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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 3, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      
For the Transition Period from                to                
Commission File Number 000-17781
NLOKLOGOA03.JPG
 NortonLifeLock Inc.
(Exact name of the registrant as specified in its charter)
Delaware
  
77-0181864
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. employer Identification no.)
 
 
 
 
 
 
60 E. Rio Salado Parkway,
Suite 1000,
Tempe,
Arizona
  
85281
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code:
(650527-8000
Former name or former address, if changed since last report:
Not applicable
  ________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock,
par value $0.01 per share
NLOK
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
þ
  
Accelerated filer
  
Non-accelerated filer
  
Smaller reporting company
 
 
  
 
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No þ
The number of shares of NortonLifeLock common stock, $0.01 par value per share, outstanding as of January 30, 2020 was 600,384,184 shares.
 



NORTONLIFELOCK INC.
FORM 10-Q
Quarterly Period Ended January 3, 2020
TABLE OF CONTENTS


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTONLIFELOCK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions, except par value per share amounts)
 
January 3, 2020
 
March 29, 2019
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
12,649

 
$
1,791

Short-term investments
119

 
252

Accounts receivable, net
171

 
708

Assets held for sale
213

 

Other current assets
411

 
286

Current assets of discontinued operations
8

 
149

Total current assets
13,571

 
3,186

Property and equipment, net
365

 
663

Operating lease assets
107

 

Intangible assets, net
1,119

 
1,202

Goodwill
2,676

 
2,677

Other long-term assets
709

 
1,160

Long-term assets of discontinued operations

 
7,050

Total assets
$
18,547

 
$
15,938

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
157

 
$
165

Accrued compensation and benefits
131

 
250

Current portion of long-term debt
749

 
491

Contract liabilities
1,019

 
1,032

Current operating lease liabilities
32

 

Other current liabilities
2,604

 
524

Current liabilities of discontinued operations
21

 
1,304

Total current liabilities
4,713

 
3,766

Long-term debt
3,719

 
3,961

Long-term contract liabilities
28

 
27

Deferred income tax liabilities
165

 
577

Long-term income taxes payable
1,086

 
1,076

Long-term operating lease liabilities
92

 

Other long-term liabilities
67

 
78

Long-term liabilities of discontinued operations

 
715

Total liabilities
9,870


10,200

Commitments and contingencies (Note 17)


 


Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value: 1 shares authorized; 0 shares issued and outstanding

 

Common stock and additional paid-in capital, $0.01 par value: 3,000 shares authorized; 614 and 630 shares issued and outstanding as of January 3, 2020 and March 29, 2019, respectively
4,853

 
4,812

Accumulated other comprehensive loss
12

 
(7
)
Retained earnings
3,812

 
933

Total stockholders’ equity
8,677

 
5,738

Total liabilities and stockholders’ equity
$
18,547

 
$
15,938


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3


NORTONLIFELOCK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Net revenues
$
618

 
$
615

 
$
1,876

 
$
1,839

Cost of revenues
103

 
110

 
296

 
331

Gross profit
515

 
505

 
1,580

 
1,508

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
178

 
166

 
551

 
537

Research and development
72

 
110

 
258

 
322

General and administrative
85

 
98

 
271

 
317

Amortization of intangible assets
20

 
19

 
61

 
59

Restructuring, transition and other costs
98

 
50

 
128

 
187

Total operating expenses
453

 
443

 
1,269

 
1,422

Operating income
62

 
62

 
311

 
86

Interest expense
(51
)
 
(53
)
 
(146
)
 
(157
)
Other income (expense), net
399

 
(18
)
 
397

 
(56
)
Income (loss) from continuing operations before income taxes
410

 
(9
)
 
562

 
(127
)
Income tax expense
57

 
10

 
133

 
20

Income (loss) from continuing operations
353

 
(19
)
 
429

 
(147
)
Income from discontinued operations
2,492

 
84

 
3,227

 
144

Net income (loss)
$
2,845

 
$
65

 
$
3,656

 
$
(3
)
 
 
 
 
 
 
 
 
Income (loss) per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
0.57

 
$
(0.03
)
 
$
0.69

 
$
(0.23
)
Discontinued operations
$
4.01

 
$
0.13

 
$
5.20

 
$
0.23

Net income (loss) per share - basic (1)
$
4.58

 
$
0.10

 
$
5.90

 
$

 
 
 
 
 
 
 
 
Income (loss) per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.55

 
$
(0.03
)
 
$
0.67

 
$
(0.23
)
Discontinued operations
$
3.85

 
$
0.13

 
$
5.01

 
$
0.23

Net income (loss) per share - diluted (1)
$
4.40

 
$
0.10

 
$
5.68

 
$

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
621

 
637

 
620

 
631

Diluted
647

 
637

 
644

 
631

 
(1) Amounts may not add due to rounding.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4


