 30, 2022 (In millions) Three Months Ended Six Months Ended Net revenues $ 930 $ 1,873 Net income (loss) $ ( 62 ) $ 47 The unaudited pro forma financial information is provided for informational purposes only and are not indicative of future operations or results that would have been achieved had the acquisition been completed as of the beginning of fiscal 2022. Note 5. Revenues Contract liabilities During the three and six months ended September 29, 2023, we recognized $ 693 million and $ 1,206 million from the contract liabilities balances as of June 30, 2023 and March 31, 2023, respectively. During the three and six months ended September 30, 2022, we recognized $ 502 million and $ 875 million from the contract liabilities balances as of July 1, 2022 and April 1, 2022, respectively. 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 September 29, 2023, we had $ 1,148 million of remaining performance obligations, excluding customer deposit liabilities of $ 524 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 March 31, 2023 $ 10,217 Purchase accounting adjustment ( 14 ) Translation adjustments ( 4 ) Balance as of September 29, 2023 $ 10,199 Intangible assets, net September 29, 2023 March 31, 2023 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 1,640 $ ( 666 ) $ 974 $ 1,641 $ ( 549 ) $ 1,092 Developed technology 1,461 ( 394 ) 1,067 1,462 ( 279 ) 1,183 Other 91 ( 12 ) 79 91 ( 8 ) 83 Total finite-lived intangible assets 3,192 ( 1,072 ) 2,120 3,194 ( 836 ) 2,358 Indefinite-lived trade names 739 — 739 739 — 739 Total intangible assets $ 3,931 $ ( 1,072 ) $ 2,859 $ 3,933 $ ( 836 ) $ 3,097 Amortization expense for purchased intangible assets is summarized below: Three Months Ended Six Months Ended Condensed Consolidated Statements of Operations Classification (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Customer relationships and other $ 61 $ 29 $ 122 $ 50 Operating expenses Developed technology 58 16 115 21 Cost of revenues Total $ 119 $ 45 $ 237 $ 71 11 Table of Contents As of September 29, 2023, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year: (In millions) Remainder of 2024 $ 225 2025 401 2026 394 2027 381 2028 378 Thereafter 341 Total $ 2,120 Note 7. Supplementary Information Cash and cash equivalents: (In millions) September 29, 2023 March 31, 2023 Cash $ 417 $ 576 Cash equivalents 212 174 Total cash and cash equivalents $ 629 $ 750 Accounts receivable, net: (In millions) September 29, 2023 March 31, 2023 Accounts receivable $ 148 $ 169 Allowance for doubtful accounts ( 1 ) ( 1 ) Total accounts receivable, net $ 147 $ 168 Other current assets: (In millions) September 29, 2023 March 31, 2023 Prepaid expenses $ 122 $ 122 Income tax receivable and prepaid income taxes 96 123 Other tax receivable 29 16 Other 31 23 Total other current assets $ 278 $ 284 Property and equipment, net: (In millions) September 29, 2023 March 31, 2023 Land $ 13 $ 13 Computer hardware and software 499 498 Office furniture and equipment 17 17 Buildings 27 28 Leasehold improvements 28 28 Construction in progress 12 1 Total property and equipment, gross 596 585 Accumulated depreciation and amortization ( 521 ) ( 509 ) Total property and equipment, net $ 75 $ 76 12 Table of Contents Other long-term assets: (In millions) September 29, 2023 March 31, 2023 Non-marketable equity investments $ 176 $ 176 Long-term income tax receivable and prepaid income taxes 695 669 Deferred income tax assets 1,198 353 Long-term prepaid royalty 28 36 Other 66 47 Total other long-term assets $ 2,163 $ 1,281 Short-term contract liabilities: (In millions) September 29, 2023 March 31, 2023 Deferred revenue $ 1,075 $ 1,153 Customer deposit liabilities 524 555 Total short-term contract liabilities $ 1,599 $ 1,708 Other current liabilities: (In millions) September 29, 2023 March 31, 2023 Income taxes payable $ 201 $ 172 Other taxes payable 79 76 Accrued legal fees 39 284 Accrued royalties 45 48 Accrued interest 78 27 Other 98 96 Total other current liabilities $ 540 $ 703 Other long-term liabilities: (In millions) September 29, 2023 March 31, 2023 Long-term accrued legal fees $ 588 $ — Other 43 43 Total other long-term liabilities $ 631 $ 43 Long-term income taxes payable: (In millions) September 29, 2023 March 31, 2023 Deemed repatriation tax payable $ 139 $ 310 Other long-term income taxes 1 1 Unrecognized tax benefits and related interest and penalties 1,073 509 Total long-term income taxes payable $ 1,213 $ 820 As of September 29, 2023, total deferred income taxes changed by $ 984 million, which primarily relates to goodwill of $ 592 million, intangibles of $ 112 million, and other accruals and reserves not currently tax deductible of $ 192 million, and current year unrecognized tax benefits and penalties, which increased by $ 450 million and $ 90 million, respectively. Other income (expense), net: Three Months Ended Six Months Ended (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Interest income $ 6 $ 3 $ 12 $ 5 Foreign exchange gain (loss) 1 2 2 1 Gain (loss) on early extinguishment of debt — ( 9 ) — ( 9 ) Gain on sale of properties — — 4 — Other — 6 1 4 Other income (expense), net $ 7 $ 2 $ 19 $ 1 13 Table of Contents Supplemental cash flow information: Six Months Ended (In millions) September 29, 2023 September 30, 2022 Income taxes paid, net of