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Item 7. Management’s Discussion and Analysis

2024-05-16 compared with 2023-05-25 · 122 added, 143 removed, 205 unchanged (56% of the section changed)

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Please read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related Notes thereto included under Item 15 of this Annual Report on Form 10-K.

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.

Gen is a global company powering Digital Freedom with a family of trusted consumer brands including Norton, Avast, LifeLock, Avira, AVG, ReputationDefender and CCleaner.

Our core cyber safety portfolio provides protection across three key categories in multiple channels and geographies, including security and performance, identity protection, and online privacy.

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We bring award-winning products and services in cybersecurity, privacy and identity protection to approximately 500 million users in more than 150 countries so they can live their digital lives safely, privately, and confidently today and for generations to come.

Fiscal Year Highlights

• In June 2022, we fully repaid the principal and accrued interest under the 3.95% Senior Notes due June 2022, which had an aggregate principal amount outstanding of $400 million.

In addition, we paid $7 million of accrued and unpaid interest through the redemption date.

• In August 2022, we settled the $525 million principal and conversion rights of our New 2.0% Convertible Notes in cash.

The aggregate settlement amount of $630 million was based on $20.41 per underlying share into which the New 2.0% Convertible Notes were convertible.

In addition, we paid $5 million of accrued and unpaid interest through the date of settlement.

The repayments resulted in an adjustment to stockholders’ equity of $100 million.

• In September 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.

• In January 2023, we made a voluntary prepayment of $250 million for our senior credit facilities, which was applied exclusively to the Term B Facility.

• During fiscal 2023, we repurchased 40 million shares of our common stock for an aggregate amount of $904 million and paid a total of $314 million in quarterly dividends to shareholders.

Merger with Avast

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.

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, although our principal executive offices remain in Tempe, Arizona.

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.

The Merger enables us to create a broad and complementary consumer product portfolio beyond core security and towards adjacent trust-based solutions and achieve greater geographic diversification and access to a larger user base.

We believe this combination 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.

Upon close of the Merger with Avast, we entered into the Amended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $1,500 million revolving credit facility (Revolving Facility), (ii) 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 at the closing of the Merger.

We drew down the aggregate principal amounts of the Term A Facility and Term B Facility to finance the cash consideration payable for the transaction and to fully repay the outstanding principal of $1,703 million and aggregate accrued and unpaid interest of $3 million under the Initial Term Loan and Delay Draw Term Loan from the existing credit facilities.

The Credit Agreement replaced our then existing credit facilities upon the close of the Merger.

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 year ended March 31, 2023.

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 Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about this business combination.

Fiscal calendar and basis of presentation

Fiscal calendar

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

Fiscal 2023, 2022 and 2021 in this report refers to fiscal years ended March 31, 2023, April 1, 2022 and April 2, 2021, respectively, each of which was a 52-week year.

Key financial metrics

Fiscal 2024, 2023 and 2022 in this report refers to fiscal years ended March 29, 2024, March 31, 2023 and April 1, 2022, respectively, each of which was a 52-week year.

Financial summary

The following table provides our key financial metrics for fiscal 2024 compared with fiscal 2023:

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Net cash provided by (used in) operating activities $ 2,064 $ 757

(In millions) March 31, 2023 April 1, 2022

Cash, cash equivalents and short-term investments $ 750 $ 1,891

(In millions) March 29, 2024 March 31, 2023

Cash and cash equivalents

Contract liabilities $ 1,806 $ 1,788

• Net revenues increased $542 million, primarily due to revenue attributable to the contribution from Avast, which was acquired during the second quarter of fiscal 2023, and higher sales in both our consumer security and identity and information protection products, partially offset by unfavorable foreign currency fluctuations.

• Operating income (loss) increased $222 million, primarily due to operating income attributable to Avast, which was acquired during the second quarter of fiscal 2023, and cost synergies post-acquisition, partially offset by unfavorable foreign currency fluctuations.

• Net income (loss) increased $513 million and net income per share increased $0.75, primarily due to an income tax benefit in fiscal 2023, and increased operating income, partially offset by an increase in interest expense associated with our new senior credit facilities and two senior notes.