NORTONLIFELOCK INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in millions)
 
Three Months Ended
 
Nine Months Ended
 
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Net income (loss)
$
2,845

 
$
65

 
$
3,656

 
$
(3
)
Other comprehensive income (loss), net of taxes:

 

 
 
 
 
Foreign currency translation adjustments
15

 
2

 
17

 
(21
)
Net unrealized gain on available-for-sale securities
(1
)
 
1

 
1

 
1

Other comprehensive income from equity method investee
 
 
 
 
 
 
 
Other comprehensive income from equity method investee
1

 

 
2

 
2

Reclassification adjustments for income included in net income (loss)
(1
)
 

 
(1
)
 

Net other comprehensive income from equity method investee

 

 
1

 
2

Other comprehensive income (loss), net of taxes
14

 
3

 
19

 
(18
)
Comprehensive income (loss)
$
2,859

 
$
68

 
$
3,675

 
$
(21
)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


NORTONLIFELOCK INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions, except per share amounts)
Three months ended January 3, 2020
Common Stock and Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
Balance as of October 4, 2019
623

 
$
4,816

 
$
(2
)
 
$
1,298

 
$
6,112

Net income

 

 

 
2,845

 
2,845

Other comprehensive income

 

 
14

 

 
14

Common stock issued under employee stock incentive plans
5

 
21

 

 

 
21

Shares withheld for taxes related to vesting of restricted stock units
(1
)
 
(7
)
 

 

 
(7
)
Repurchases of common stock
(13
)
 
(110
)
 

 
(253
)
 
(363
)
Cash dividends declared ($0.125 per share of common stock) and dividend equivalents accrued

 

 

 
(78
)
 
(78
)
Stock-based compensation

 
124

 

 

 
124

Short-swing profit disgorgement

 
9

 

 

 
9

Balance as of January 3, 2020
614

 
$
4,853

 
$
12

 
$
3,812

 
$
8,677

Nine months ended January 3, 2020
Common Stock and Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
Balance as of March 29, 2019
630

 
$
4,812

 
$
(7
)
 
$
933

 
$
5,738

Net income

 

 

 
3,656

 
3,656

Other comprehensive income

 

 
19

 

 
19

Common stock issued under employee stock incentive plans
27

 
109

 

 

 
109

Shares withheld for taxes related to vesting of restricted stock units
(4
)
 
(71
)
 

 

 
(71
)
Repurchases of common stock
(39
)
 
(300
)
 

 
(604
)
 
(904
)
Cash dividends declared ($0.275 per share of common stock) and dividend equivalents accrued

 

 

 
(173
)
 
(173
)
Stock-based compensation

 
294

 

 

 
294

Short-swing profit disgorgement

 
9

 

 

 
9

Balance as of January 3, 2020
614

 
$
4,853

 
$
12

 
$
3,812

 
$
8,677


6


NORTONLIFELOCK INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions, except per share amounts)
Three months ended December 28, 2018
Common Stock and Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
Balance as of September 28, 2018
632

 
$
4,867

 
$
(17
)
 
$
1,100

 
$
5,950

Net income

 

 

 
65

 
65

Other comprehensive income

 

 
3

 

 
3

Common stock issued under employee stock incentive plans
13

 
2

 

 

 
2

Shares withheld for taxes related to vesting of restricted stock units
(6
)
 
(115
)
 

 

 
(115
)
Cash dividends declared ($0.075 per share of common stock) and dividend equivalents accrued

 

 

 
(49
)
 
(49
)
Stock-based compensation

 
50

 

 

 
50

Balance as of December 28, 2018
639

 
$
4,804

 
$
(14
)
 
$
1,116

 
$
5,906

Nine months ended December 28, 2018
Common Stock and Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Stockholders’ Equity
 
Shares
 
Amount
 
 
 
Balance as of March 30, 2018
624

 
$
4,691

 
$
4

 
$
328

 
$
5,023

Cumulative effect from adoption of accounting standard

 

 

 
939

 
939

Net loss

 

 

 
(3
)
 
(3
)
Other comprehensive loss

 

 
(18
)
 

 
(18
)
Common stock issued under employee stock incentive plans
23

 
8

 

 

 
8

Shares withheld for taxes related to vesting of restricted stock units
(8
)
 
(168
)
 

 

 
(168
)
Cash dividends declared ($0.225 per share of common stock) and dividend equivalents accrued

 

 

 
(148
)
 
(148
)
Stock-based compensation

 
273

 

 

 
273

Balance as of December 28, 2018
639

 
$
4,804

 
$
(14
)
 
$
1,116

 
$
5,906

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

7


NORTONLIFELOCK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
 
Nine Months Ended
 
January 3, 2020
 
December 28, 2018
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
3,656

 
$
(3
)
Adjustments:
 
 
 