refunds $ 270 $ 295 Interest expense paid $ 283 $ 63 Cash paid for amounts included in the measurement of operating lease liabilities $ 13 $ 11 Non-cash operating activities: Operating lease assets obtained in exchange for operating lease liabilities $ — $ 18 Reduction of operating lease assets as a result of lease terminations and modifications $ ( 7 ) $ 30 Non-cash investing and financing activities: Purchases of property and equipment in current liabilities $ 4 $ — Non-cash consideration for the Merger with Avast $ — $ 2,141 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: September 29, 2023 March 31, 2023 (In millions) Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 Assets: Money market funds $ 212 $ 212 $ — $ 174 $ 174 $ — Interest rate swaps (1) 24 — 24 — — — Total $ 236 $ 212 $ 24 $ 174 $ 174 $ — (1) The fair value of our interest rate swaps is less than $ 1 million as of March 31, 2023. 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 September 29, 2023 and March 31, 2023, the carrying value of our non-marketable equity investments was $ 176 million. Current and long-term debt As of September 29, 2023 and March 31, 2023, the total fair value of our current and long-term fixed rate debt was $ 2,550 million and $ 2,593 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 2030. Our leases generally have terms that range from 1 year to 11 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. 14 Table of Contents The following summarizes our lease costs: Three Months Ended Six Months Ended (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Operating lease costs $ 2 $ 3 $ 6 $ 7 Short-term lease costs 1 — 1 1 Variable lease costs 2 2 3 3 Total lease costs $ 5 $ 5 $ 10 $ 11 Other information related to our operating leases was as follows: September 29, 2023 March 31, 2023 Weighted-average remaining lease term 3.9 years 2.8 years Weighted-average discount rate 5.06 % 4.38 % See Note 7 for cash flow information related to our operating leases. As of September 29, 2023, the maturities of our lease liabilities by fiscal year are as follows: (In millions) Remainder of 2024 $ 11 2025 14 2026 10 2027 10 2028 5 Thereafter 5 Total lease payments 55 Less: Imputed interest ( 5 ) Present value of lease liabilities $ 50 15 Table of Contents Note 10. Debt The following table summarizes components of our debt: (In millions, except percentages) September 29, 2023 March 31, 2023 Effective Interest Rate 5.00 % Senior Notes due April 15, 2025 $ 1,100 $ 1,100 5.00 % Term A Facility due September 12, 2027 3,764 3,861 SOFR + % (2) 6.75 % Senior Notes due September 30, 2027 900 900 6.75 % Term B Facility due September 12, 2029 3,262 3,431 SOFR + % (3) 1.29 % Avira Mortgage due December 30, 2029 (1) 4 4 1.29 % 7.125 % Senior Notes due September 30, 2030 600 600 7.13 % 0.95 % Avira Mortgage due December 30, 2030 (1) 3 3 0.95 % Total principal amount 9,633 9,899 Less: unamortized discount and issuance costs ( 125 ) ( 137 ) Total debt 9,508 9,762 Less: current portion ( 175 ) ( 233 ) Total long-term debt $ 9,333 $ 9,529 (1) The Avira Mortgages are denominated in a foreign currency so the balances of these mortgages may fluctuate based on changes in foreign currency exchange rates. (2) Term A Facility due 2027 bears interest at a rate equal to Term SOFR plus a credit spread adjustment (CSA) 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. (3) Term B Facility due 2029 bears interest at a rate equal to Term SOFR plus CSA plus 2.00 %. The interest rates for the outstanding term loans are as follows: September 29, 2023 March 31, 2023 Term A Facility due September 12, 2027 6.92 % 6.66 % Term B Facility due September 12, 2029 7.42 % 6.91 % As of September 29, 2023, the future contractual maturities of debt by fiscal year are as follows: (In millions) Remainder of 2024 $ 117 2025 176 2026 1,392 2027 233 2028 4,017 Thereafter 3,698 Total future maturities of debt $ 9,633 Senior credit facilities On September 12, 2022, 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 close of the acquisition of Avast. The Credit Agreement provides that we have the right at any time, subject to customary conditions, to request incremental revolving commitments and incremental term loans up to an unlimited amount, subject to certain customary conditions precedent and other provisions. The lenders under these facilities will not be under any obligation to provide any such incremental loans or commitments. 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 and accrued interest of the existing credit facilities. The Credit Agreement replaced the existing credit facilities upon the close of the transaction. The Revolving Facility and Term A Facility will mature in September 2027, and the Term Facility B will mature in September 2029; the senior credit facilities remain senior secured. 