• Cash, cash equivalents and short-term investments decreased by $1,141 million compared to April 1, 2022, primarily due to the completion of the Merger, repurchases of our common stock, income taxes paid, dividends paid to shareholders, and voluntary prepayment of our Term B facility, offset by proceeds from the issuance of the senior credit facilities and the two senior notes.

Additionally, subsequent to March 31, 2023, we made another voluntary prepayment of $150 million for our senior credit facilities, which was applied exclusively to Term B Facility.

• Contract liabilities increased $482 million, primarily due to contract liabilities assumed from Avast, which was acquired during the second quarter of fiscal 2023.

• Net revenues increased $474 million, primarily due to an additional five and a half months of revenue contribution from Avast, up $419 million as compared to the corresponding period, which was acquired during the second quarter of fiscal 2023 in September 2022, and higher sales in both our consumer security and identity and information protection products, partially offset by unfavorable foreign currency fluctuations.

• Operating income (loss) decreased $105 million, primarily due to an increase in legal accrual related to ongoing litigation and an increase in amortization of intangible assets recognized as a result of our acquisition of Avast.

This is partially offset by the increase in net revenues discussed above and cost synergies post-acquisition.

• Net income (loss) decreased $733 million and net income per share decreased $1.20, primarily due by the absence of the income tax benefit as a result of a tax capital loss in fiscal 2023, decreased operating income discussed above and increased interest expense associated with our senior credit facilities and two senior notes.

• Cash and cash equivalents increased by $96 million compared to March 31, 2023, primarily due to cash generated from operating activities during fiscal 2024.

This is offset by dividends paid to shareholders, voluntary prepayments of our Term B facility, a mandatory principal amortization payment of our Term A facility, and repurchases of our common stock.

• During fiscal 2024, we returned $1,947 million of capital back to shareholders and bondholders.

This was achieved through the repurchase of 21 million shares of our common stock, totaling $441 million.

Additionally, we paid out a total of $323 million in quarterly dividends and carried out $1,183 million in debt pay downs, including $950 million in voluntary prepayments applied exclusively to the Term B facility.

• During fiscal 2024, we increased net Direct customers by 0.9 million, increased monthly Direct ARPU by $0.15, and increased our Direct retention rate by 1%.

• During fiscal 2024, we received an $899 million income tax refund related to the filing of our fiscal 2023 tax return, which was recorded net of allowances as part of Other current assets in the Condensed Consolidated Balance Sheets as of March 31, 2023.

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, changes in interest rates, as well as recession risks, which may persist for an extended period.

dollars, our reporting currency, changes in interest rates, as well as recession risks, any of which may persist for an extended period.

Additionally, our international results are impacted by the economic conditions in the foreign markets in which we operate and by fluctuations in foreign currency exchange rates.

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As a result, we are exposed to foreign exchange gains or losses, which impact our operating results.

As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge foreign currency balance sheet exposure.

As part of our foreign currency risk mitigation strategy, we have entered into monthly foreign exchange forward contracts to hedge certain foreign currency balance sheet exposure.

In addition, in early 2022, worldwide inflation began to increase.

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Federal Reserve and the European Central Bank, raised interest rates significantly in 2022, resulting in an increase in our cost of debt.

Interest rates have increased and are expected to continue to increase in 2023, although at a slower rate.

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.

Although inflation rates slowed in 2023, global inflation remains high in 2024 and has impacted our results due to higher costs.

Volatile market conditions related to geopolitical conflicts and other macroeconomic events have, at times, affected our results of operations and cash flows in non-material ways;

however, geopolitical conflicts and other macroeconomic events may in the future materially impact our results of operations and cash flows.

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.

Inflation, interest rates and foreign exchange rates remained volatile in 2023 and fluctuations in these indicators are uncertain and could result in further adverse impacts to our reported results.

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

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The preparation of our Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S.

(GAAP) requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances.

We evaluate our estimates on a regular basis and make changes accordingly.

requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We have based our estimates, judgements and assumptions on historical experience and on various other factors we believe to be reasonable under the circumstances.

We evaluate our estimates, judgements and assumptions on a regular basis and make changes accordingly.

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

however, actual results may differ from these estimates.

Making estimates and judgments about future events is inherently unpredictable and is subject to significant

uncertainties, some of which are beyond our control.

Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our Consolidated Financial Statements.