Amortization and depreciation
307

 
457

Impairments of long-lived assets
32

 
8

Stock-based compensation expense
270

 
265

Deferred income taxes
14

 
(18
)
Loss from equity interest
31

 
84

Gain on sale of Enterprise Security assets
(5,422
)
 

Gain on sale of equity method investment
(379
)
 

Non-cash operating lease expense
32

 

Other
27

 
(32
)
Changes in operating assets and liabilities, net of acquisitions and divestitures:
 
 
 
Accounts receivable, net
537

 
97

Accounts payable
(21
)
 
35

Accrued compensation and benefits
(99
)
 
(26
)
Contract liabilities
(163
)
 
59

Income taxes payable
2,096

 
(17
)
Other assets
(94
)
 
1

Other liabilities
81

 
38

Net cash provided by operating activities
905

 
948

INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(86
)
 
(153
)
Proceeds from sale of Enterprise Security assets, net of transaction costs
10,572

 

Payments for acquisitions, net of cash acquired

 
(41
)
Proceeds from maturities and sales of short-term investments
135

 
119

Proceeds from sale of property

 
26

Proceeds from sale of equity method investment
378

 

Other
(8
)
 
(12
)
Net cash provided by (used in) investing activities
10,991

 
(61
)
FINANCING ACTIVITIES:
 
 
 
Net proceeds from sales of common stock under employee stock incentive plans
109

 
8

Tax payments related to restricted stock units
(71
)
 
(168
)
Dividends and dividend equivalents paid
(177
)
 
(169
)
Repurchases of common stock
(904
)
 

Repayments of debt
(302
)
 

Proceeds from issuance of debt, net of issuance costs
300

 

Short-swing profit disgorgement
9

 

Other
(1
)
 

Net cash used in financing activities
(1,037
)
 
(329
)
Effect of exchange rate fluctuations on cash and cash equivalents
(1
)
 
(23
)
Change in cash and cash equivalents
10,858

 
535

Beginning cash and cash equivalents
1,791

 
1,774

Ending cash and cash equivalents
$
12,649

 
$
2,309


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

8


NORTONLIFELOCK INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1Basis of Presentation and Significant Accounting Policies
Recent Corporate Name Change
In connection with the sale of certain assets of our Enterprise Security business as disclosed in Basis of presentation below, effective November 4, 2019, we changed our corporate name from Symantec Corporation to NortonLifeLock Inc.
Basis of presentation
On August 8, 2019, we entered into a definitive agreement with Broadcom Inc. (Broadcom) under which Broadcom agreed to purchase certain of our Enterprise Security assets and assume certain liabilities for a purchase price of $10.7 billion (the Broadcom sale). On November 4, 2019, we completed the transaction. The divestiture of our Enterprise Security business allows us to shift our operational focus to our consumer business and represents a strategic shift in our operations. As a result, the majority of results of our Enterprise Security business were classified as discontinued operations in our Condensed Consolidated Statements of Operations and thus excluded from both continuing operations and segment results for all periods presented. We have operated in one reportable segment since the second quarter of fiscal 2020. The Enterprise Security business was part of our Enterprise Security segment. Results of discontinued operations include all revenues and expenses directly derived from the Enterprise Security business, with the exception of revenues and associated costs of our ID Analytics solutions, which were formerly included in the Enterprise Security segment, and general corporate overhead which were previously allocated to the Enterprise Security segment but are not allocated to discontinued operations. These revenues and expenses are now included in continuing operations. The assets acquired and liabilities to be sold to Broadcom, as specified in the August 8, 2019 definitive agreement, were classified as discontinued operations in our Condensed Consolidated Balance Sheets, subject to changes set forth in the agreement. See Notes 3 and 18 for additional information about the divestiture of our Enterprise Security business.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America (U.S.) for interim financial information. In the opinion of management, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations, and cash flows for the interim periods. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2019. The results of operations for the nine months ended January 3, 2020 are not necessarily indicative of the results expected for the entire fiscal year.
We have a 52/53-week fiscal year ending on the Friday closest to March 31. Unless otherwise stated, references to three and six-month periods in this report relate to fiscal periods ended January 3, 2020 and December 28, 2018. The three and nine months ended January 3, 2020 consisted of 13 and 40 weeks, respectively, whereas the three and nine months ended December 28, 2018 consisted of 13 and 39 weeks, respectively. Our 2020 fiscal year consists of 53 weeks and ends on April 3, 2020.
Use of estimates
The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Such estimates include, but are not limited to, the determination of stand-alone selling price for performance obligations, valuation of business combinations including acquired intangible assets and goodwill, loss contingencies, valuation of stock-based compensation, and the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions. Management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ significantly from these estimates, and such differences may be material to the Condensed Consolidated Financial Statements.
Significant accounting policies
There have been no material changes to our significant accounting policies as of and for the nine months ended January 3, 2020, except for those noted in Note 2 and Note 5, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended March 29, 2019.