16 Table of Contents The principal amounts of Term Facility A must be repaid in quarterly installments on the last business day of each calendar quarter equal to 1.25 % of the aggregate principal amount as of the date of the Credit Agreement. The principal amounts of Term Facility B must be repaid in quarterly installments on the last business day of each calendar quarter equal to 0.25 % of the aggregate principal amount as of the date of the Credit Agreement. Quarterly installment payments commenced on March 31, 2023. We may voluntarily repay outstanding principal balances under the Revolving Facility and both Term Loan facilities without penalty. As of September 29, 2023, there were no borrowings outstanding under our Revolving Facility; however, from time to time we utilize letters of credits as part of our ordinary course of business. Letters of credit reduce our Revolving Facility commitment amounts. Interest on borrowings under the Credit Agreement can be based on a base rate or the SOFR 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 CSA plus a margin ranging from 0.125 % to 0.75 %, and in the case of the SOFR loans, SOFR, as adjusted for statutory reserves, plus a margin ranging from 1.125 % to 1.75 %. On October 13, 2023 and October 27, 2023, we made voluntary prepayments of $ 100 million each, pursuant to Section 2.05(a) of the Credit Agreement dated September 12, 2022. The prepayments were applied exclusively to the Term B Facility. Debt covenant compliance The Credit Agreement contains customary representations and warranties, affirmative and negative covenants. Each of the Revolving Facility and Term A Facility are subject to a covenant that we maintain a consolidated leverage ratio less than or equal to (i) 6.0 to 1.0 from the second quarter of fiscal 2023 through the last day of the second quarter of fiscal 2024, (ii) 5.75 to 1.0 following the last day of the second quarter of fiscal 2024 through the last day of the second quarter of fiscal 2025 and (iii) 5.25 to 1.0 for each fiscal quarter thereafter; provided that such maximum consolidated leverage ratio will increase to 5.75 to 1.0 for the four fiscal quarters ending immediately should we acquire property, business or assets in an aggregate amount greater than $ 250 million. In addition, the Credit Agreement contains customary events of default under which our payment obligations may be accelerated, including, among others, non-payment of principal, interest or other amounts when due, inaccuracy of representations and warranties, violation of certain covenants, payment and acceleration cross defaults with certain other indebtedness, certain undischarged judgments, bankruptcy, insolvency or inability to pay debts, change of control, the occurrence of certain events related to the Employee Retirement Income Security Act of 1974 (ERISA), and the Company experiencing a change of control. As of September 29, 2023 , we were in compliance with all debt covenants. Senior notes On February 9, 2017, we issued $ 1,100 million aggregate principal amount of our 5.0 % Senior Notes due April 15, 2025 (the 5.0 % Senior Notes). The 5.0 % Senior Notes bear interest at a rate of 5.00 % per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning on October 15, 2017. On or after April 15, 2020, we may redeem some or all of the 5.0 % Senior Notes at the applicable redemption prices set forth in the supplemental indenture, plus accrued and unpaid interest. 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. We may redeem some or all of the 6.75 % Senior Notes due 2027 and 7.125 % Senior Notes due 2030 at any time, subject to a prepayment penalty that expires one year prior to the maturity of each respective note. The First Call Dates of the 6.75 % Senior Notes due 2027 and 7.125 % Senior Notes due 2030 are September 30, 2024 and September 30, 2025, respectively. Convertible Senior Notes The following table sets forth total interest expense recognized related to our Convertible Senior Notes: September 30, 2022 (In millions) Three Months Ended Six Months Ended Contractual interest expense $ 1 $ 4 Amortization of debt discount $ — $ — Payments in lieu of conversion price adjustments (1) $ — $ 1 (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. During the three and six months ended September 29, 2023, we did no t recognize any interest expense related to our Convertible Senior Notes as they were settled during the second quarter of fiscal year 2023. 17 Table of Contents Note 11. Derivatives Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flow associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate the impact of adverse foreign exchange rate and interest rate movements. We do not use our derivative instruments for speculative trading purposes. By using derivative financial instruments to hedge exposures to changes in foreign exchange and interest rates, we are exposed to credit risk; however, we mitigate this risk by entering into hedging instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts. Foreign currency exchange forward contracts 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 impacts our operating results. As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as hedging instruments. We do not hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates. Interest rate swap In March 2023, we entered into interest rate swap agreements to mitigate risks associated with the variable interest rate of our Term A Facility. These pay-fixed, receive-floating rate interest rate swaps have the economic effect of hedging the variability of forecasted interest payments until their maturity on March 31, 2026. Pursuant to the agreements, we have effectively converted $ 1 billion of our variable rate borrowings under Term A Facility to fixed