A summary of our significant accounting policies is included in Note 1, and a description of recently adopted accounting pronouncements and the Company’s expectation of the impact on our Consolidated Financial Statements and disclosures are included in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

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

Should any of these estimates, judgements or assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

Management believes the following critical accounting policies reflect the significant estimates used in the preparation of our Consolidated Financial Statements.

A summary of our significant accounting policies is included in Note 1, and a description of recently adopted accounting pronouncements and our expectation of the impact on our Consolidated Financial Statements and disclosures are included in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Business combinations

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We apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates.

We use a two-step process to recognize liabilities for uncertain tax positions.

We use a two-step process to recognize liabilities for unrecognized tax benefits.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

There is judgement and complexity involved in assessing if the tax position is more likely than not.

If we determine that the tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.

It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various outcomes.

We re-evaluate these uncertain tax positions on a quarterly basis.

This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.

We re-evaluate these unrecognized tax benefits on a quarterly basis.

This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law,

effectively settled issues under audit and new audit activity.

Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

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Refer to Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended April 1, 2022 for year-over-year comparisons of the results of operation between fiscal 2022 and fiscal 2021 as well as discussion of fiscal 2021 performance metrics and cash flow activity, all of which are incorporated herein by reference.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 for year-over-year comparisons of the results of operation between fiscal 2023 and fiscal 2022 as well as discussion of fiscal 2022 performance metrics and cash flow activity, all of which are incorporated herein by reference.

The following table sets forth our Consolidated Statements of Operations data as a percentage of net revenues for the periods indicated:

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Net revenues increased $474 million, primarily due to a $388 million increase in sales of our consumer security products and a $88 million increase in sales of our identity and protection products.

This was inclusive of $113 million of foreign exchange headwinds, primarily in our consumer security products.

This was inclusive of $25 million of foreign exchange headwinds, primarily in our consumer security products and a $419 million increase from revenue contribution from Avast due to the additional five and a half months as compared to the corresponding period.

Performance Metrics

We regularly monitor a number of metrics in order to measure our current performance and estimate our future performance.

We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of

our business and the effectiveness of our marketing and operational strategies.

Our metrics may be calculated in a manner different than similar metrics used by other companies.

The following table summarizes supplemental key performance metrics for our solutions:

Fiscal Year (2)

(In millions, except for per user amounts and percentages) 2024 2023

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Total cyber safety revenues

$ 3,749 $ 3,274

Legacy revenues (2)

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Direct average revenue per user (ARPU) (3)

Annual retention rate (4)

(1) Non-GAAP Direct customer revenue differs from GAAP direct customer revenue in fiscal 2023 and 2022 because it excludes a $2 million and $11 million, respectively, reduction of revenue from contract liability purchase accounting adjustments.

$ 7.25 $ 7.10

Retention rate

(1) Non-GAAP Direct customer revenue differs from U.S.

GAAP direct customer revenue in fiscal 2023 because it excludes a $2 million, reduction of revenue from contract liability purchase accounting adjustments.

We believe that eliminating the impact of this adjustment improves the comparability of revenues between periods.

In addition, although the adjustment amounts will never

be recognized in our GAAP financial statements, we do not expect the acquisitions to affect the future renewal rates of revenues excluded by the adjustments.

(2) From time to time, changes in our product hierarchy cause changes to the revenue channels above.

When changes occur, we recast historical amounts to match the current revenue channels.

Direct customer revenue currently includes Mobile App Store customers, and legacy revenues 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.

As such, prior period performance metrics have been recast to conform to the current period presentation for all periods presented above.

(3) The performance metrics for fiscal 2023 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.

Due to the close of the Merger with Avast in the second quarter of fiscal 2023, the fiscal 2023 ARPU is based on the average ARPU for the second, third, and fourth quarter of fiscal 2023, but excludes the first quarter of fiscal 2023.

(4) The annual retention rate for fiscal 2023 includes the customer portfolio acquired through our Merger with Avast.

In addition, although the adjustment amounts will never be recognized in our U.S.

GAAP financial statements, we do not expect the acquisitions to affect the future renewal rates of revenues excluded by the adjustments.

(2) Legacy revenues 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.

(3) Due to the close of the acquisition of Avast in the second quarter of fiscal 2023, the fiscal 2023 ARPU is based on the average ARPU for the second, third, and fourth quarter of fiscal 2023, but excludes the first quarter of fiscal 2023.

