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[May 16, 2014]
SYMANTEC CORP - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) OVERVIEW Our business Symantec Corporation protects the world's information and is a global leader in security, backup and availability solutions. Our market leading products and services protect people and information in any environment - from the smallest mobile device, to the enterprise data center, to cloud-based systems. Founded in April 1982, Symantec operates one of the largest global threat-intelligence networks, and provides leading security, backup and availability solutions. The company has more than 20,000 employees in more than 50 countries. Our Internet home page is www.symantec.com. Other than the information expressly set forth in this annual report, the information contained or referred to on our website is not part of this annual report.
Fiscal calendar We have a 52/53-week fiscal year ending on the Friday closest to March 31.
Unless otherwise stated, references to years in this report relate to fiscal year and periods ended March 28, 2014, March 29, 2013 and March 30, 2012. Fiscal 2014, 2013, and 2012 each consisted of 52 weeks. Our 2015 fiscal year will consist of 53 weeks and will end on April 3, 2015.
30-------------------------------------------------------------------------------- Table of Contents Strategy The recent transformation of business and consumer technologies has driven pervasive mobility and an explosion of data resulting in the need for a new approach to protecting devices, applications, data and users. Further, the emergence of the Internet of Things, where new devices and everyday objects are becoming networked and connected to the Internet for the first time, highlights the need for comprehensive information security and management solutions to protect valuable data. We believe that the market for security and management solutions will benefit from these trends. As a platform-independent software company without bias to any individual operating system or hardware environment, Symantec helps customers manage more technologies with greater efficiency and on a wide range of virtual and mobile platforms.
In January 2013, we announced our strategy to transition from being device-centric or protecting endpoints and the data center, to having a broader focus of protecting and managing digital information. We track a vast number of threat indicators across the Internet and continuously collect new telemetry from hundreds of millions of mobile devices, endpoints, and servers across the globe. This massive amount of security data, combined with our years of experience analyzing such data allows us to provide advanced intelligence and protection for all of our customers.
During fiscal year 2014, we implemented changes in three areas: simplifying our organizational structure, redesigning our GTM strategy, and changing our product offerings.
Simplifying our Organizational Structure We aligned our organization by functional areas, rather than by market segments in order to reduce complexity, remove redundancies, increase the speed of decision making, and improve accountability and execution. We reduced the number of management layers from our previous structure and increased the average span of control for managers.
Redesigning our Go-To-Market Strategy We split our direct field sales team into security and information management specialists focused on new business only and expanded their territories to be more effective for our enterprise customers. We also built a renewals group in order to extend the customer relationship and make it easier to renew and do business with us. We redesigned our global channel strategy focused on building partner competency, rewarding performance, and customer satisfaction.
Changing our Product Offerings With a portfolio of leading products, we focused our development efforts on making our point solutions better, designing new integrated solutions, and expanding our offerings by partnering with network security vendors to offer solutions that provide multi-tier protection.
Financial Implications of New Strategy We have developed a three-pronged approach to our product offering strategy which includes managing our portfolio of point solutions and reallocating resources to the offerings we estimate have the greatest growth potential, expanding our total addressable market by delivering innovative new offerings that integrate our technologies to solve our customers' most significant problems, and focusing on developing relationships with other industry leaders that will begin the process of building ecosystems that delivers more value to our customers.
We believe that sales and marketing of our innovative and differentiated products are enhanced by knowledgeable salespeople who can convey the strong value of our technology. As such, we restructured the 31-------------------------------------------------------------------------------- Table of Contents sales organization into new and renewals business teams. We also reorganized our direct sales force into functional areas of information security and information management. The focus of these specialized teams is to generate new business through new customer acquisition or through broadening existing customer relationships. We expect that by separating our direct sales force into specialized teams and focusing on new business, we will improve the efficiency and effectiveness of our sales process. Concurrently, we created a dedicated renewals team that is focused on extending existing customer relationships and renewing contracts.
We are also investing in our indirect sales channels to build stronger, more strategic relationships that enable us to better serve consumers, small business and mid-market customers. Through our channel partner program we are seeking to align our offerings with the optimal route to market, leveraging our channel partner capabilities. We also plan to align the economics and incentives under these relationships based on the value created by the partner and their commitment to Symantec and our customers. We believe these changes will help us provide our end customer with high-quality sales and post-sales support experiences while expanding our business.
As part of our enhanced capital allocation strategy, in fiscal 2014 we initiated a quarterly cash dividend in addition to our on-going share repurchases activity. We paid a quarterly dividend in the amount of $0.15 per share of common stock in each quarter of fiscal 2014, for an aggregate of $418 million or $0.60 per share, during fiscal 2014. All shares of common stock issued and outstanding, and unvested restricted stock and performance-based stock as of the record date for any dividend will be entitled to the dividend and dividend equivalents, respectively. Any future dividends and dividend equivalents will be subject to the approval of our board of directors.
Our revenue, income and cash flows may be impacted by severance, other charges, and capital expenditures as we execute our organic growth strategy.
New enterprise resource planning system During the third quarter of fiscal 2014, following our final testing and data conversion stages, we implemented the critical financial reporting module of a new enterprise resource planning ("ERP") system. The costs, other than capital expenditures, associated with this first phase of implementation of the core operating systems have been recorded in operating expenses as restructuring and transition expenses.
Change in management On March 20, 2014, the board of directors of the Company appointed board member Michael A. Brown as interim president and CEO, following the termination of Stephen M. Bennett as the Company's president and chief executive officer.
Mr. Bennett also resigned from the Company's board of directors. This change within our management leadership team resulted in certain severance and accelerated stock based compensation expenses.
Our operating segments Our current operating segments are strategic business units that offer different products and services distinguished by customer needs. In the first quarter of fiscal 2014, we modified our segment reporting structure to more readily match the new operating structure. The three reporting segments, which are the same as our operating segments are as follows: User Productivity & Protection, Information Security, and Information Management. For further description of our operating segments see Note 10 of the Notes to Consolidated Financial Statements in this annual report.
32 -------------------------------------------------------------------------------- Table of Contents Financial results and trends Revenue decreased by $230 million for fiscal 2014 as compared to fiscal 2013, primarily due to decreases in revenue from our User Productivity & Protection segment and Information Management segment following the transition of our sales force into new and renewal business teams. We experienced revenue declines domestically and internationally in fiscal 2014 as compared to fiscal 2013. The Asia Pacific and Japan region experienced the largest net revenue decrease followed by Americas, while the EMEA region experienced net revenue growth for fiscal 2014 as compared to fiscal 2013. The Asia Pacific and Japan region revenue declined primarily due to foreign currency translation adjustments resulting from the weakening of the Japanese yen compared to the U.S. dollar, while we experienced favorable foreign currency effects in the EMEA region.