9


Note 2. Recent Accounting Standards
Recently adopted authoritative guidance
Leases. In February 2016, the Financial Accounting Standards Board (FASB) issued new guidance on lease accounting which requires lessees to recognize assets and liabilities on their balance sheet for the rights and obligations created by operating leases and also requires disclosures designed to give users of financial statements information on the amount, timing, and uncertainty of cash flows arising from leases. Most prominent among the changes in the standard is the recognition of right-of-use (ROU) assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
On March 30, 2019, the first day of our fiscal 2020, we adopted the new guidance using the alternative modified retrospective transition method under which we continue to apply the legacy lease accounting guidance, including its disclosure requirements, in comparative periods prior to fiscal 2020. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard that allowed us not to reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. We currently do not have any finance leases. We combine the lease and non-lease components in determining the operating lease assets and liabilities.
The adoption of the new lease accounting standard resulted in the recognition of ROU assets and lease liabilities of $182 million and $209 million, respectively, as of March 30, 2019 related to our operating leases. The adoption of the standard also resulted in elimination of deferred rent liabilities of $17 million, as of March 30, 2019, which are now recorded as a reduction of the ROU assets. The standard did not have an impact on our consolidated statements of operations or statements of cash flows.
Recently issued authoritative guidance not yet adopted
Credit Losses. In June 2016, the FASB issued new authoritative guidance on credit losses which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, we will be required to use a new forward-looking “expected loss” model. Additionally, for available-for-sale debt securities with unrealized losses, we will measure credit losses in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will be effective for us in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements.
Internal-Use Software. In August 2018, the FASB issued new guidance that clarifies the accounting for implementation costs in a cloud computing arrangement. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will be effective for us in our first quarter of fiscal 2021. We are currently evaluating the impact of the adoption of this guidance on our Consolidated Financial Statements and disclosures.
Income taxes. In December 2019, the FASB issued new guidance that simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also clarifies and amends existing guidance to improve consistent application. The standard will be effective for us in our first quarter of fiscal 2023, with early adoption permitted. We are currently evaluating the adoption date and the impact of the adoption of this guidance on our Consolidated Financial Statements and disclosures.
Although there are several other new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had, or will have, a material impact on our consolidated financial position, operating results or disclosures.
Note 3. Divestiture and Discontinued Operations
Divestiture of Enterprise Security Assets
On August 8, 2019, we entered into a definitive agreement with Broadcom under which Broadcom agreed to purchase certain of our Enterprise Security assets and assume certain liabilities for a purchase price of $10.7 billion. On November 4, 2019, we completed the transaction and recognized a gain on sale of $5,422 million calculated as follows.
(In millions)
 
Cash proceeds
$
10,582

Income taxes withheld by Broadcom
109

Net assets sold
(5,225
)
Transaction costs
(38
)
Foreign exchange impact
(6
)
Total gain on sale
$
5,422


10


The carrying value of the net assets sold are as follows:
(In millions)
 
Current assets
$
157

Intangible assets, net
934

Goodwill
5,773

Other long-term assets
252

Current contract liabilities
(1,200
)
Other current liabilities
(28
)
Long-term contract liabilities
(629
)
Other long-term liabilities
(34
)
Total net assets sold
$
5,225


In connection with the Broadcom sale, we entered into a transition services agreement under which we will provide assistance to Broadcom including, but not limited to, business support services and information technology services for a period of up to six months. Income, net of dedicated direct costs, for these transition services was $5 million during the three and nine months ended January 3, 2020 and were presented as part of Other income (expense), net in the Condensed Consolidated Statements of Operations.
Discontinued Operations
The definitive agreement for the Broadcom sale provided that the selection of certain assets sold and liabilities assumed would be subject to negotiations between us and Broadcom subsequent to the signing of the agreement through the date of the close of the Broadcom sale. As a result of such negotiations, our results of operations for the six months ended October 4, 2019 and September 28, 2018 and our March 29, 2019 Condensed Consolidated Balance Sheet reflect changes in the assets and liabilities that were determined to be part of discontinued operations as reported in our previously filed Form 10-Q for the period ended October 4, 2019. These changes resulted in decreases of $6 million and $6 million to income from discontinued operations, net of tax, for the six months ended October 4, 2019 and September 28, 2018, respectively, and total assets from discontinued assets increased $58 million and total liabilities from discontinued operations increased $9 million as of March 29, 2019, as compared to the amounts reported in our previously filed Form 10-Q for the period ended October 4, 2019.
The following table presents information regarding certain components of income from discontinued operations, net of income taxes:
 
Three Months Ended
 
Nine Months Ended
(In millions)
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Net revenues
$
193

 
$
599

 
$
1,366

 
$
1,715

Operating income (loss)
$
(118
)
 