We define direct customer count as active paid users of our products and solutions who have a direct billing and/or registration relationship with us at the end of the reported period.

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ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure.

Non-GAAP estimated direct customer revenues and ARPU have limitations as analytical tools and should not be considered in isolation or as a substitute for GAAP estimated direct customer revenues or other GAAP measures.

Non-GAAP estimated direct customer revenues and ARPU have limitations as analytical tools and should not be considered in isolation or as a substitute for U.S.

GAAP estimated direct customer revenues or other U.S.

GAAP measures.

We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer customer base.

Annual retention rate is defined as the number of direct customers who have more than a one-year tenure as of the end of the most recently completed fiscal period divided by the total number of direct customers as of the end of the period from one year ago.

We monitor annual retention rate to evaluate the effectiveness of our strategies to improve renewals of subscriptions.

Net revenues by geographic region

Percentage of revenue by geographic region as presented below is based on the billing location of the customer.

Retention rate is defined as the percentage of direct customers as of the end of the period from one year ago who are still active as of the most recently completed fiscal period.

We monitor the retention rate to evaluate the effectiveness of our strategies to improve renewals of subscriptions.

Net revenues by geographical region

Percentage of revenue by geographical region as presented below is based on the billing location of the customers.

Fiscal Year (1)

Americas 65 % 67 %

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APJ 11 % 11 %

(1) From time to time, changes in allocation methodologies cause changes to the revenue by geographic area above.

When changes occur, we recast historical amounts to match the current methodology, such as for fiscal 2023 where we aligned allocation methodologies across similar product categories.

The Americas include U.S., Canada, and Latin America;

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APJ includes Asia Pacific and Japan.

While the percentage of revenue by geographic region in fiscal 2023 remains primarily in the Americas, our Merger with Avast has expanded our presence in countries in the EMEA region.

While the percentage of revenue by geographic region in fiscal 2024 remains primarily in the Americas, our acquisition of Avast has expanded our presence in countries in the EMEA region.

Cost of revenues

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Fiscal 2024 compared to fiscal 2023

Our cost of revenues increased $181 million, primarily due to a $97 million increase in the amortization of acquired intangible assets as a result of our Merger with Avast, $52 million increase in payment processing fees, $27 million increase in revenue share costs and royalty charges, and $10 million increase in cloud hosting cost, offset by $6 million decrease in technical support costs.

Our cost of revenues increased $142 million, primarily due to a $93 million increase in the amortization of acquired intangible assets, a $29 million increase in revenue share costs, and a $18 million increase in payment processing fees as a result of higher billings.

Operating expenses

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Total $ 1,959 $ 1,522 29 %

Our operating expenses increased in fiscal 2023 compared to fiscal 2022 primarily due to increased headcount, stock-based compensation and restructuring costs, in connection with the Merger which was completed during the second quarter of fiscal 2023.

Our operating expenses increased in fiscal 2024 compared to fiscal 2023 primarily due to an increase in legal accruals and amortization of intangible assets.

This was partially offset by a decrease in transaction and integration costs, in connection with our acquisition of Avast, which was completed during the second quarter of fiscal 2023.

Fiscal 2024 compared to fiscal 2023

Sales and marketing expense increased $60 million, primarily due to a $36 million increase in headcount and IT costs, a $23 million increase in outside services and software expenses, and a $15 million increase of stock-based compensation expense.

This was partially offset by $17 million in sales and marketing efficiencies.

Research and development expense increased $60 million, primarily due to a $39 million increase of headcount and IT costs, a $12 million increase of stock-based compensation expense and a $10 million increase in outside services and software expense.

General and administrative expense decreased $106 million, primarily due to the absence of a $185 million legal accrual in fiscal 2022 relating to an ongoing patent infringement lawsuit and the corresponding legal fees.

This was partially offset by a $40 million increase in outside services due to the Merger with Avast, $25 million increase of stock-based compensation expense and a $16 million increase in headcount costs.

Amortization of intangible assets increased $87 million as a result of the Merger with Avast.

Restructuring and other costs increased $38 million, primarily due to severance and termination benefit costs in connection with the September 2022 Plan.

Sales and marketing expense increased $51 million, due to a $32 million increase in advertising, a $9 million increase in occupancy and IT costs, and an $8 million increase in headcount and outside services.