Cost of revenue decreased by $26 million for fiscal 2014 as compared to fiscal 2013, primarily due to decreases in revenue and decreases in intangible assets amortization as certain developed technologies became fully amortized early in fiscal 2014.
Operating expenses decreased by $281 million for fiscal 2014 as compared to fiscal 2013, primarily due to lower salaries and wages resulting from lower headcount, lower advertising and promotion expenses and lower amortization of intangible assets as various customer relationship intangibles became fully amortized early in fiscal 2014. For fiscal 2014, we recognized $270 million of restructuring and transition costs. We are focused on five priorities for fiscal 2015. These include optimizing our businesses based on lifecycle and growth potential; prioritizing investments for growth in our enterprise businesses; further reducing costs and improving efficiencies across the company; rounding out our talented executive team; and continuing to return significant cash to shareholders.
CRITICAL ACCOUNTING ESTIMATES The preparation of our Consolidated Financial Statements and related notes included in this annual report in accordance with generally accepted accounting principles in the United States, 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.
Historically, our critical accounting estimates have not differed materially from actual results; however, actual results may differ from these estimates under different conditions. If actual results differ from these estimates and other considerations used in estimating amounts reflected in our Consolidated Financial Statements included in this annual report, the resulting changes could have a material adverse effect on our Consolidated Statements of Income, and in certain situations, could have a material adverse effect on our liquidity and financial condition.
A critical accounting estimate is based on judgments and assumptions about matters that are uncertain at the time the estimate is made. Different estimates that reasonably could have been used or changes in accounting estimates could materially impact our operating results or financial condition. We believe that the estimates described below represent our critical accounting estimates, as they have the greatest potential impact on our Consolidated Financial Statements. See also Note 1 of the Notes to Consolidated Financial Statements included in this annual report.
Revenue recognition We recognize revenue primarily pursuant to the requirements under the authoritative guidance on software revenue recognition, and any applicable amendments or modifications. Revenue recognition requirements in the software industry are very complex and require us to make estimates.
33-------------------------------------------------------------------------------- Table of Contents For software arrangements that include multiple elements, including perpetual software licenses and maintenance or services, packaged products with content updates, and subscriptions, we allocate and defer revenue for the undelivered items based on the fair value using vendor specific objective evidence ("VSOE"), and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue. VSOE of each element is based on the price for which the undelivered element is sold separately. We determine fair value of the undelivered elements based on historical evidence of our stand-alone sales of these elements to third parties or from the stated renewal rate for the undelivered elements. When VSOE does not exist for undelivered items, the entire arrangement fee is recognized ratably over the performance period. Our deferred revenue consists primarily of the unamortized balance of enterprise product maintenance, consumer product content updates, managed security services, subscriptions, and arrangements where VSOE does not exist.
Deferred revenue totaled approximately $3.9 billion as of March 28, 2014, of which $581 million was classified as long-term deferred revenue in our Consolidated Balance Sheets. Changes to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and increasing flexibility in contractual arrangements could materially impact the amount recognized in the current period and deferred over time.
For arrangements that include both software and non-software elements, we allocate revenue to the software deliverables as a group and non-software deliverables based on their relative selling prices. In such circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price ("TPE") and (iii) best estimate of the selling price ("ESP"). When we are unable to establish a selling price using VSOE or TPE, we use ESP to allocate the arrangement fees to the deliverables.
For our consumer products that include content updates, we recognize revenue and the associated cost of revenue ratably over the term of the subscription upon sell-through to end-users, as the subscription period commences on the date of sale to the end-user. We defer revenue and cost of revenue amounts for unsold product held by our distributors and resellers.
We expect our distributors and resellers to maintain adequate inventory of consumer packaged products to meet future customer demand, which is generally four or six weeks of customer demand based on recent buying trends. We ship product to our distributors and resellers at their request and based on valid purchase orders. Our distributors and resellers base the quantity of orders on their estimates to meet future customer demand, which may exceed the expected level of a four or six week supply. We offer limited rights of return if the inventory held by our distributors and resellers is below the expected level of a four or six week supply. We estimate reserves for product returns as described below. We typically offer liberal rights of return if inventory held by our distributors and resellers exceeds the expected level. Because we cannot reasonably estimate the amount of excess inventory that will be returned, we primarily offset deferred revenue against trade accounts receivable for the amount of revenue in excess of the expected inventory levels.
Arrangements for maintenance, subscriptions, managed security services and SaaS offerings are generally offered to our customers over a specified period of time, and we recognize the related revenue ratably over the maintenance, subscription, or service period.
Reserves for product returns. We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical trends. We fully reserve for obsolete products in the distribution channels as an offset to deferred revenue. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the economic and industry environment could make actual results differ from our return estimates.
Reserves for rebates. We estimate and record reserves for channel and end-user rebates as an offset to revenue or deferred revenue. For consumer products that include content updates, rebates are recorded as a ratable offset to revenue or deferred revenue over the term of the subscription. Our estimated reserves for channel 34 -------------------------------------------------------------------------------- Table of Contents volume incentive rebates are based on distributors' and resellers' actual performance against the terms and conditions of volume incentive rebate programs, which are typically entered into quarterly. Our reserves for end-user rebates are estimated based on the terms and conditions of the promotional programs, actual sales during the promotion, the amount of actual redemptions received, historical redemption trends by product and by type of promotional program, and the value of the rebate. We also consider current market conditions and economic trends when estimating our reserves for rebates. If actual redemptions differ from our estimates, material differences may result in the amount and timing of our net revenues for any period presented.
Valuation of goodwill, intangible assets and long-lived assets Business combination valuations. When we acquire businesses, we allocate the purchase price to tangible assets and liabilities and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on information obtained from management of the acquired companies and historical experience. These estimates can include, but are not limited to: • cash flows that an asset is expected to generate in the future; • expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; • the acquired company's brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company's product portfolio; • cost savings expected to be derived from acquiring an asset; and • discount rates.
These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates, and if such events occur we may be required to record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities.