$
110

 
$
6

 
$
198

Gain on sale
$
5,422

 
$

 
$
5,422

 
$

Income before income taxes
$
5,300

 
$
109

 
$
5,424

 
$
194

Income tax expense
$
2,808

 
$
25

 
$
2,197

 
$
50

Income from discontinued operations
$
2,492

 
$
84

 
$
3,227

 
$
144


Our discontinued operations consist of our divested Enterprise Security assets and also includes results of our previously divested Veritas information management business (Veritas). There was no income from Veritas during the three and nine months ended January 3, 2020. Revenue from Veritas was $2 million and $11 million during the three and nine months ended December 28, 2018. Income from Veritas, net of taxes was $6 million and $11 million during the three and nine months ended December 28, 2018.
We recorded an income tax expense from discontinued operations of $2,808 million for the three months ended January 3, 2020, primarily consisting of a discrete tax expense of $2,801 million related to the gain on the sale of the Enterprise Security assets, and a discrete tax expense of $39 million related to global intangible low-tax income (GILTI), compared to income tax expense from discontinued operations of $25 million during the three months ended December 28, 2018.
We recorded an income tax expense from discontinued operations of $2,197 million and $50 million for the nine months ended January 3, 2020 and December 28, 2018, respectively. The increase in tax expense is primarily driven by the discrete tax expense of $2,801 million related to the sale of the Enterprise Security assets and the discrete tax expense of $39 million related to GILTI, partially offset by a $665 million tax benefit resulting from the remeasurement of the deferred tax assets associated with the tax basis of intellectual property held by our subsidiaries organized in Ireland. We previously expected to recover the tax basis through normal operation of our Enterprise Security business, which is taxed at the Irish trading rate of 12.5%. Instead, we recovered the tax basis through the sale of certain assets of the Enterprise Security assets, which is taxed at the Irish capital gains tax rate of 33%.

11


The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations:
(In millions)
January 3, 2020
 
March 29, 2019
Assets:
 
 
 
Current assets
$
2

 
$
149

Intangible assets, net

 
1,048

Goodwill

 
5,773

Other long-term assets
6

 
229

Total assets of discontinued operations
$
8

 
$
7,199

Liabilities:
 
 
 
Current contract liabilities
$
10

 
$
1,288

Other current liabilities
3

 
16

Long-term contract liabilities
5

 
709

Other long-term liabilities
3

 
6

Total liabilities of discontinued operations
$
21

 
$
2,019

The following table presents significant non-cash items and capital expenditures of discontinued operations:
 
Nine Months Ended
(In millions)
January 3, 2020
 
December 28, 2018
Amortization and depreciation
$
130

 
$
274

Stock-based compensation expense
$
170

 
$
140

Purchases of property and equipment
$
43

 
$
45


Note 4. Revenues
Timing of revenue recognition
The following table provides our revenue disaggregated by the timing of recognition:
 
Three Months Ended
 
Nine Months Ended
(In millions)
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Products and services transferred at a point in time
$
15

 
$
12

 
$
40

 
$
36

Products and services transferred over time
$
603

 
$
603

 
$
1,836

 
$
1,803

Contract liabilities
The amount of revenue recognized during the three and nine months ended January 3, 2020 that was included within the contract liabilities balance at October 4, 2019 and March 29, 2019 was $430 million and $951 million, respectively. The amount of revenue recognized during the three and nine months ended December 28, 2018 that was included within the contract liabilities balance at September 28, 2018 and March 31, 2018 was $440 million and $969 million, respectively.
Contract acquisition costs
We recognized amortization expense of capitalized contract acquisition costs of $2 million and $5 million during the three and nine months ended January 3, 2020, respectively, and $1 million and $3 million during the three and nine months ended December 28, 2018, respectively. There were no impairment losses recognized during the periods.
Remaining performance obligations
Remaining performance obligations represent contracted revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of January 3, 2020, we had $702 million of remaining performance obligations, which does not include customer deposit liabilities of $345 million, of which we expect to recognize approximately 96% as revenue over the next twelve months.

12


Note 5. Leases
We lease certain of our facilities, equipment, and data center co-locations under operating leases that expire on various dates through fiscal 2029. Our leases generally have terms that range from 1 year to 17 years for our facilities, 1 year to 6 years for equipment, and 1 year to 6 years for data center co-locations. Some of our leases contain renewal options, escalation clauses, rent concessions, and leasehold improvement incentives.
We determine if an arrangement is a lease at inception. We have elected to not recognize a lease liability or ROU asset for short-term leases (leases with a term of twelve months or less that do not include an option to purchase the underlying asset). Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The interest rate we use to determine the present value of future payments is our incremental borrowing rate because the rate implicit in our leases is not readily determinable. Our incremental borrowing rate is a hypothetical rate for collateralized borrowings in economic environments where the leased asset is located based on credit rating factors. Our operating lease assets also include adjustments for prepaid lease payments, lease incentives and initial direct costs.
Certain lease contracts include obligations to pay for other services, such as operations and maintenance. We elected the practical expedient whereby we record all lease components and the related minimum non-lease components as a single lease component. Cash payments made for variable lease costs are not included in the measurement of our operating lease assets and liabilities. Many of our lease terms include one or more options to renew. We do not assume renewals in our determination of the lease term unless it is reasonably certain that we will exercise that option. Lease costs for minimum lease payments for operating leases is recognized on a straight-line basis over the lease term. Our lease agreements do not contain any residual value guarantees.
The following summarizes our lease costs:
 
