Symantec 2003 Annual Report Download

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IMAGINE THE POSSIBILITIES
2003 ANNUAL REPORT

Table of contents

  • Page 1
    2003 ANNUAL REPORT IMAGINE THE POSSIBILITIES

  • Page 2
    ... server security solutions for virus protection, firewall and virtual private network, vulnerability management, intrusion detection, Internet content and email filtering, remote management technologies, and security services to enterprises and service providers around the world. Symantec's Norton...

  • Page 3
    ... help make it possible. We're the global leader in Internet security- solely dedicated to making the connected world a safer place. The more connected the world becomes, the more pivotal our role in making it an environment where C O M M E R C E , C U LT U R E , can flourish. AND IDEAS SYMANTEC...

  • Page 4
    ..., a few days' or even a few hours' advance warning of an emerging threat can prevent a A RECORD YEAR NEW GROWTH OPPORTUNITIES opment team shipped 20 products in 18 languages and 900 OEM builds in 20 languages. Sales of our integrated product suite, Norton Internet Securityâ„¢ , grew 101%-proof that...

  • Page 5
    ... enterprises and remote offices of larger corporations. VeriTest recently gave it high marks as an easy-to-use, cost-effective tool for securing network gateways. In October 2002, we introduced the Symantecâ„¢ Security Management System, which provides an open, standards-based approach to connect...

  • Page 6
    ... serving customer needs while reshaping the competitive landscape. In the consumer arena, we will grow our base of individual users and accelerate our expansion into the small business market. We plan to introduce a new anti-spam product, and release new versions of all of our award-winning products...

  • Page 7
    Enterprise Security - 42% Revenue by Segment Enterprise Administration - 15% Services - 2% Consumer Products - 41% United States - 51% Japan - 8% Asia Pacific - 5% Revenue by Geography Canada - 4% Latin America - 2% Europe, Middle East, Africa - 30% $511 $584 $590 $224 $325 $124 99 ...

  • Page 8
    ..., the number of new vulnerabilities, or "holes" in software and hardware systems that allow unauthorized access or the execution of malicious programs, grew more than 80%. There's no end in sight to the potential attacks or abuse of the Internet and connected devices. But there is a way to protect...

  • Page 9
    ...Internet security. With our singular focus on security products and services, we provide early warning, integrated protection, expert response, and comprehensive management to help our customers appreciate the full potential of a connected world. DISCOVER THE POSSIBILITIES WITH US. Symantec 2003...

  • Page 10
    ... based on early warning about vulnerabilities or potential threats is the best way to prevent an attack. Symantec helps customers master the first vital line of defense: knowing about the vulnerabilities most likely to be exploited. We track vulnerabilities in more than 13,000 product versions...

  • Page 11
    ... move toward more secure electronic information sharing has the power to improve P AT I E N T C A R E and C O S T - E F F I C I E N C Y. Patients can access their medical records online-at their convenience. Hospitals can exchange information in ways that improve responsiveness, quality of care, and...

  • Page 12
    ...T can transform a houseful of appliances into technologies that anticipate your needs. Imagine a refrigerator that not only keeps the milk cold, but actually knows it's running low and orders it online from the local grocery store. Or a utility meter that efficiently regulates itself based on energy...

  • Page 13
    ... that enhance security and manageability while optimizing performance and return on investment. Our integrated security protection brings together key technologies-including intrusion detection, firewall, antivirus, virtual private networks, malicious content detection, and anti-spam filtering-into...

  • Page 14
    ..., information, and service at all times-even under the pressure of a massive Internet attack. Symantec provides timely, automatic updates of virus definitions, intrusion detection signatures, firewall rules, filtering lists, vulnerability signatures, and correlation engine rules to address emerging...

  • Page 15
    Symantec 2003 13

  • Page 16
    ...business online, creating a new revenue stream, or accessing tax information, business owners have more power than ever before to bring their dreams to life. From getting a business off the ground to opening global channels of distribution, S E C U R E E - C O M M E R C E helps even small companies...

  • Page 17
    ... this data to help customers identify and respond quickly to security breaches. Symantec technologies also manage enterprise-wide security policy compliance, automate the discovery of policy deviations and vulnerabilities, conduct security assessments, and deliver an integrated report for the entire...

  • Page 18
    ...new products and services that address emerging threats and meet customers' evolving needs. During fiscal year 2003, we spent 14% of total revenue on research and development, generating new ideas and developing next-generation security technologies. Currently, we're focusing on intrusion prevention...

  • Page 19
    ..., Independent Auditors Corporate Information Forward-looking Statement This annual report contains forward-looking statements, including forecasts of future revenue and earnings, expected activities, and other financial and business results that involve known and unknown risks, uncertainties, and...