Goodwill impairment. We review goodwill for impairment on an annual basis on the first day of the fourth quarter of each fiscal year, and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable, at the reporting unit level. Our reporting units are the same as our operating segments. A qualitative assessment is first made to determine whether it is necessary to perform quantitative testing. This initial assessment includes, among others, consideration of: (i) past, current and projected future earnings and equity; (ii) recent trends and market conditions; and (iii) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar companies, if available. If this initial qualitative assessment indicates that it is more likely than not that impairment exists, a second step is taken, involving a comparison between the estimated fair values of our reporting units with their respective carrying amounts including goodwill. The methods for estimating reporting unit values include asset and liability fair values and other valuation techniques, such as discounted cash flows and multiples of earnings or revenues. If the carrying value exceeds estimated fair value, there is an indication of potential impairment, and a third step is performed to measure the amount of impairment. The third step involves calculating an implied fair value of goodwill by measuring the excess of the estimated fair value of the reporting units over the aggregate estimated fair values of the individual assets less liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.
35 -------------------------------------------------------------------------------- Table of Contents The process of estimating the fair value and carrying value of our reporting units' equity requires significant judgment at many points during the analysis.
Many assets and liabilities, such as accounts receivable and property and equipment, are not specifically allocated to an individual reporting unit, and therefore, we apply judgment to allocate the assets and liabilities, and this allocation affects the carrying value of the respective reporting units.
Similarly, we use judgment to allocate goodwill to the reporting units based on relative fair values. The use of relative fair values has been necessary for certain reporting units due to changes in our operating structure in prior years. To determine a reporting unit's fair value, we use the income approach under which we calculate the fair value of each reporting unit based on the estimated discounted future cash flows of that unit. We evaluate the reasonableness of this approach by comparing it with the market approach, which involves a review of the carrying value of our assets relative to our market capitalization and to the valuation of publicly traded companies operating in the same or similar lines of business.
Applying the income approach requires that we make a number of important estimates and assumptions. We estimate the future cash flows of each reporting unit based on historical and forecasted revenue and operating costs. This, in turn, involves further estimates, such as estimates of future revenue and expense growth rates. In addition, we apply a discount rate to the estimated future cash flows for the purpose of the valuation. This discount rate is based on the estimated weighted-average cost of capital for each reporting unit and may change from year to year. Changes in these key estimates and assumptions, or in other assumptions used in this process, could materially affect our impairment analysis for a given year.
As of March 28, 2014, our goodwill balance was $5.9 billion amongst our reporting units. Based on a qualitative impairment analysis performed as of December 28, 2013, we determined that it was more likely than not that there was no impairment in any of our reporting units.
A number of factors, many of which we have no ability to control, could affect our financial condition, operating results and business prospects and could cause actual results to differ from the estimates and assumptions we employed.
These factors include: • a prolonged global economic crisis; • a significant decrease in the demand for our products; • the inability to develop new and enhanced products and services in a timely manner; • a significant adverse change in legal factors or in the business climate; • an adverse action or assessment by a regulator; • successful efforts by our competitors to gain market share in our markets; • a loss of key personnel; • our determination to dispose of one or more of our reporting units; • the testing for recoverability of a significant asset group within a reporting unit; and • recognition of a goodwill impairment loss.
Intangible asset impairment. We assess the impairment of identifiable finite-lived intangible assets whenever events or changes in circumstances indicate that an asset group's carrying amount may not be recoverable.
Recoverability of certain finite-lived intangible assets, particularly customer relationships and finite-lived trade names, would be measured by the comparison of the carrying amount of the asset group to which the 36-------------------------------------------------------------------------------- Table of Contents assets are assigned to the sum of the undiscounted estimated future cash flows the asset group is expected to generate. If an asset is considered to be impaired, the amount of such impairment would be measured as the difference between the carrying amount of the asset and its fair value. Recoverability and impairment of other finite-lived intangible assets, particularly developed technology and patents, would be measured by the comparison of the carrying amount of the asset to the sum of undiscounted estimated future product revenues offset by estimated future costs to dispose of the product to which the asset relates. For indefinite-lived intangible assets, we review impairment on an annual basis consistent with the timing of the annual evaluation for goodwill.
These assets generally include trade names and trademarks. Similar to goodwill impairment testing, a qualitative assessment is first made to determine whether it is necessary to perform quantitative testing. This initial assessment includes consideration of, among other things: (i) past, current and projected future revenues; (ii) recent trends and market conditions, including discount rates; and (iv) valuation metrics, such as royalty rates, involving similar companies that are publicly-traded, if available. If this initial qualitative assessment indicates that it is more likely than not that impairment exists, a second step is taken. This step involves a comparison between the fair values of the assets and their respective carrying amounts. Any excess of the carrying amount over the fair value would be recognized as an impairment charge. Our cash flow assumptions are based on historical and forecasted future revenue, operating costs, and other relevant factors. Assumptions and estimates about the remaining useful lives of our intangible assets are subjective and are affected by changes to our business strategies. If management's estimates of future operating results change, or if there are changes to other assumptions, the estimate of the fair value of our identifiable intangible assets could change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition.
Long-lived assets. We assess long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the long-lived assets may not be recoverable. Based on the existence of one or more indicators of impairment, we assess recoverability of long-lived assets based on a projected undiscounted cash flow method using assumptions determined by management to be commensurate with the risk inherent in our current business model. If an asset is not recoverable, impairment is measured as the difference between the carrying amount and its fair value. Our estimates of cash flows require significant judgment based on our historical and anticipated results and are subject to many factors which could change and cause a material impact to our operating results or financial condition. We record impairment charges on long-lived assets held for sale when we determine that the carrying value of the long-lived assets may not be recoverable. In determining fair value, we obtain and consider market value appraisal information from third parties.
Stock-based compensation We account for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is generally recognized as expense ratably over the requisite service period, which is generally the vesting period of the respective award.
We issue performance-based restricted stock units ("PRUs") and performance-contingent stock units ("PCSUs") representing hypothetical shares of our common stock. Each PRU and PCSU grant reflects a target number of shares that may be issued to the award recipient. The actual number of PRUs the recipient receives is determined at the end of a three-year performance period as follows: (1) our achievement of an annual target earnings per share for the first fiscal year of grant and (2) our two and three year cumulative relative total shareholder return ranked against that of other companies that are included in the Standard & Poor's 500 Index. The PCSUs vest based upon the performance of Symantec's common stock over a three-year period, and are also subject to an underlying continued service vesting condition. We estimate the fair value of PRUs using the Monte Carlo simulation option pricing model ("Monte Carlo model"), as the total shareholder return modifier contains a market condition. We estimate the fair value and derived service period of PCSUs using the Monte Carlo model, as this statistical model can simulate a range of possible future stock prices for Symantec. Because our PRUs include dividend-equivalent rights, the fair values of PRUs are not discounted by the dividend yield.
37 -------------------------------------------------------------------------------- Table of Contents Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes-Merton option pricing model ("BSM model") to determine the fair value of stock options. The determination of the grant date fair value of options using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected life of the options, actual and projected employee stock option exercise and cancellation behaviors, risk-free interest rates, and expected dividends.