rates, with $ 500 million at a fixed rate of 3.762 % and $ 500 million at a fixed rate of 3.55 %. These arrangements are designated as cash flow hedges for accounting purposes and as such, we will recognize the changes in the fair value of these interest rate swaps in Accumulated other comprehensive income (loss) (AOCI), and the periodic settlements or accrued settlements of the swap will be recognized within or against interest expense in our Condensed Consolidated Statements of Operations. Cash flows related to these hedges are classified under operating activities in our Condensed Consolidated Statement of Cash Flows. Summary of derivative instruments The following table summarizes our outstanding derivative instruments as of September 29, 2023 and March 31, 2023: Notional Amount Fair Value of Derivative Assets Fair Value of Derivative Liabilities (In millions) September 29, 2023 March 31, 2023 September 29, 2023 March 31, 2023 September 29, 2023 March 31, 2023 Foreign exchange contracts not designated as hedging instrument (1) $ 241 $ 291 $ — $ — $ — $ — Interest rate swap contracts designed as cash flow hedge 1,000 1,000 24 1 — 2 Total $ 1,241 $ 1,291 $ 24 $ 1 $ — $ 2 (1) The fair values of the foreign exchange contracts are less than $ 1 million as of September 29, 2023 and March 31, 2023. The following table summarizes the effect of our cash flow hedges on AOCI during the periods indicated: September 29, 2023 (In millions) Three Months Ended Six Months Ended Interest rate swap contracts designed as cash flow hedge $ ( 10 ) $ ( 32 ) During the three and six months ended September 30, 2022, there was no effect of our cash flow hedges on AOCI as interest rate swaps were not effective until the fourth quarter of fiscal 2023. 18 Table of Contents The related gain (loss) recognized in our Condensed Consolidated Statements of Operations, with presentation location was as follows: Three Months Ended Six Months Ended Condensed Consolidated Statements of Operations Classification (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Foreign exchange contracts not designated as hedging instrument $ ( 6 ) $ ( 3 ) $ ( 9 ) $ ( 10 ) Other income (expense), net Interest rate swap contracts designed as cash flow hedge 4 — 7 — Interest expense Total $ ( 2 ) $ ( 3 ) $ ( 2 ) $ ( 10 ) As of September 29, 2023, we estimate that $ 16 million of net deferred gains related to our interest rate hedges will be recognized in earnings over the next 12 months. Note 12. Restructuring and Other Costs Our restructuring and other 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. Separation costs primarily consist of consulting costs incurred in connection with our divestitures. September 2022 Plan In connection with our acquisition of Avast, 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 acquisition on September 12, 2022. Actions under this plan include the reduction of our workforce, contract terminations, facilities closures, and the sale of underutilized facilities as well as stock-based compensation charges for accelerated equity awards to certain terminated employees. We expect that we will incur total costs up to $ 150 million following the completion of acquisition. These actions are expected to be completed by the end of fiscal 2024. As of September 29, 2023, we have incurred total costs of $ 102 million related to the September 2022 Plan. Our activities and liabilities related to our September 2022 Plan are presented in the table below: (in millions) Liability Balance as of March 31, 2023 Costs, Net of Adjustments Cash Payments Non-Cash Items Liability Balance as of September 29, 2023 Severance and termination benefit costs $ 7 $ 22 $ ( 16 ) $ ( 1 ) $ 12 Contract cancellation charges — 2 ( 2 ) — — Stock-based compensation charges — 1 — ( 1 ) — Other exit and disposal costs — 8 ( 8 ) — — Total $ 7 $ 33 $ ( 26 ) $ ( 2 ) $ 12 The restructuring liabilities are included in Other current liabilities in our Condensed Consolidated Balance Sheets. Restructuring and other costs summary Our restructuring and other costs are presented in the table below: Three Months Ended Six Months Ended (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Severance and termination benefit costs $ 11 $ 1 $ 22 $ 1 Contract cancellation charges 1 — 2 — Stock-based compensation charges 1 — 1 — Other exit and disposal costs 4 8 9 10 Total restructuring and other costs $ 17 $ 9 $ 34 $ 11 Occasionally, we incur costs related to past restructuring plans. These charges were immaterial for the three and six months ended September 29, 2023. 