  • Page 20
    ... Mountain Wave during fiscal 2003; • Lindner & Pelc and Foster-Melliar's enterprise security management division during fiscal 2002; • AXENT during fiscal 2001; • 20/20 Software, L-3 Network Security's operations and URLabs during fiscal 2000; and • Quarterdeck, Intel's and IBM's antivirus...

  • Page 21
    ... National Market. All closing sales prices have been adjusted to reflect the two-for-one stock dividend, which became effective January 31, 2002. Fiscal 2003 Mar. 31, 2003 Dec. 31, 2002 Sep. 30, 2002 Jun. 30, 2002 Nov 22, 2002 Sep. 30, 2002 tion on November 22, 2002 and issued one share of Symantec...

  • Page 22
    ... of client, gateway and server security solutions for virus protection, firewall and virtual private network, security management, intrusion detection, Internet content and email filtering, remote management technologies and security services to enterprises and service providers around the world...

  • Page 23
    ... code alerts, providing information to help users mitigate vulnerabilities before they can be exploited. Symantec DeepSightâ„¢ Threat Management System tracks global security threats, providing early warning of active attacks to help protect critical information assets. ENTERPRISE ADMINISTRATION...

  • Page 24
    ... confidential information. Norton Parental Control shields children from objectionable Web sites and Norton Spam Alert blocks unwanted email. Norton SystemWorksâ„¢ is a fully integrated suite of problem-solving utilities that protects PC and Macintosh users from virus threats, optimizes performance...

  • Page 25
    ... industry partners; • direct mailings and emailings to existing end-users and prospects; • the use of tools such as trialware and Symantec™ Security Check, a Web-based tool for users to assess the security vulnerabilities on their computers (consumer only); • participation in focused trade...

  • Page 26
    ... security updates for our security product offerings at the server, gateway and desktop levels. Our consumer product support program provides free self-help online services to all consumer customers worldwide, as well as free email support. A team of product experts, editors and language...

  • Page 27
    ...by the constant change in Internet security threats and the strategic direction of major software and operating system providers, network equipment and computer hardware manufacturers, Internet service providers, application service providers and key application software vendors. Our competitiveness...

  • Page 28
    ... with our product and service offerings. In addition, we compete with other computer software companies, operating system providers and network equipment and computer hardware manufacturers for access to retail distribution channels and for the attention of customers at the retail level and in...

  • Page 29
    ... 600 employees in our direct sales force), 1,100 in product development, 200 in services and 800 in management, manufacturing, administration and finance. In connection with the relocation of our Leiden, Netherlands operations to Dublin, Ireland in early fiscal year 2003, a group of employees in the...

  • Page 30
    ... inventory levels, such as product seasonality, current market conditions, economic trends, existing security threats and timing of new product releases. On the same basis, we defer the associated cost of revenues related to the channel revenue deferral. If we made different judgments or utilized...

  • Page 31
    ...any distributor and reseller stock balancing returns. In addition, we fully reserve for obsolete products in the distribution channels. We also consider other factors such as the timing of upgrades and new versions of products, current market conditions, economic trends and changes in technology. If...

  • Page 32
    ..., internal attacks and denial of service attacks. • SecurityFocus Inc., a provider of enterprise security threat management systems, providing global early warning of cyber attacks, customized and comprehensive threat alerts, and countermeasures to prevent attacks before they occur. • Mountain...

  • Page 33
    ... increase in sales of our Norton AntiVirus and Norton Internet Security products. Our electronic distribution channel, including original equipment manufacturer subscription renewals, also contributed to the increase in sales during fiscal 2003 as compared to fiscal 2002. Net revenues increased by...

  • Page 34
    ...fee-based technical support costs related to increased enterprise sales. In addition, the costs associated with services increased with the corresponding increase in services revenue; and our services typically generate lower gross margins than our software products. Acquired Product Rights Acquired...

  • Page 35
    ... to new versions of DeepSight Threat Management System and DeepSight Analyzer products, which are threat management systems that provide early warnings of attack, as well as countermeasures to defend these attacks. We plan to integrate this technology into our security management products. Recourse...

  • Page 36
    ... in December 1999, from Interact Commerce Corporation, which subsequently merged with The Sage Group plc. During fiscal 2003, this royalty income was offset by the write-off of approximately $2.7 million of developed technology related to the Web access management products that were divested in the...

  • Page 37
    ... software business for approximately $13.0 million. Also, on May 13, 2003, we entered into an agreement to acquire Nexland, Inc., a technology driven Internet security company whose Internet Protocol based networking appliances are installed at enterprise branches and telecommuter offices worldwide...