We estimate the expected life of options granted based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the option. Expected volatility is based on the average of historical volatility for the period commensurate with the expected life of the option and the implied volatility of traded options. The risk free interest rate is equal to the U.S. Treasury constant maturity rates for the period equal to the expected life. If options are granted or assumed without dividend-equivalents rights, the fair values are discounted by the dividend yield. Prior to the initial declaration of a quarterly cash dividend on May 2, 2013, the fair value of options was measured based on an expected dividend yield of 0% as we did not historically pay cash dividends on our common stock. For awards granted on or subsequent to June 27, 2013, we used an annualized dividend yield based on the per share dividends declared by our board of directors. See Note 15 of the Notes to Consolidated Financial Statements in this annual report.
In accordance with the authoritative guidance on stock compensation, we record stock-based compensation expense for awards that are expected to vest. As a result, judgment is required in estimating the amount of stock-based awards that are expected to be forfeited. Although we estimate forfeitures based on historical experience, actual forfeitures may differ. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted when we record an adjustment for the difference in the period that the awards vest or are forfeited.
Contingencies and litigation We evaluate contingent liabilities including threatened or pending litigation in accordance with the authoritative guidance on contingencies. We assess the likelihood of any adverse judgments or outcomes from potential claims or legal proceedings, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable. A determination of the amount of accrued liabilities required, if any, for these contingencies is made after the analysis of each separate matter. Because of uncertainties related to these matters, we base our estimates on the information available at the time of our assessment. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position.
Income taxes We are required to compute our income taxes in each federal, state, and international jurisdiction in which we operate. This process requires that we estimate the current tax exposure as well as assess temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes.
The income tax effects of the differences we identify are classified as current or long-term deferred tax assets and liabilities in our Consolidated Balance Sheets. Our judgments, assumptions, and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our Consolidated Balance Sheets and Consolidated Statements of Income.
38-------------------------------------------------------------------------------- Table of Contents Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside the United States. While we do not anticipate changing our intention regarding indefinitely reinvested earnings outside the United States, material changes in our estimates of such earnings or tax legislation that limits or restricts the amount of such earnings could materially impact our income tax provision and effective tax rate. If certain foreign earnings previously treated as indefinitely reinvested outside the United States are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.
We account for uncertain tax positions pursuant to authoritative guidance based on a two-step approach to recognize and measure those positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, the refinement of estimates, or the realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statements of Income in the period in which such determination is made.
We must also assess the likelihood that deferred tax assets will be realized from future taxable income and, based on this assessment establish a valuation allowance, if required. The determination of our valuation allowance involves assumptions, judgments and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase or decrease to our tax provision in our Consolidated Statements of Income.
RESULTS OF OPERATIONS Total net revenue Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Content, subscription, and maintenance revenue $ 5,960 $ (61 ) (1 )% $ 6,021 $ 198 3 % $ 5,823 Percentage of total net revenue 89 % 87 % 87 % License revenue 716 (169 ) (19 )% 885 (22 ) (2 )% 907 Percentage of total net revenue 11 % 13 % 13 % Total $ 6,676 $ (230 ) (3 )% $ 6,906 $ 176 3 % $ 6,730 Fiscal 2014 compared to Fiscal 2013: Content, subscription and maintenance revenue represented 89%, 87% and 87% of total net revenue for the fiscal years ended 2014, 2013 and 2012, respectively.
Content, subscription, and maintenance revenue decreased primarily due to decreases from our User Productivity & Protection segment of $48 million and Information Management segment of $26 million offset by an increase of $13 million from our Information Security segment. License revenue includes sales of software licenses, appliances, and certain revenue sharing arrangements. License revenue decreased primarily due to declines from our Information Management segment of $89 million, User Productivity & Protection segment of $62 million and Information Security segment of $17 million.
39-------------------------------------------------------------------------------- Table of Contents Fiscal 2013 compared to Fiscal 2012: Content, subscription, and maintenance revenue increased primarily due to increases from our Information Management segment of $97 million and Information Security segment of $96 million. License revenue decreased primarily due to a decline from our Information Management segment of $26 million.
Net revenue and operating income by segment User Productivity & Protection Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) User Productivity & Protection revenue $ 2,869 $ (110 ) (4 )% $ 2,979 $ 4 0 % $ 2,975 Percentage of total net revenue 43 % 43 % 44 % User Productivity & Protection operating income $ 1,061 $ 46 5 % $ 1,015 $ (41 ) (4 )% $ 1,056 User Productivity & Protection operating margin 37 % 34 % 35 %Fiscal 2014 compared to Fiscal 2013: User Productivity & Protection revenue declined primarily due to a $53 million decline in endpoint management sales, as well as declines in PC tools revenue of $21 million and decreases in certain services activities and encryption revenues of $30 million. User Productivity & Protection operating income increased primarily due to lower advertising and promotional expenses of $123 million, as well as a decline in salaries and wages of $34 million.
Fiscal 2013 compared to Fiscal 2012: User Productivity & Protection revenue remained relatively flat. User Productivity & Protection operating income decreased primarily due to increased salaries and wages of $35 million, partially offset by lower advertising and promotional expenses of $59 million.
Information Security Segment Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Information Security revenue $ 1,294 $ (4 ) 0 % $ 1,298 $ 101 8 % $ 1,197 Percentage of total net revenue 19 % 19 % 18 % Information Security operating income $ 186 $ 148 389 % $ 38 $ 143 136 % $ (105 ) Information Security operating margin 14 % 3 % (9 )% Fiscal 2014 compared to Fiscal 2013: Information Security revenue remained relatively flat year over year. The increase in operating income was mainly due to lower salaries and wages of $57 million, lower advertising and promotion expenses of $12 million, lower outside services expenses of $26 million and reductions in other expenses of $54 million.
Fiscal 2013 compared to Fiscal 2012: Information Security revenue increased primarily due to the growth in our user authentication and trust services offerings of $73 million, managed security services of $24 million and data loss prevention products of $14 million, partially offset by a decline in our hosted security suite offerings of $12 million. Information Security operating income increased primarily due to higher revenue and lower salaries and wages of $37 million.
40-------------------------------------------------------------------------------- Table of Contents Information Management Segment Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Information Management revenue $ 2,513 $ (116 ) (4 )% $ 2,629 $ 71 3 % $ 2,558 Percentage of total net revenue 38 % 38 % 38 % Information Management operating income $ 574 $ (133 ) (19 )% $ 707 $ (64 ) (8 )% $ 771 Information Management operating margin 23 % 27 % 30 % Fiscal 2014 compared to Fiscal 2013: Information Management revenue decreased primarily due to an $80 million decline in our information availability offerings, a decrease of $50 million from our Backup Exec products and a decrease of $12 million from our Enterprise Vault products. These decreases were partially offset by growth in our NetBackup appliance business of $31 million. Information Management operating income decreased primarily from decreases in revenue and higher materials costs related to our appliances business, coupled with higher costs associated with our services business.