Research and development expense increased $19 million, due to a $10 million increase in headcount and outside services and a $10 million increase in cloud hosting costs.

General and administrative expense increased $318 million, primarily due to a $388 million increase in legal accrual, of which $290 million is related to our litigation case with the Trustees of Columbia University in the City of New York (Columbia) and the corresponding legal fees, $52 million related to a legal accrual in the third quarter of fiscal 2024 and a $41 million reversal in legal accrual in the third quarter of fiscal 2023, both of which are related to the GSA litigation.

This was partially offset by a $65 million decrease in acquisition and integration costs related to our acquisition of Avast.

Amortization of intangible assets increased $61 million as a result of the acquisition of Avast.

Restructuring and other costs decreased $12 million, primarily due a $10 million decrease in stock-based compensation expense.

See Note 12 of the Notes to the Consolidated Financial Statements for details of the fiscal 2024 restructuring activities.

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Foreign exchange gain (loss) 3 (8) 11

(Loss) gain on early extinguishment of debt (9) (3) (6)

Gain on sale of properties — 175 (175)

Gain (loss) on early extinguishment of debt

Gain (loss) on equity investments

(40) (7) (33)

Gain (loss) on sale of properties

Other 9 (13) 22

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Fiscal 2024 compared to fiscal 2023

Non-operating income (expense), net, decreased $460 million in income, primarily due to the absence of the $175 million gain on the 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 borrowings under our senior credit facilities (as defined below) and two senior notes, which were issued during the second quarter of fiscal 2023.

Non-operating income (expense), net, increased $240 million, primarily due to an increase in interest expense associated with borrowings under our senior credit facilities (as defined below) and two senior notes, which were issued during the second quarter of fiscal 2023, and a $33 million increase in loss on equity investments related to the impairment of one of our non-marketable equity investments.

Provision for income taxes

We are a multinational company dual headquartered in the U.S.

and Czech Republic, although our principal executive offices remain in Tempe, Arizona, and we are subject to tax in multiple U.S.

and international tax jurisdictions.

Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions.

Our results can also be impacted by the costs incurred and the potential deductibility of the expenses.

Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.

(In millions, except for percentages) 2024 2023

Income (loss) from continuing operations before income taxes $ 804 $ 1,042

Provision for income taxes $ (545) $ 206

Effective tax rate on income (loss) from continuing operations (68) % 20 %

Income (loss) before income taxes

Income tax expense (benefit)

$ (157) $ (545)

Effective tax rate

(34) % (68) %

Fiscal 2024 compared to fiscal 2023

Our effective tax rate decreased primarily due to a decrease in income taxes as a result of a tax capital loss, and releases in uncertain tax positions related to the closure of federal and state income tax audits.

See Note 13 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for information about the tax capital loss.

Our effective tax rate increased primarily due to a one-time income tax benefit as a result of a tax capital loss in fiscal 2023 partially offset by an income tax benefit as a result of an operational and legal entity restructuring in fiscal 2024.

See Note 13 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for information about our unrecognized tax benefits.

The Organization for Economic Cooperation and Development (OECD) and many countries have proposed to reallocate a portion of profits of large multinational enterprises (MNE) with an annual global turnover exceeding €20 billion to markets where sales arise (Pillar One), as well as enact a global minimum tax rate of at least 15% for MNE with an annual global turnover exceeding €750 million (Pillar Two).

On December 12, 2022, the European Union reached an agreement to implement the Pillar Two directive of the OECD’s reform of international taxation at the European Union level.

The agreement affirms that all Member States must transpose the Pillar Two directive by December 31, 2023.

The rules will therefore first be applicable for fiscal years starting on or after December 31, 2023.

Ireland, Czech Republic, and certain jurisdictions in which we operate have enacted legislation to implement Pillar Two and other countries are actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals.

The enactment of Pillar Two legislation is not expected to have a material adverse effect on our effective tax rate and Consolidated Financial Statements in the near term.

We will continue to monitor and reflect the impact of such legislative changes in future Consolidated Financial Statements as appropriate.

LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS

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

Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our Revolving Facility (as defined below), will be sufficient to meet our working capital needs, support on-going business activities and finance the expected synergy costs related to the Merger through at least the next 12 months and to meet our known long-term contractual obligations.

Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our Revolving Facility, will be sufficient to meet our working capital needs, support on-going business activities and finance the expected synergy costs related to the acquisition of Avast through at least the next 12 months and to meet our known long-term contractual obligations.

We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

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Cash from operating activities

Our cash flows provided by operating activities in fiscal 2023 decreased $217 million, primarily due to an increase in cash payments in fiscal 2023, including payments of income taxes, debt interest, and transaction costs and other regulatory closing fees in connection with the Merger.

Our cash flows provided by and used in operating activities in fiscal 2024 increased $1,307 million, primarily due to an income tax refund related to the filing of our fiscal 2023 tax return during the fourth quarter of fiscal 2024 and cash collections from revenue attributable to our acquisition of Avast during the second quarter of fiscal 2023.

Cash from investing activities

Our cash flows provided by investing activities in fiscal 2023 decreased $6,873 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 in fiscal 2022.

Our cash flows provided by and used in investing activities in fiscal 2024 increased $6,549 million, primarily related to the absence of the total cash consideration paid for our acquisition of Avast during the second quarter of fiscal 2023.

Cash from financing activities

Our cash flows provided by financing activities in fiscal 2023 increased $5,014 million, primarily due to proceeds from the issuance of debt, partially offset by repayment of debt and the continuation of our stock repurchase program.

Fiscal 2023 reflects $8,954 million of aggregate proceeds:

$3,910 million from Term Facility A (as defined below), $3,690 million from Term Facility B (as defined below), $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 Term Loan, $703 million repayment of our Delayed Draw Term Loan, settlement of the $525 million principal, $250 million prepayment of our Term B Facility, and $59 million mandatory amortization payments of our Term Facility A and B, $100 million equity rights associated with our New 2.0% Convertible Notes, and common stock repurchases of $904

In contrast, 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.

Our cash flows provided by and used in financing activities in fiscal 2024 decreased $6,642 million, primarily due to lower repayments of debt and repurchases of common stock under our repurchase program and by the absence of proceeds from the issuance of debt during the fiscal 2023.

Fiscal 2024 reflects $1,183 million in voluntary prepayments and principal amortization payments of our Term Loans and mortgages and $441 million in repurchases of common stock.

In contrast, fiscal 2023 reflects $8,954 million of aggregate proceeds:

$3,910 million from Term A Facility, $3,690 million from Term B Facility, $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, 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, the settlement of the $525 million principal and $100 million equity rights associated with our New 2.0% Convertible Notes, $250 million prepayment of our Term B Facility, and $59 million mandatory amortization payments of our Term A and Term B Facility.

Repurchases of common stock in fiscal 2023 were $904 million.

Cash and cash equivalents

As of March 31, 2023, we had cash, cash equivalents and short-term investments of approximately $750 million, of which $572 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.

As of March 29, 2024, we had cash and cash equivalents of approximately $846 million, of which $379 million was held by our foreign subsidiaries.

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

The participation exemption system under current U.S.

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however, these distributions may be subject to applicable state or non-U.S.

On June 1, 2022, we fully repaid the principal and accrued interest under the 3.95% Senior Notes due June 2022, which had an aggregate principal amount outstanding of $400 million.

In addition, we paid $7 million of accrued and unpaid interest through the redemption date.

On August 15, 2022, we settled the $525 million principal and conversion rights of our New 2.0% Convertible Notes in cash.

The aggregate settlement amount of $630 million was based on $20.41 per underlying share into which the New 2.0% Convertible Notes were convertible.

In addition, we paid $5 million of accrued and unpaid interest through the date of settlement.

On September 12, 2022, upon close of the Merger with Avast, we entered into the Amended and Restated Credit Agreement (Credit Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $1,500 million revolving credit facility (Revolving Facility), a $3,910 million term loan A facility (Term A Facility), (iii) a $3,690 million term loan B facility (Term B Facility) and (iv) a $750 million tranche A bridge loan (Bridge Loan) (collectively, the senior credit facilities).

The Bridge Loan was undrawn and immediately terminated upon the Merger’s close.

We drew down the aggregate principal amounts of the Term A Facility and Term B Facility to finance the cash consideration payable for the transaction and to fully repay the aggregate outstanding principal of $1,703 million and aggregate accrued and unpaid interest of $3 million under the Initial Term Loan and Delay Draw Term Loan from then existing credit facilities.