  • Page 38
    ... SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for LongLived Assets to be Disposed Of and elements of APB No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently 36 Symantec 2003

  • Page 39
    ... stock price may suffer and the volatility of our stock may increase. Business Risk Factors There is uncertainty as to whether or not we will be able to sustain the growth rates in sales of our products, particularly in consumer antivirus protection products. During fiscal 2003 and the second half...

  • Page 40
    ... newly acquired products and products incorporating newly acquired technology from our acquisitions. Examples of these products include ManHunt, Symantec Decoy Server (formerly ManTrap), DeepSight Threat Management System and DeepSight Alert Services. These products may not achieve market acceptance...

  • Page 41
    ...market for security solutions. For example, the continued inclusion of security, remote access or virus protection tools in new operating systems and hardware packages could adversely affect our sales. In particular, the inclusion of features by Microsoft in future editions of Windows which directly...

  • Page 42
    ... with products of our competitors. Product returns may negatively affect our net revenues. Product returns can occur when we introduce upgrades and new versions of products or when distributors or retailers have excess inventories, subject to various contractual limitations. Our return policy allows...

  • Page 43
    ... may bring to protect proprietary information could be expensive and may distract management from dayto-day operations. Our inabilities to timely distribute our products and services over the Internet, and security patches and updated virus definitions via our LiveUpdate feature in particular, could...

  • Page 44
    ....1 The modeling technique used above measures the change in fair market value arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of minus 75 basis points, minus 25 basis points, plus 50 basis points, plus 100...

  • Page 45
    ...under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Our chief executive officer and our chief financial officer, based on their evaluation of the effectiveness of our disclosure controls and...

  • Page 46
    ... Financial Statements Symantec Corporation Consolidated Balance Sheets March 31, (IN THOUSANDS, EXCEPT PAR VALUE) 2003 2002 Assets Current assets: Cash, cash equivalents and short-term investments Trade accounts receivable, net Inventories Deferred income taxes Other Total current assets...

  • Page 47
    ...Corporation Consolidated Statements of Operations Year Ended March 31, (IN THOUSANDS, EXCEPT NET INCOME (LOSS) PER SHARE) 2003 2002 2001 Net revenues Cost of revenues Gross margin Operating expenses: Research and development Sales and marketing General and administrative Amortization of goodwill...

  • Page 48
    ...gain on available-for-sale securities Translation adjustment Total comprehensive loss Issued common stock: 9,187 shares under stock plans Stock dividend Amortization of unearned compensation Repurchased 9,640 shares of common stock Income tax benefit related to stock options Balances, March 31, 2002...

  • Page 49
    ... Loss on equity investments Write-off of equipment and leasehold improvements Acquired in-process research and development Deferred income taxes Gain on divestiture of the Web access management product line Income tax benefit from stock options Net change in assets and liabilities, excluding...

  • Page 50
    ... end-user customers. We estimate and record reserves for end-user product returns and channel and end-user rebates, and we account for these reserves as an offset to revenue. We enter into perpetual software license agreements mainly for our enterprise security and enterprise administration products...

  • Page 51
    ... product rights, technologies, databases and revenue related order backlog and contracts from acquired companies. Acquired product rights are stated at cost less accumulated amortization. Amortization of acquired product rights is provided on a straight-line basis over the estimated useful lives...

  • Page 52
    ... PER SHARE DATA) Concentrations of Credit Risk Our product revenues are concentrated in the software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities...

  • Page 53
    ... the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets. The adoption of this statement did not have a material...

  • Page 54
    ... hardware and software Office furniture and equipment Buildings and land Leasehold improvements $ 307,623 65,240 172,228 53,883 598,974 Less: accumulated depreciation and amortization (265,699) $ 333,275 Acquired product rights, net: Acquired product rights Less: accumulated amortization $ Goodwill...

  • Page 55
    ...SecurityFocus On August 5, 2002, we acquired SecurityFocus, Inc., a provider of enterprise security threat management systems, providing global early warning of cyber attacks, customized and comprehensive threat alerts, and countermeasures to prevent attacks before they occur, for approximately $74...

  • Page 56
    ...-Melliar's Enterprise Security Management Division On July 11, 2001, we acquired the enterprise security management division of Foster-Melliar Limited, an IT services company located in Johannesburg, South Africa. We paid approximately $1.5 million for these assets and the IT services business. The...

  • Page 57
    ... Operations. We also entered into an exclusive license and option agreement with PassGo whereby they licensed our Web access management technology products. In consideration for the license, PassGo is required to pay us quarterly royalties based on their net revenue starting at 30% and declining to...