Fiscal 2013 compared to Fiscal 2012: Information Management revenue increased primarily due to increases in our NetBackup business of $151 million coupled with increases in our Enterprise Vault products of $35 million, partially offset by declines in our Backup Exec offerings of $80 million and declines in our information availability offerings of $47 million. The decrease in operating income was primarily due to higher cost of revenue of $62 million, higher salaries and wages of $24 million, higher equipment costs, outside services and other costs of $49 million.
Net revenue by geographic region Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Americas (U.S., Canada and Latin America) User Productivity & Protection segment $ 1,638 $ (62 ) (4 )% $ 1,700 $ 22 1 % $ 1,678 Information Security segment 676 (11 ) (2 )% 687 59 9 % 628 Information Management segment 1,303 (54 ) (4 )% 1,357 38 3 % 1,319 Total Americas $ 3,617 $ (127 ) (3 )% $ 3,744 $ 119 3 % $ 3,625 Percentage of total net revenue 54 % 54 % 54 % EMEA (Europe, Middle East, Africa) User Productivity & Protection segment $ 768 $ 19 3 % $ 749 $ (28 ) (4 )% $ 777 Information Security segment 350 25 8 % 325 6 2 % 319 Information Management segment 773 (11 ) (1 )% 784 22 3 % 762 Total EMEA $ 1,891 $ 33 2 % $ 1,858 $ - 0 % $ 1,858 Percentage of total net revenue 28 % 27 % 28 % Asia Pacific/Japan User Productivity & Protection segment $ 463 $ (67 ) (13 )% $ 530 $ 10 2 % $ 520 Information Security segment 268 (18 ) (6 )% 286 36 14 % 250 Information Management segment 437 (51 ) (10 )% 488 11 2 % 477 Total Asia Pacific/Japan $ 1,168 $ (136 ) (10 )% $ 1,304 $ 57 5 % $ 1,247 Percentage of total net revenue 18 % 19 % 18 % Total $ 6,676 $ (230 ) (3 )% $ 6,906 $ 176 3 % $ 6,730 U.S. $ 3,198 $ (139 ) (4 )% $ 3,337 $ 97 3 % $ 3,240 U.S. percentage of total net revenue 48 % 48 % 48 % International 3,478 (91 ) (3 )% 3,569 79 2 % 3,490 International percentage of total net revenue 52 % 52 % 52 % Total $ 6,676 $ (230 ) (3 )% $ 6,906 $ 176 3 % $ 6,730 41 -------------------------------------------------------------------------------- Table of Contents Fluctuations in the U.S. dollar compared to foreign currencies unfavorably impacted our international revenue by approximately $20 million for fiscal 2014 as compared to fiscal 2013. This was due to a $90 million unfavorable foreign currency fluctuation in the Asia Pacific and Japan region partially offset by a favorable foreign currency fluctuation of $70 million in the EMEA region. For fiscal 2013 as compared 2012, we had an unfavorable foreign currency exchange effect of $141 million, $118 million from the EMEA region, while the remainder of the variance was from the Asia Pacific and Japan region.
Our international sales are and are expected to continue to be a significant portion of our revenue. As a result, revenue is expected to continue to be affected by foreign currency exchange rates as compared to the U.S. dollar. We are unable to predict the extent to which revenue in future periods will be impacted by changes in foreign currency exchange rates. If international sales become a greater portion of our total sales in the future, changes in foreign currency exchange rates may have a potentially greater impact on our revenue and operating results.
Cost of revenue Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Cost of content, subscription, and maintenance $ 1,008 $ (9 ) (1 )% $ 1,017 $ 74 8 % $ 943 As a percentage of related revenue 17 % 17 % 16 % Cost of license $ 87 $ (2 ) (2 )% $ 89 $ 41 85 % $ 48 As a percentage of related revenue 12 % 10 % 5 % Amortization of intangible assets $ 54 $ (15 ) (22 )% $ 69 $ (22 ) (24 )% $ 91 As a percentage of total net revenue 1 % 1 % 1 % Total $ 1,149 $ (26 ) (2 )% $ 1,175 $ 93 9 % $ 1,082 Gross margin 83 % 83 % 84 % Fiscal 2014 compared to Fiscal 2013: Cost of content, subscription, and maintenance consists primarily of technical support costs, costs of billable services, and fees to OEMs under revenue-sharing agreements. Cost of license consists primarily of royalties paid to third parties under technology licensing agreements, appliance manufacturing costs, and other direct material costs.
Intangible assets are primarily comprised of developed technologies and patents from acquired companies. Amortization decreased for fiscal 2014 as certain developed technologies became fully amortized early in fiscal 2014.
Fiscal 2013 compared to Fiscal 2012: Cost of content, subscription, and maintenance increased for fiscal 2013 primarily due to higher technical support, services, and OEM royalty costs. The increased costs were due to growth in our business and higher royalty payments to major OEM partners as part of revenue-sharing arrangements. Cost of license increased primarily due to higher direct costs associated with the appliance business.
Amortization decreased for fiscal 2013 due to certain developed technologies becoming fully amortized, partially offset by the incremental amortization associated with our fiscal 2012 acquisitions.
42-------------------------------------------------------------------------------- Table of Contents Operating expenses Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Sales and marketing expense $ 2,435 $ (317 ) (12 )% $ 2,752 $ (37 ) (1 )% $ 2,789 Percentage of total net revenue 36 % 40 % 41 % Research and development expense $ 1,038 $ 26 3 % $ 1,012 $ 43 4 % $ 969 Percentage of total net revenue 16 % 15 % 14 % General and administrative expense $ 445 $ (5) (1 )% $ 450 $ 13 3 % $ 437 Percentage of total net revenue 7 % 7 % 6 % Amortization of intangible assets $ 156 $ (130 ) (45 )% $ 286 $ (3 ) (1 )% $ 289 Percentage of total net revenue 2 % 4 % 4 % Restructuring and transition $ 270 $ 145 116 % $ 125 $ 69 123 % $ 56 Percentage of total net revenue 4 % 2 % 1 % Impairment of intangible assets $ - $ - * $ - $ (4 ) * $ 4 Percentage of total net revenue - % - % - % Total $ 4,344 $ (281 ) (6 )% $ 4,625 $ 81 2 % $ 4,544 * Percentage not meaningful Fiscal 2014 compared to Fiscal 2013: Sales and marketing expense decreased for fiscal 2014, primarily due to lower salaries and wages of $159 million resulting from lower headcount and lower advertising and promotion expenses of $146 million. Our sales and marketing expense in fiscal 2014 was also impacted by the changes in our go-to-market strategy as described above under "Overview-Strategy-Redesigning our Go-To-Market-Strategy." The increase in research and development for fiscal 2014, was primarily due to higher equipment cost including depreciation and amortization of $23 million.