Three Months Ended
 
Nine Months Ended
(In millions)
January 3, 2020
 
January 3, 2020
Operating lease costs
$
6

 
$
28

Short-term lease costs
2

 
6

Variable lease costs
6

 
17

Total lease costs
$
14

 
$
51


Rent expense under operating leases was $16 million and $53 million for the three and nine months ended December 28, 2018, respectively.
Other information related to our operating leases was as follows:
 
Nine Months Ended
 
January 3, 2020
Weighted-average remaining lease term
4.6 years

Weighted-average discount rate
4.08
%

See Note 7 for additional cash flow information related to our operating leases.
As of January 3, 2020, the maturities of our lease liabilities, excluding lease liabilities associated with our discontinued operations, by fiscal year are as follows:
(In millions)
 
Remainder of 2020
$
10

2021
35

2022
30

2023
22

2024
19

Thereafter
20

Total lease payments
136

Less: Imputed interest
(12
)
Present value of lease liabilities
$
124



13


As of March 29, 2019, the minimum future rentals on non-cancelable operating leases, including leases associated with our discontinued operations and based on the previous lease accounting standard, by fiscal year were as follows:
(In millions)
 
2020
$
55

2021
49

2022
40

2023
32

2024
26

Thereafter
42

Total minimum future lease payments
$
244


Note 6Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill were as follows:
(In millions)
 
Balance as of March 29, 2019
$
2,677

Translation adjustments
(1
)
Balance as of January 3, 2020
$
2,676


Intangible assets, net
 
January 3, 2020
 
March 29, 2019
(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer relationships
$
541

 
$
(227
)
 
$
314

 
$
541

 
$
(168
)
 
$
373

Developed technology
142

 
(83
)
 
59

 
143

 
(61
)
 
82

Other
4

 
(2
)
 
2

 
6

 
(3
)
 
3

Total finite-lived intangible assets
687

 
(312
)
 
375

 
690

 
(232
)
 
458

Indefinite-lived trade names
744

 

 
744

 
744

 

 
744

Total intangible assets
$
1,431

 
$
(312
)
 
$
1,119

 
$
1,434

 
$
(232
)
 
$
1,202


Goodwill and intangible assets to be disposed of as a result of our agreement with Broadcom to sell certain assets of Enterprise Security business were included in assets of discontinued operations in our Condensed Consolidated Balance Sheets as of March 29, 2019, and were derecognized on November 4, 2019 upon the close of the sale, and accordingly, are excluded from the tables above.
Amortization expense for purchased intangible assets is summarized below:
 
Three Months Ended
 
Nine Months Ended
 
Statements of Operations Classification
(In millions)
January 3, 2020
 
December 28, 2018
 
October 4, 2019
 
September 28, 2018
 
Customer relationships and other
$
20

 
$
19

 
$
61

 
$
59

 
Operating expenses
Developed technology
8

 
9

 
23

 
22

 
Cost of revenues
Total
$
28

 
$
28

 
$
84

 
$
81

 
 


14


As of January 3, 2020, future amortization expense related to intangible assets that have finite lives is as follows by fiscal year:
(In millions)
 
Remainder of 2020
$
28

2021
108

2022
100

2023
79

2024
59

Thereafter
1

Total
$
375


Note 7. Supplementary Information (in millions)
Cash and cash equivalents:
 
January 3, 2020
 
March 29, 2019
Cash
$
648

 
$
376

Cash equivalents
12,001

 
1,415

Total cash and cash equivalents
$
12,649

 
$
1,791


Other current assets:
 
January 3, 2020
 
March 29, 2019
Prepaid expenses
$
118

 
$
136

Income tax receivable and prepaid income taxes
49

 
61

Other tax receivable
161

 
69

Other
83

 
20

Total other current assets
$
411

 
$
286


Property and equipment, net:
 
January 3, 2020
 
March 29, 2019
Land
$
21

 
$
65

Computer hardware and software
786

 
814

Office furniture and equipment
95

 
105

Buildings
213

 
364

Leasehold improvements
178

 
327

Construction in progress
3

 
9

Total property and equipment, gross
1,296

 
1,684

Accumulated depreciation and amortization
(931
)
 