19 Table of Contents Note 13. Income Taxes The following table summarizes our effective tax rate for the periods presented: Three Months Ended Six Months Ended (In millions, except percentages) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Income (loss) before income taxes $ ( 141 ) $ 195 $ 63 $ 424 Income tax expense (benefit) $ ( 290 ) $ 126 $ ( 275 ) $ 155 Effective tax rate 206 % 65 % ( 437 ) % 37 % Our effective tax rate for the three and six months ended September 29, 2023, differs from the federal statutory income tax rate primarily due to tax benefits related to the set up and write-off of deferred tax items resulting from an internal restructuring, partially offset by state taxes, changes in unrecognized tax benefits and related interest and penalties, and the U.S. taxation on foreign earnings. Our effective tax rate 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 items this quarter including the tax impacts of internal restructuring, deductibility of transaction costs from our acquisition with Avast, and the limitations of foreign taxes due to the increase of interest expense. In the second quarter of fiscal 2024, as part of the Avast integration plan, which geographically realigned and simplified our business, we undertook a legal entity and operational restructuring. As part of that process, we distributed certain assets within the legal entity operating structure and as a result, we recorded a net tax benefit of $ 268 million. Differences between the final outcome and recorded amounts will impact the provision for income taxes in the period in which such a determination is made and could have a material impact on our Condensed Consolidated Balance Sheet and Statement of Operations in future years. Note 14. Stockholders' Equity Dividends On November 7, 2023, we announced that our Board of Directors declared a cash dividend of $ 0.125 per share of common stock to be paid in December 2023. 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, respectively, which will be paid out if and when the underlying shares are released. However, the 4 million unvested RSUs assumed in connection with the acquisition of Avast will not be entitled to DERs. See Note 15 for further information about these equity awards. 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 September 29, 2023, we had $ 829 million remaining under the authorization to be completed in future periods with no expiration date. No shares were repurchased during the three months ended September 29, 2023. The following table summarizes activity related to this program during six months ended September 29, 2023 and September 30, 2022: Six Months Ended (In millions, except per share amounts) September 29, 2023 September 30, 2022 Number of shares repurchased 3 17 Average price per share $ 16.71 $ 23.60 Aggregate purchase price $ 41 $ 404 Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss), net of taxes, consisted of foreign currency translation adjustments and unrealized gain (loss) on derivative instruments: (In millions) Foreign Currency Translation Adjustments Unrealized Gain (Loss) On Derivative Instruments Total Balance as of March 31, 2023 $ ( 15 ) $ — $ ( 15 ) Other comprehensive income (loss), net of taxes ( 4 ) 25 21 Balance as of September 29, 2023 $ ( 19 ) $ 25 $ 6 20 Table of Contents Note 15. Stock-Based Compensation Avast equity awards In connection with our acquisition of Avast, we assumed the outstanding equity awards under two of Avast’s equity incentive plans (the Avast Holding B.V. 2014 Share Option Plan and the Rules of the Avast plc Long Term Incentive Plan (collectively, the Avast Plans)), which consisted of 4 million shares of unvested RSUs. The assumed RSUs generally retain the terms and conditions under which they were originally granted. We intend to grant all additional shares that remain available for issuance under the Avast Plans. Upon vesting, these assumed RSUs and any additional shares granted will settle into shares of our common stock. See Note 4 for further information about this business combination. The following table sets forth the stock-based compensation expense recognized for our equity incentive plans: Three Months Ended Six Months Ended (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Cost of revenues $ 1 $ 1 $ 2 $ 2 Sales and marketing 10 8 19 15 Research and development 10 6 21 12 General and administrative 13 14 29 24 Restructuring and other costs 1 — 1 — Total stock-based compensation expense $ 35 $ 29 $ 72 $ 53 Income tax benefit for stock-based compensation expense $ ( 4 ) $ ( 4 ) $ ( 9 ) $ ( 8 ) As of September 29, 2023, the total unrecognized stock-based compensation expense related to our unvested stock-based awards was $ 265 million, which will be recognized over an estimated weighted-average amortization period of 2.1 years. The following table summarizes additional information related to our stock-based awards: Six Months Ended (In millions, except per grant data) September 29, 2023 September 30, 2022 Restricted stock units (RSUs): Weighted-average fair value per award granted $ 17.33 $ 23.34 Awards granted 5 6 Total fair value of awards released $ 55 $ 50 Outstanding and unvested 10 10 Performance-based restricted stock units (PRUs): Weighted-average fair value per award granted $ 22.79 $ 30.47 Awards granted 2 1 Total fair value of awards released $ 19 $ 4 Outstanding and unvested at target payout 5 4 Dividend equivalent rights (DERs) Our RSUs and PRUs, except the 4 million unvested RSUs assumed under the Avast Plans, 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 September 29, 2023 and March 31, 2023, current dividends payable related to DER was $ 4 million and $ 5 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, recorded as part of Other long-term liabilities. 