The Credit Agreement replaced the existing credit facilities upon the close of the transaction.

During fiscal 2023, we paid an aggregate $145 million in debt issuance costs associated with the senior credit facilities.

The Credit Agreement contains customary representations and warranties and affirmative and negative covenants 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 March 31, 2023 , we were in compliance with all debt covenants.

As of March 31, 2023, there were no borrowings outstanding under our Revolving Facility.

O n September 19, 2022, we issued two series of senior notes, consisting of 6.75% Senior Notes due 2027 and 7.125% Senior Notes due 2030, for an aggregate principal of $1,500 million.

They are senior unsecured obligations that rank equally in right of payment with all of our existing and future senior, unsecured, unsubordinated obligations and may be redeemed at any time, subject to the make-whole provisions contained in the applicable indenture relating to such series of notes.

Interest on these series of notes is payable semi-annually in arrears on March 31 and September 30 for both the 6.75% Senior Notes and 7.125% Senior Notes, commencing on March 31, 2023.

During fiscal 2023, we paid an aggregate $14 million in debt issuance costs associated with the two senior notes.

In connection with the financing provided for Term B Facility, we incurred customary ticking fees with respect to the undrawn commitments that began accruing on the 61st day post-syndication.

The ticking fees were accrued at the per annum rate of (i) 50% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans for 61-90 days from January 28, 2022, the syndication date, and (ii) 100% of the interest rate margin for adjusted SOFR (or applicable replacement rate) loans on and after 91 days from the syndication date.

Ticking fees were payable on the Closing Date of the transaction and capitalized as a portion of debt issuance cost for the Term B Facility.

During fiscal 2023, we paid and capitalized $31 million in ticking fees.

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.

Subsequent to March 31, 2023, on April 28, 2023, we made a voluntary prepayment of $150 million for our senior credit facilities, which was applied exclusively to the Term B Facility.

We have an undrawn revolving credit facility of $1,500 million, which expires in September 2027.

Stock repurchases

During the fiscal 2024 and 2023, we executed repurchases of 21 million and 40 million of our common stock under our existing stock repurchase program for an aggregate amount of $441 million and $904 million, respectively.

Material Cash Requirements

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

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

Debt instruments

As of March 29, 2024, our total outstanding principal amount of indebtedness is summarized as follows.

See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on our debt.

(In millions) March 29, 2024

Term Loans $ 6,110

Senior Notes 2,600

Mortgage Loans 6

Total debt $ 8,716

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

As of March 29, 2024, we were in compliance with all debt covenants.

See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information regarding financial ratios and debt covenant compliance.

On May 9, 2024, we announced a cash dividend of $0.125 per share of common stock to be paid in June 2024.

We currently expect to continue to pay quarterly cash dividends to stockholders in the future, but such payments will be subject to the

approval of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business and market conditions and other investment opportunities.

Share repurchase program

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

Any future dividends and dividend equivalents will be subject to the approval from 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 (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act) and through accelerated stock repurchase transactions.

As of March 29, 2024, the remaining balance of our stock repurchase authorization is $429 million and does not have an expiration date.

We currently expect to repurchase shares in the future, but 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.

In May 2024, our Board of Directors authorized a new stock repurchase program through which we may repurchase shares of our common stock in an aggregate amount of up to $3 billion with no fixed expiration.

This new stock repurchase program will supersede any amounts under the prior stock repurchase programs.

The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and other investment opportunities.

Restructuring

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.

In connection with the 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 the acquisition on September 12, 2022.

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.

We expect that we will incur total costs up to $150 million, with $120 million and $30 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.

We expect that we will incur total costs up to $150 million following the completion of the acquisition.

These actions are expected to be completed by the end of fiscal 2025.

During fiscal 2024, we made $41 million in cash payments related to the September 2022 Plan.

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Significant contractual obligations

The following is a schedule of our significant contractual obligations and commitments as of March 31, 2023.

The following is a schedule of our principal commitments as of March 29, 2024.

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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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 connection with the sale of our Enterprise Security business to Broadcom, we assigned several leases to Broadcom or certain of its subsidiaries.

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.

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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-K

Item 7. Management’s Discussion and Analysis