(1,021
)
Total property and equipment, net
$
365

 
$
663


During the three months ended January 3, 2020, we reclassified certain land and buildings previously reported as property and equipment to assets held for sale in the Condensed Consolidated Balance sheets because we expect to sell them within the next twelve months. The fair value of the assets held for sale less costs to sell exceed their carrying value.
Other long-term assets:
 
January 3, 2020
 
March 29, 2019
Cost method investments
$
185

 
$
184

Equity method investment

 
32

Long-term income tax receivable and prepaid income taxes
43

 
34

Deferred income tax assets
404

 
830

Other
77

 
80

Total other long-term assets
$
709

 
$
1,160



15


Deferred income tax assets as of January 3, 2020 reflect a $1,119 million decrease as a result of the sale of Enterprise Security assets, partially offset by a $665 million remeasurement adjustment in Ireland as described in Note 3.
Short-term contract liabilities:
 
January 3, 2020
 
March 29, 2019
Deferred revenue
$
674

 
$
527

Customer deposit liabilities
345

 
505

Total short-term contract liabilities
$
1,019

 
$
1,032


Other current liabilities:
 
 
January 3, 2020
 
March 29, 2019
Income taxes payable
 
$
2,086

 
$
103

Other taxes payable
 
232

 
143

Other
 
286

 
278

Total other current liabilities
 
$
2,604

 
$
524


Income tax payable as of January 3, 2020 reflect $1,867 million of income tax obligations as a result of the sale of Enterprise Security assets.
Long-term income taxes payable:
 
January 3, 2020
 
March 29, 2019
Deemed repatriation tax payable
$
626

 
$
703

Uncertain tax positions (including interest and penalties)
460

 
373

Total long-term income taxes payable
$
1,086

 
$
1,076


Other income (expense), net:
 
Three Months Ended
 
Nine Months Ended
 
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Interest income
$
38

 
$
11

 
$
56

 
$
29

Loss from equity interest
(9
)
 
(24
)
 
(31
)
 
(84
)
Foreign exchange loss
(5
)
 
(3
)
 
(7
)
 
(12
)
Gain on sale of equity method investment
379

 

 
379

 

Other
(4
)
 
(2
)
 

 
11

Other income (expense), net
$
399

 
$
(18
)
 
$
397

 
$
(56
)

Supplemental cash flow information:
 
Nine Months Ended
 
January 3, 2020
 
December 28, 2018
Income taxes paid, net of refunds
$
198

 
$
80

Interest expense paid
$
133

 
$
145

Cash paid for amounts included in the measurement of operating lease liabilities
$
43

 
$

Non-cash operating activities:
 
 
 
Operating lease assets obtained in exchange for operating lease liabilities
$
14

 
$

Reduction of operating lease assets as a result of lease terminations and modifications
$
24

 
$

Non-cash investing and financing activities:
 
 
 
Purchases of property and equipment in current liabilities
$
1

 
$
29

Extinguishment of debt with borrowings from same creditors
$
198

 
$



16


Note 8. Financial Instruments and Fair Value Measurements
For financial instruments measured at fair value, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, and we consider assumptions that market participants would use when pricing the asset or liability.
The three levels of inputs that may be used to measure fair value are:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations. All significant inputs used in our valuations, such as discounted cash flows, are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities. We monitor and review the inputs and results of these valuation models to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.
Assets measured and recorded at fair value on a recurring basis
The following table summarizes our financial instruments measured at fair value on a recurring basis:
 
January 3, 2020
 
March 29, 2019
(In millions)
Fair Value
 
Level 1
 
Level 2
 
Fair Value
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
10,301

 
$
10,301

 
$

 
$
1,415

 
$
1,415

 
$

Certificates of deposit
1,702

 

 
1,702

 
1

 

 
1

Corporate bonds
118

 

 
118

 
251

 

 
251

Total
$
12,121

 
$
10,301

 
$
1,820

 
$
1,667

 
$
1,415

 
$
252


The following table presents the contractual maturities of our investments in debt securities as of January 3, 2020:
(In millions)
Fair Value
Due in one year or less
$
1,784

Due after one year through five years
36

Total
$
1,820


Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.
Financial instruments not recorded at fair value on a recurring basis include our non-marketable equity investments, equity method investment and our long-term debt.
Non-marketable equity investments
As of January 3, 2020 and March 29, 2019, the carrying value of our non-marketable equity investments was $185 million and $184 million, respectively.
Equity method investment
Our investment in equity securities that was accounted for using the equity method was included in Other long-term assets in our Condensed Consolidated Balance Sheets and consisted of our equity investment in DigiCert Parent Inc. (DigiCert) that had a carrying value of $32 million at March 29, 2019. On October 16, 2019, Clearlake Capital Group, L.P. (Clearlake), a private investment firm, and TA Associates, an investor of DigiCert and a private equity firm, completed an investment in DigiCert. As a part of the transaction, Clearlake and TA became equal partners in DigiCert. As a result, we received $378 million in cash for our equity investment in DigiCert and $2 million remains in escrow. We recognized a gain on sale of $379 million. We expect to make income tax payments of approximately $53 million as a result of the transaction.
We recorded a loss from equity interests of $9 million and $31 million during the three and nine months ended January 3, 2020, respectively, and $24 million and $84 million during the three and nine months ended December 28, 2018, respectively, in Other income (expense), net in our Condensed Consolidated Statements of Operations. This loss was reflected as a reduction in the carrying amount of our investment in equity interests in our Condensed Consolidated Balance Sheets.