21 Table of Contents 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. Our remaining convertible debt was extinguished on August 15, 2022. The components of basic and diluted net income (loss) per share are as follows: Three Months Ended Six Months Ended (In millions, except per share amounts) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Net income (loss) $ 149 $ 69 $ 338 $ 269 Net income (loss) per share - basic $ 0.23 $ 0.12 $ 0.53 $ 0.46 Net income (loss) per share - diluted $ 0.23 $ 0.12 $ 0.52 $ 0.45 Weighted-average shares outstanding - basic 640 590 640 583 Dilutive potentially issuable shares: Convertible debt — 2 — 12 Employee equity awards 4 3 4 4 Weighted-average shares outstanding - diluted 644 595 644 599 Anti-dilutive shares excluded from diluted net income per share calculation: Employee equity awards 3 — 3 — Total 3 — 3 — 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 and prioritize resources. The following table summarizes net revenues for our major solutions: Three Months Ended Six Months Ended (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Consumer security revenues $ 604 $ 436 $ 1,202 $ 838 Identity and information protection revenues 328 298 659 592 Total Cyber Safety revenues 932 734 1,861 1,430 Legacy revenues 16 14 33 25 Total net revenues (1) $ 948 $ 748 $ 1,894 $ 1,455 (1) During the three months ended September 29, 2023, total net revenues include an unfavorable foreign exchange impact of $ 7 million from our consumer security solutions. During the six months ended September 29, 2023, total net revenues include an unfavorable foreign exchange impact of $ 16 million from our consumer security solutions. From time to time, changes in our product hierarchy cause changes to the product categories above. When changes occur, we recast historical amounts to match the current product hierarchy. The changes have been reflected for all periods presented above. Consumer security includes revenues from our Norton 360 Security offerings, Norton Security, Avast Security offerings, Norton Secure VPN, Avira Security and other consumer security and device performance solutions through our direct, partner and small business channels. Identity and information protection includes revenues from our Norton 360 with LifeLock offerings, LifeLock identity theft protection and other information protection and privacy solutions. Legacy includes revenues from products or solutions from markets that we have exited and in which we no longer operate, have been discontinued or identified to be discontinued, or remain in maintenance mode as a result of integration and product portfolio decisions. 22 Table of Contents Geographic information Net revenues by geography are based on the billing addresses of our customers. The following table represents net revenues by geographic area at the end of each period presented: Three Months Ended Six Months Ended (In millions) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022 Americas $ 616 $ 529 $ 1,238 $ 1,037 EMEA 237 139 462 259 APJ 95 80 194 159 Total net revenues (1) $ 948 $ 748 $ 1,894 $ 1,455 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 September 29, 2023, total net revenues include an unfavorable foreign exchange impact of $ 7 million, consisting of $ 6 million from EMEA and $ 1 million from APJ. During the six months ended September 29, 2023, total net revenues includes an unfavorable foreign exchange impact of $ 16 million, consisting of $ 13 million from EMEA and $ 3 million from APJ. Revenues from customers inside the U.S. were $ 562 million and $ 1,127 million during the three and six months ended September 29, 2023, respectively, and $ 493 million and $ 972 million during the three and six months ended September 30, 2022 ,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) September 29, 2023 March 31, 2023 U.S. $ 207 $ 178 International 422 572 Total cash, cash equivalents and short-term investments $ 629 $ 750 The table below represents our property and equipment, net of accumulated depreciation and amortization, by geographic areas, based on the physical location of the asset, at the end of each period presented. (In millions) September 29, 2023 March 31, 2023 U.S. $ 44 $ 38 Czech Republic 10 16 Germany 12 13 Other countries (1) 9 9 Total property and equipment, net $ 75 $ 76 (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) September 29, 2023 March 31, 2023 U.S. $ 27 $ 25 Czech Republic 7 12 Other countries (1) 5 6 Total operating lease assets $ 39 $ 43 (1) No other individual country represented more than 10% of the respective totals. 23 Table of Contents Significant customers and channel partners No individual, end-user customer accounted for 10% or more of our net revenues during the six months ended September 29, 2023 and September 30, 2022. Distributors that accounted for over 10% of our total billed and unbilled accounts receivable were as follows: September 29, 2023 March 31, 2023 Distributor A 15 % 13 % Distributor B 17 % 14 % 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, product warranties and losses arising out of our breach of agreements or representations and warranties made by us, including claims alleging that our software infringes on the intellectual property rights of a third party. 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. We monitor the conditions that are subject to indemnification to identify if a loss has occurred. 