Amortization of intangible assets decreased by $130 million primarily as a result of various customer relationship intangibles becoming fully amortized early in fiscal 2014.
Restructuring and transition costs consist of severance, facilities, transition and other related costs associated with our organization simplification. For fiscal 2014, we recognized $212 million of restructuring, $49 million in transition costs related to our ERP system and $9 million in other transition costs. For further information on restructuring and transition costs, see Note 7 of the Notes to Consolidated Financial Statements.
We experienced favorable foreign currency effects on our operating expenses of $42 million in the year ended March 28, 2014, as compared to the same period last year.
Fiscal 2013 compared to Fiscal 2012: Sales and marketing expense decreased primarily due to lower advertising and promotional expenses of $73 million, which was attributed to lower placement fees. This decrease was offset by higher salaries and wages of $53 million due to higher headcount.
Research and development expense increased due to higher salaries and wages expenses of $36 million, which was attributed to increased headcount to support our continued investment in product development.
43-------------------------------------------------------------------------------- Table of Contents Restructuring and transition costs consist of transition, severance, facilities, and other related costs. For fiscal 2013, we recognized $114 million of transition and other related costs, $10 million of severance, and $1 million of facilities costs. For further information on restructuring and transition costs, see Note 7 of the Notes to Consolidated Financial Statements in this annual report.
We experienced favorable foreign currency effects on our operating expenses of $99 million in the year ended March 29, 2013, as compared to the year ended in fiscal 2012.
Non-operating income (expense) Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Interest income $ 12 $ 12 $ 13 Interest expense (84 ) (139 ) (115 ) Other income (expense), net 45 27 (6 ) Loss from joint venture - - (27 ) Gain from sale of joint venture - - 526 Total $ (27 ) $ 73 73 % $ (100 ) $ (491 ) (126 )% $ 391 Percentage of total net revenue - % (1 )% 6 % Fiscal 2014 compared to Fiscal 2013: The decrease in non-operating expense, net, is primarily driven by a realized gain from sale of short-term investments of $32 million during fiscal 2014, coupled with a decrease in interest expense of $55 million as we experienced lower amortization of debt issuance costs and discounts following the maturity of our $1.0 billion 1.00% notes in June 2013.
Fiscal 2013 compared to Fiscal 2012: In the first quarter of fiscal 2013, we issued $600 million in principal amount of 2.75% interest-bearing senior notes due June 2017 and $400 million in principal amount of 3.95% interest-bearing senior notes due June 2022, which resulted in interest expense of $26 million in fiscal 2013. Other income (expense), net increased due to a tax incentive received from the China tax bureau in the form of value-added tax refunds of $33 million.
Provision for income taxes Fiscal Change in Fiscal Change in Fiscal 2014 $ % 2013 $ % 2012 (Dollars in millions) Provision for income taxes $ 258 $ 7 3 % $ 251 $ (57 ) (19 )% $ 308 Effective tax rate on earnings 22 % 25 % 21 % Our effective tax rate was approximately 22%, 25%, and 21% in fiscal 2014, 2013, and 2012, respectively.
The tax expense in fiscal 2014 was reduced by the following benefits: (1) $33 million for the resolution of a tax matter related to the sale of our 49% ownership interest in the joint venture with Huawei during the fourth quarter of fiscal 2012, (2) $24 million for tax benefits related to the settlement of the Symantec 2005 through 2008 Internal Revenue Service ("IRS") audit, (3) $15 million tax benefit related to certain foreign operations, and (4) $13 million from lapses of statutes of limitation. These tax benefits were partially offset by $12 million in tax expense, resulting from the sale of short-term investments.
44 -------------------------------------------------------------------------------- Table of Contents The tax expense in fiscal 2013 was reduced by the following benefits: (1) $17 million tax benefits arising from the Veritas 2002 through 2005 IRS Appeals matters, including adjustments to state liabilities and a reduction of interest accrued, (2) $13 million in tax benefits resulting from tax settlements and adjustments to prior year items, (3) $10 million from lapses of statutes of limitation, and (4) $2 million for the benefit of the research credit for the fourth quarter of fiscal 2012 resulting from the extension of the federal research credit as part of the 2012 Taxpayer Relief Act. These tax benefits were offset by a $9 million tax expense from an increase in valuation allowance on state research tax credits.
The tax expense in fiscal 2012 was reduced by the following benefits: (1) $52 million tax benefit arising from the Veritas 2002 through 2005 IRS Appeals matters, (2) $14 million from lapses of statutes of limitation, (3) $17 million from the settlements and effective settlements with tax authorities and related remeasurements, and (4) $5 million tax benefit from adjustments related to prior year items. This benefit was partially offset by a $5 million tax expense resulting from a change in valuation allowance for certain deferred tax assets.
The effective tax rates for all periods presented otherwise reflect the benefits of lower-taxed international earnings and losses from our joint venture with Huawei Technologies Co., Limited, domestic manufacturing incentives, and research and development credits (the U.S. federal Research and Development credit expired on December 31, 2013), partially offset by state income taxes.
Pretax income from international operations was significantly higher in fiscal 2012 due to the sale of our 49% ownership interest in the joint venture to Huawei on March 30, 2012 for $526 million. A significant portion of the sale proceeds was attributable to international tax jurisdictions resulting in a 20% tax rate on the sale of the joint venture reducing the overall tax rate in fiscal 2012 by 3%.
We are a U.S.-based multinational company subject to tax in multiple U.S. and international tax jurisdictions. A substantial portion of our international earnings were generated from subsidiaries organized in Ireland and Singapore. 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. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.
For further information on the impact of foreign earnings on our effective tax rate, see Note 12 of the Notes to Consolidated Financial Statements.
See Critical Accounting Estimates above for additional information about our provision for income taxes.
In assessing the ability to realize our deferred tax assets, we considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the current and prior two years, we have strong, consistent taxpaying history, we have substantial U.S. federal income tax carryback potential; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities.
Levels of future taxable income are subject to the various risks and uncertainties discussed in Part I, Item 1A, Risk Factors, set forth in this annual report. We have concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of March 28, 2014 of $347 million, after application of the valuation allowances described above, are realizable on a "more likely than not" basis.