  • Page 58
    ..., from sale of technologies and product lines were as follows: Year Ended March 31, (IN THOUSANDS) 2003 2002 2001 Royalties from Interact Gain on divestiture of Web access management product line Amortization and write-off of developed technology related to Web access management product line...

  • Page 59
    ... a write-off of $0.8 million of net workforce-in place related to the divestiture of our Web access management product line. During fiscal 2003, amortization expense for acquired product rights was approximately $32.1 million, of which $30.4 million and $1.8 million was recorded in cost of revenues...

  • Page 60
    .... As of March 31, 2003 and 2002, we held no publicly traded equity securities. As of March 31, 2001, equity securities of approximately $7.5 million consisted of 623,247 shares of Interact. During the March 2001 quarter, Interact entered into a plan to merge with The Sage Group plc and we recorded...

  • Page 61
    ... of record on January 17, 2002. Based on the number of shares outstanding on January 17, 2002, the stock dividend resulted in the issuance of approximately 70.7 million additional shares of Symantec's common stock. All Symantec share and per share amounts in prior periods have been adjusted...

  • Page 62
    ... $0.01 per share, at a price of $150.00 per one one-thousandth of a share of Series A Junior Participating Preferred Stock, subject to adjustment. The rights are initially attached to Symantec common stock and will not trade separately. If a person or a group, an Acquiring Person, acquires 20% or...

  • Page 63
    ... this plan. In accordance with the employment agreement dated April 11, 1999 between our current CEO and Symantec, the Board of Directors approved the issuance of a non-qualified stock option to acquire 400,000 shares of common stock to the CEO. The option was granted at 100% of the fair market...

  • Page 64
    ...of grant using the Black-Scholes option-pricing model assuming no expected dividends and the following weighted average assumptions: Employee Stock Options 2003 2002 2001 2003 Employee Stock Purchase Plans 2002 2001 Expected life (years) Expected volatility Risk free interest rate 5.23 0.72 3.12...

  • Page 65
    ... During the March 2003 quarter, we recorded approximately $3.4 million for the costs of severance, related benefits and outplacement services primarily associated with the relocation of certain development, sales and finance activities and the realignment of certain worldwide marketing efforts. As...

  • Page 66
    ...with the exception of an immaterial amount for related outplacement services. During the December 2001 quarter, we recorded approximately $9.4 million for exit costs associated with the relocation of our North American support group from Eugene, Oregon to an expanded facility in Springfield, Oregon...

  • Page 67
    ... plans associated with each of the reductions in workforce and facility closures above specifically identified all the significant actions... 31, (IN THOUSANDS) 2003 2002 2001 Current: Federal State International $ 58,732 15,045 45,809 119,586 Deferred: Federal State International (620) (2,465) (1,...

  • Page 68
    ... Pereira filed a purported class action lawsuit against a local retailer and us in the Supreme Court of New York, New York County, alleging breach of contract and deceptive business practices in connection with rebates offered by us. The complaint was served March 26, 2003. The complaint seeks...

  • Page 69
    ...users, home offices and small businesses. The Services segment is focused on providing information security solutions that incorporate best-of-breed technology, security expertise and global resources. The Other segment is comprised of sunset products and products nearing the end of their life cycle...

  • Page 70
    ... and leasehold improvements are allocated based on headcount, unless specifically identified by segment. (IN THOUSANDS) Enterprise Enterprise Security Administration Consumer Products Services Other Total Company Fiscal 2003 Revenue from external customers Operating income (loss) Depreciation...

  • Page 71
    ... in cash. Also, on May 13, 2003, we entered into an agreement to acquire Nexland, Inc., a technology driven Internet security company whose Internet Protocol based networking appliances are installed at enterprise branches and telecommuter offices worldwide, for approximately $19.6 million in cash...

  • Page 72
    ..., we do not express an opinion or any other form of assurance on the 2002 or 2001 consolidated financial statements taken as a whole. Mountain View, California April 23, 2003, except for Note 18, which is as of May 13, 2003, and Notes 4, 16 and 17, which are as of June 11, 2003 70 Symantec 2003

  • Page 73
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit...

  • Page 74
    ... Station Attn: Courier Window Canada 800 387 0825 Investor Relations Investor inquires may be directed to: Helyn Corcos Investor Relations 20330 Stevens Creek Blvd. Cupertino, CA 95014 408 517 8324 Email: [email protected] Web site: www.symantec.com/invest Annual Report on Form 10...

  • Page 75
    ... are U.S. registered trademarks of Symantec Corporation. Norton Internet Security, Symantec Client Security, Symantec Enterprise Security Architecture, Symantec Gateway Security, Symantec Incident Manager, and Symantec Security Management System are trademarks of Symantec Corporation. Other brands...

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