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 our Enterprise Security business to Broadcom, we assigned several leases to Broadcom or certain of its 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 Broadcom’s or such subsidiaries’ breach of payment obligations under the terms of such 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. Litigation contingencies Trustees of the University of Columbia in the City of New York v. NortonLifeLock As previously disclosed, 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 (Columbia) 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. We 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. We 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 our Norton Security products and Symantec Endpoint Protection products (the latter of which were sold by us to Broadcom as part of an Asset Purchase Agreement 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 us. We believe that we have ceased the use of the technology found by the jury to infringe. The jury also found that we 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. On September 30, 2023, the court entered its judgment, which awarded Columbia (i) enhanced damages of 2.6 times the jury award; (ii) prejudgment interest, post-judgment interest, and supplemental damages to be calculated in accordance with the parties’ previous agreement; and (iii) attorneys’ fees subject to the parties meeting and conferring as to amount. We have complied with the court’s order and submitted a stipulation regarding the final calculations of all outstanding interest, royalties and attorneys’ fees. We have posted the required surety bond, and notice our appeal. At this time, our current estimate of the low end of the range of probable estimated losses from this matter is approximately $ 576 million, which we have accrued. 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. 24 Table of Contents 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 of 1934, as amended (the Exchange Act). 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, exclusive of any claims that may be brought by shareholders who opted out of the class action. Of the $ 70 million, $ 67 million was covered under the applicable insurance policy with the remainder to be paid by us. 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 Exchange Act of 1934, the Arizona Securities Act, the 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. On February 7, 2023, our Motion to Dismiss was granted in part and denied in part. The parties have now settled the matter and the action was dismissed with prejudice on April 26, 2023. The impact of settlement was not material. Purported shareholder derivative lawsuits have been filed against us and certain of our former officers and current and former directors in the Delaware Court of Chancery ( In re Symantec Corp. S’holder. Deriv. Litig. ), Northern District of California ( Lee v. Clark et al., ), and the District of Delaware ( Milliken vs. Clark et al. ). These assert generally the same facts and circumstances as alleged in the securities class action and allege claims for breach of fiduciary duty and related claims. On January 4, 2023, after reaching an agreement on the terms of the proposed settlement, which provides for, among other things, a payment of $ 12 million to the Company by the insurers of the Company’s directors and officers, the parties to the Chancery action filed a Stipulation and Agreement of Settlement, Compromise and Release in that Court, which was approved by the Court on May 4, 2023, over the objection of the Lee and Milliken plaintiffs, and releases all claims in the Chancery, Lee , and Milliken actions, as well as any other claims based on the same operative facts. The parties in the Milliken action stipulated to a dismissal with prejudice, which was entered by the Court on May 12, 2023. The parties in the Lee action stipulated to a dismissal with prejudice, which was entered by the Court on June 12, 2023. All three shareholder derivative lawsuits are now resolved. A fourth lawsuit filed in the Delaware Superior Court, Kukard v. Symantec , brings claims derivatively on behalf of our 2008 Employee Stock Purchase Plan. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of the Kukard action or estimate the range of any potential loss. We will continue to incur legal fees in connection with the Kukard matter, including expenses for the reimbursement of legal fees of present and former directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend this claim vigorously, but there can be no assurance that we will be successful in any defense. If this lawsuit is 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 March 23, 2021, Plaintiffs withdrew their demand for a jury trial and we consented to proceed with a bench trial, which concluded on March 24, 2022. On January 19, 2023, the Court issued its Findings of Facts and Conclusions of Law in which it found in favor of the United States in part and awarded damages and penalties in the amount of $ 1.3 million. The Court also found in favor of the State of California in part and awarded penalties in the amount of $ 0.4 million. The resulting Judgment was 25 Table of Contents filed by the Court on January 20, 2023. On February 16, 2023, Plaintiffs filed Motions to Amend Judgment to revive the damages claimed at trial. We have opposed and the motion is now fully briefed before the Court. 