On December 2, 2009, we received a Revenue Agent's Report from the IRS for the Veritas 2002 through 2005 tax years assessing additional taxes due. We contested $80 million of the tax assessed and all penalties. As a result of negotiations with IRS Appeals in the third quarter of fiscal 2012, we remeasured our liability for unrecognized tax benefits, resulting in a tax benefit of $52 million. We executed the final closing agreement for the Veritas 2002 through 2005 tax years on December 26, 2012. Accordingly, we recorded a further tax benefit of $3 million during the third quarter of fiscal 2013 based on the closing agreement. Further, we amended our state tax returns for the Veritas 2002 through 2005 tax years in the fourth quarter of fiscal 2013 to reflect the adjustments in the closing agreement and remeasured our state liability resulting in a benefit of $7 million.
45-------------------------------------------------------------------------------- Table of Contents The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by between $20 million and $140 million.
We continue to monitor the progress of ongoing tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.
Noncontrolling interest In fiscal 2011, we completed the acquisition of the identity and authentication business of VeriSign, including a controlling interest in its subsidiary VeriSign Japan K.K. ("VeriSign Japan"), a publicly traded company on the Tokyo Stock Exchange. Given our majority ownership interest of 54% in VeriSign Japan, the accounts of VeriSign Japan have been consolidated with our accounts, and a noncontrolling interest had been recorded for the noncontrolling investors' interests in the equity and operations of VeriSign Japan. During the second quarter of fiscal 2013, we completed a tender offer and paid $92 million to acquire VeriSign Japan common shares and stock rights, which increased our ownership percentage to 92%. During the third quarter of fiscal 2013, we acquired the remaining 8% interest for $19 million and VeriSign Japan became a wholly-owned subsidiary. The payment was made in the fourth quarter of fiscal 2013. See Note 14 of the Notes to Consolidated Financial Statements in this annual report for additional information. For fiscal 2013 and 2012 the loss attributable to the noncontrolling interest in VeriSign Japan was approximately $0 million.
LIQUIDITY AND CAPITAL RESOURCES Sources of cash We have historically relied on cash flow from operations, borrowings under a credit facility, and issuances of debt and equity securities for our liquidity needs. As of March 28, 2014, we had cash and cash equivalents of $3.7 billion and an unused credit facility of $1.0 billion resulting in a liquidity position of $4.7 billion. As of March 28, 2014, $2.5 billion in cash, cash equivalents, and marketable equity securities were held by our foreign subsidiaries. We have provided U.S. deferred taxes on a portion of our undistributed foreign earnings sufficient to address the incremental U.S. tax that would be due if we needed such portion of these funds to support our operations in the U.S.
Senior Notes: In the first quarter of fiscal 2013, we issued $600 million in principal amount of 2.75% senior notes due June 2017 and $400 million in principal amount of 3.95% senior notes due June 2022, for an aggregate principal amount of $1.0 billion. In the second quarter of fiscal 2011, we issued $350 million in principal amount of 2.75% senior notes due September 2015 and $750 million in principal amount of 4.20% senior notes due September 2020, for an aggregate principal amount of $1.1 billion.
Revolving Credit Facility: In the second quarter of fiscal 2011, we entered into a $1.0 billion senior unsecured revolving credit facility ("credit facility"), which was amended in the first quarter of 2013 to extend the term to June 2017.
Under the terms of this credit facility, we must comply with certain financial and non-financial covenants, including a debt to EBITDA (earnings before interest, taxes, depreciation and amortization) covenant. As of March 28, 2014, we were in compliance with all required covenants, and there was no outstanding balance on the credit facility.
We believe that our existing cash and investment balances, our available revolving credit facility, our ability to issue new debt instruments, and cash generated from operations will be sufficient to meet our working capital 46-------------------------------------------------------------------------------- Table of Contents and capital expenditure requirements, as well as to fund any cash dividends, principal and interest payments on debt and repurchases of our stock, for at least the next 12 months and foreseeable future. We have implemented a capital allocation strategy pursuant to which we expect to return over time approximately 50% of free cash flow to stockholders through a combination of dividends and share repurchases, while still enabling our company to invest in its future. Our strategy emphasizes organic growth through internal innovation and will be complemented by acquisitions that fit strategically and meet specific internal profitability hurdles.
Uses of Cash Our principal cash requirements include working capital, capital expenditures, payments of principal and interest on our debt, and payments of taxes. Also, we may, from time to time, engage in the open market purchase of our notes prior to their maturity. Furthermore, our capital allocation strategy contemplates a quarterly cash dividend. In addition, we regularly evaluate our ability to repurchase stock, pay debts, and acquire other businesses.
Acquisitions: In fiscal 2013, we acquired a privately-held provider of mobile application management for an aggregate payment of $28 million, net of cash acquired. In fiscal 2012, we acquired Clearwell, LiveOffice, and another company for an aggregate amount of $508 million, net of cash acquired.
Convertible Senior Notes: On June 15, 2013, the principal balance on our 1.00% notes matured and was settled by a cash payment of $1.0 billion, along with the $5 million semi-annual interest payment. In addition, we elected to pay the conversion value above par value of the notes in cash in the amount of $189 million. Concurrently with the payment of the conversion value, we received $189 million from the settlement of the note hedge we entered into at the time of the issuance of the 1.00% notes.
Stock Repurchases: Our board of directors authorized a new $1.0 billion stock repurchase program during the fourth quarter of fiscal 2013. In fiscal 2014, we repurchased 21 million shares, or $500 million, of our common stock. In fiscal 2013, we repurchased 49 million shares, or $826 million, of our common stock. In fiscal 2012, we repurchased 51 million shares, or $893 million, of our common stock. Our active stock repurchase programs have $658 million remaining authorized for future repurchase as of March 28, 2014, with no expiration date.
Dividend Program: During fiscal 2014 we declared and paid common stock dividends of $418 million or $0.60 per share. Each quarterly dividend was recorded as a reduction to additional paid-in capital. In addition, our board of directors approved dividend equivalent rights entitling holders of restricted stock and performance-based stock to dividend equivalents to be paid in the form of cash upon vesting for each share of the underlying units. No dividends and dividend equivalents were paid in any periods prior to fiscal 2014. Any future dividends and dividend equivalents are subject to the approval of our board of directors.
Restructuring Plan: In the fourth quarter of fiscal 2013, we announced our strategy focusing on three priority areas, developing innovative products and services, changing our GTM plans and investing in people, process and technology infrastructure to make it easier to do business with us and improve our execution. In connection with this strategy we initiated a restructuring plan in the fourth quarter of fiscal 2013 to reduce management and redundant personnel resulting in headcount reductions across the Company. As of March 28, 2014, total costs related to our plan incurred from inception were $222 million, primarily related to severance and related employee benefits.
Noncontrolling Interest: In July 2012, we completed a tender offer and paid $92 million to acquire VeriSign Japan common shares and stock rights, which increased our ownership percentage to 92%. In November 2012, we acquired the remaining 8% interest for $19 million and it became a wholly-owned subsidiary.
The payment for the remaining 8% interest was made in the fourth quarter of fiscal 2013.
47 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table summarizes, for the periods indicated, selected items in our Consolidated Statements of Cash Flows: Fiscal 2014 Fiscal 2013 Fiscal 2012 (Dollars in millions) Net cash provided by (used in): Operating activities $ 1,281 $ 1,593 $ 1,901 Investing activities (583 ) (319 ) (318 ) Financing activities (1,712 ) 308 (1,386 ) Operating activities We expect cash from our operating activities to fluctuate in future periods as a result of a number of factors, including the timing of our billings and collections, our operating results, the timing and amount of tax and other liability payments.
Net cash provided by operating activities was $1.3 billion for fiscal 2014, which resulted from net income of $898 million adjusted for non-cash items, including depreciation and amortization charges of $498 million and stock-based compensation expense of $156 million. These amounts were partially offset by decreases in deferred revenue of $223 million.
Net cash provided by operating activities was $1.6 billion for fiscal 2013, which resulted from net income of $755 million adjusted for non-cash items, including depreciation and amortization charges of $698 million and stock-based compensation expense of $164 million, and an increase in deferred revenue of $119 million. These amounts were partially offset by an increase in trade accounts receivable, net of $107 million.
Net cash provided by operating activities was $1.9 billion for fiscal 2012, which resulted from net income of $1.2 billion adjusted for non-cash items, which included depreciation and amortization charges of $712 million, stock-based compensation expense of $164 million, an increase in deferred revenue of $177 million, a decrease in trade accounts receivable, net of $89 million, and an increase in accounts payable other liabilities of $77 million.
Additionally, net income was adjusted for the net gain of $526 million from the sale of the joint venture with a subsidiary of Huawei Technologies Co., Limited, as the gross proceeds were included as a cash inflow provided by investing activities.
Investing activities Net cash used in investing activities was $583 million for fiscal 2014 and was primarily due to payments of $260 million for capital expenditures, and $492 million in purchases of short-term investments, partially offset by $186 million in net proceeds from the sale of our short-term investments.
Net cash used in investing activities was $319 million for fiscal 2013 and was primarily due to payments of $336 million for capital expenditures, partially offset by $46 million in net proceeds from the sale of our short-term investments.
Net cash used in investing activities was $318 million for fiscal 2012, which was used to pay for fiscal 2012 acquisitions, net of cash acquired, of $508 million, payments of $286 million for capital expenditures, and $47 million in purchases of short-term investments, partially offset by the gross proceeds from the sale of the joint venture of $530 million.
48-------------------------------------------------------------------------------- Table of Contents Financing activities Net cash used by financing activities was $1.7 billion for fiscal 2014, which was primarily due to the repayment of our convertible senior notes of $1 billion, repurchases of our common stock of $500 million and cash dividends paid of $418, million partially offset by net proceeds from sales of common stock through employee stock plans of $234 million.
Net cash provided by financing activities of $308 million for fiscal 2013 was primarily due to the proceeds from our issuance of $600 million in principal amount of 2.75% interest-bearing senior notes due June 2017 and $400 million in principal amount of 3.95% interest-bearing senior notes due June 2022, net of discount, of $996 million, and net proceeds from sales of common stock through employee stock plans of $281 million, partially offset by repurchases of our common stock of $826 million and the purchase of additional equity interest in subsidiary of $111 million.
Net cash used in financing activities was $1.4 billion for fiscal 2012, which was due to the repurchases of our common stock of $893 million and repayment of our debt and other obligations of $607 million under the 0.75% notes, partially offset by net proceeds from sales of common stock through employee stock plans of $147 million.
Contractual obligations The following is a schedule by years of our significant contractual obligations as of March 28, 2014: Payments Due by Period Fiscal 2020 Fiscal 2016 Fiscal 2018 and Total Fiscal 2015 and 2017 and 2019 Thereafter Other (Dollars in millions) Senior Notes (1) $ 2,100 $ - $ 950 $ - $ 1,150 $ - Interest payments on Senior Notes (1) 401 75 131 98 97 - Purchase obligations (2) 523 483 40 - - - Operating leases (3) 493 103 152 114 124 - Recorded tax positions (4) 252 - - - - 252 Total $ 3,769 $ 661 $ 1,273 $ 212 $ 1,371 $ 252 (1) In fiscal 2011, we issued $350 million in principal amount of 2.75% notes due September 2015 and $750 million in principal amount of 4.20% notes due September 2020. In fiscal 2013, we issued $600 million in principal amount of 2.75% notes due September 2017 and $400 million in principal amount of 3.95% notes due September 2022. Interest payments were calculated based on terms of the related notes. For further information on the notes, see Note 6 of the Notes to Consolidated Financial Statements in this annual report.
(2) These amounts are associated with agreements for purchases of goods or services generally including agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The table above also includes agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included in the table above because management believes that cancellation of these contracts is unlikely and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials.
(3) We have entered into various noncancelable operating lease agreements that expire on various dates beyond fiscal 2020. The amounts in the table above exclude expected sublease income and includes $3 million in exited or excess facility costs related to restructuring activities.
(4) As of March 28, 2014, we reflected $252 million in long-term income taxes payable related to uncertain tax positions. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond the next twelve months due to uncertainties in the timing of the commencement and settlement of potential tax audits and controversies. For further information, see Note 12 of the Notes to Consolidated Financial Statements in this annual report.
49 -------------------------------------------------------------------------------- Table of Contents 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, losses arising out of our breach of agreements or representations and warranties made by us. 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. Historically, we have not incurred material costs as a result of obligations under these agreements and we have not accrued any liabilities related to such indemnification obligations in our Consolidated Financial Statements.
We provide limited product warranties and the majority of our software license agreements contain provisions that indemnify licensees of our software from damages and costs resulting from claims alleging that our software infringes on the intellectual property rights of a third party. Historically, payments made under these provisions have been immaterial. We monitor the conditions that are subject to indemnification to identify if a loss has occurred.
Recently issued authoritative guidance There was no recently issued authoritative guidance that had a material impact to our Consolidated Financial Statements.
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