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 the 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 the relator to resolve all of the New York claims asserted in the litigation for $ 5 million. The January 2023 Judgment has been paid, and at this time, our current estimate of the low end of the range of probable estimated losses from this matter was reduced to $ 1.4 million, which we have accrued. It is possible that the Court could grant Plaintiffs’ Motions to Amend Judgment, in whole or in part, or an appeal of the Court’s Judgment by the Plaintiffs, if brought, could lead to further 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. Jumpshot Matters At the end of 2019, Avast came under media scrutiny for provision of Avast customer data to its data analytics subsidiary Jumpshot Inc. Jumpshot was a subsidiary of Avast with its own management team and technical experts. Avast announced the decision to terminate its provision of data to, and wind down, Jumpshot on January 30, 2020. As Avast has previously disclosed, it has been in communication with certain regulators and authorities prior to completion of the acquisition of Avast, and we will continue cooperating fully in respect of all regulatory enquiries. On December 23, 2019, the United States Federal Trade Commission (FTC) issued a Civil Investigative Demand (CID) to Avast seeking documents and information related to its privacy practices, including Jumpshot's past use of consumer information that was provided to it by Avast. Avast responded cooperatively to the CID and related follow-up requests from the FTC. On October 29, 2021, staff at the FTC sent Avast a draft complaint and proposed settlement order. We have been engaged in ongoing negotiations with the FTC staff regarding the scope and terms of the proposed settlement. Any negotiated settlement with the FTC, or absent settlement, any litigation or other legal proceeding between us and the FTC could result in material monetary remedies and/or compliance requirements that impose significant and material cost and resource burdens on us, and may impact our ability to use data in the future. There can be no assurance that we will be successful in negotiating a favorable settlement or in litigation. Any remedies or compliance requirements could adversely affect our ability to operate our business or have a materially adverse impact on our financial results. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this investigation or estimate the range of any potential loss. On February 27, 2020, the Czech Office for Personal Data Protection (the Czech DPA) initiated offense proceedings concerning Avast`s practices with respect to Jumpshot, which remain ongoing and we continue to evaluate our options. In addition, we received a letter and notification before action from Stichting CUIC – Privacy Foundation for Collective Redress, a Dutch foundation (the Foundation). The Foundation has asserted it represents the interests of Avast customers in the Netherlands whose data was provided to Jumpshot and that by doing so Avast violated the requirements of the GDPR and other provisions in Dutch and European Union privacy and consumer law entitling those customers to damages and other compensation, all of which we dispute. No specific amount of damages has been alleged and to date, no action has been filed. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this notification before action or estimate the range of any potential loss. On December 12, 2022, a putative class action, Lau v. Gen Digital Inc. and Jumpshot Inc ., was filed in the Northern District of California alleging violations of the Electronic Communications Privacy Act, California Invasion of Privacy Act, statutory larceny, unfair competition and various common law claims related to the provision of customer data to Jumpshot. The Complaint was dismissed in part, with leave to amend, and Plaintiffs have now filed a First Amended Complaint which we intend to move to dismiss. At this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of this action or estimate the range of any potential loss. We dispute these claims and intend to defend them vigorously. The outcome of the regulatory proceedings, government enforcement actions and litigation is difficult to predict, and the cost to defend, settle or otherwise resolve these matters may be significant. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of large or indeterminate amounts or seek to impose sanctions, including significant monetary penalties, as well as equitable relief. The monetary and other impact of these litigations, proceedings or actions may remain unknown for substantial periods of time. Further, an unfavorable resolution of litigations, proceedings or actions could have a material adverse effect on our business, financial condition, and results of operations and cash flows. The amount of time that will be required to resolve these matters is unpredictable, and these matters may divert management’s attention from the day-to-day operations of our business. Any future investigations or additional lawsuits may also adversely affect our business, financial condition, results of operations and cash flows. 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. 26 Table of Contents