17


The following table summarizes financial data from DigiCert, which was provided to us on a three-month lag:
 
Three Months Ended
 
Nine Months Ended
(In millions)
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Revenue
$
121

 
$
80

 
$
230

 
$
220

Gross profit
$
104

 
$
67

 
$
194

 
$
181

Net loss
$
(18
)
 
$
(83
)
 
$
(55
)
 
$
(288
)

Current and long-term debt
As of January 3, 2020 and March 29, 2019, the total fair value of our current and long-term fixed rate debt was $4,016 million and $3,964 million, respectively. The fair value of our variable rate debt approximated its carrying value. The fair values of all our debt obligations were based on Level 2 inputs.
Note 9Debt
The following table summarizes components of our debt:
(In millions, except percentages)
January 3, 2020
 
March 29, 2019
 
Effective
Interest Rate
4.2% Senior Notes due September 15, 2020
$
750

 
$
750

 
4.25
%
2.5% Convertible Senior Notes due April 1, 2022
500

 
500

 
3.76
%
Senior Term Loan A-5 due August 1, 2021

 
500

 
LIBOR plus (1)

2.0% Convertible Senior Notes due August 15, 2022
1,250

 
1,250

 
2.66
%
3.95% Senior Notes due June 15, 2022
400

 
400

 
4.05
%
Term Loan due November 4, 2024
500

 

 
LIBOR plus (1)

5.0% Senior Notes due April 15, 2025
1,100

 
1,100

 
5.23
%
Total principal amount
4,500

 
4,500

 
 
Less: unamortized discount and issuance costs
(32
)
 
(48
)
 
 
Total debt
4,468

 
4,452

 
 
Less: current portion
(749
)
 
(491
)
 
 
Total long-term debt
$
3,719

 
$
3,961

 
 
 

(1)
The term loans bear interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus a margin based on the current debt rating of our non-credit-enhanced, senior unsecured long-term debt and the underlying loan agreement. The interest rates for the outstanding term loans are as follows:
 
January 3, 2020
 
March 29, 2019
Senior Term Loan A-5 due August 1, 2021
N/A

 
4.24
%
Term Loan due November 4, 2024
3.31
%
 
N/A


As of January 3, 2020, the future contractual maturities of debt by fiscal year are as follows:
(In millions)
 
Remainder of 2020
$

2021
756

2022
525

2023
1,675

2024
25

Thereafter
1,519

Total future maturities of debt
$
4,500


New credit facility
On November 4, 2019, we entered into a credit agreement with financial institutions, which provides a revolving line of credit of $1,000 million through November 2024, a 5-year term loan of $500 million, and a delayed 5-year term loan commitment of $750 million through September 15, 2020. At our option, we may increase commitments under the revolving line of credit or the

18


term loan facility by an aggregate amount of up to $500 million, subject to customary conditions. Interest on borrowings under the credit agreement can be based on a base rate or a LIBOR at our election. Based on our debt ratings and our consolidated leverage ratios as determined in accordance with the credit agreement, loans borrowed bear interest, in the case of base rate loans, at a per annum rate equal to the applicable base rate plus a margin ranging from 0.125% to 0.75%, and in the case of LIBOR loans, LIBOR, as adjusted for statutory reserves, plus a margin ranging from 1.125% to 1.75%. The unused revolving line of credit is subject to a commitment fee ranging from 0.125% to 0.30% per annum. The principal amount of the term loan is repayable in quarterly installments on the last business day of each calendar quarter commencing with the quarter ended March 31, 2021 in an amount equal to 1.25% of the aggregate principal amount of the term loan and in the outstanding principal amount upon the November 2024 maturity date. We may voluntarily repay outstanding principal balances without penalty.
The credit agreement contains customary representations and warranties, non-financial covenants for financial reporting, affirmative and negative covenants, including a covenant that we maintain a consolidated leverage ratio of not more than 5.25 to 1.0, or 5.75 to 1.0 if we acquire assets or business in an aggregate amount greater than $250 million, and restrictions on indebtedness, liens, investments, stock repurchases, and dividends (with exceptions permitting our regular quarterly dividend and other specific capital returns). As of January 3, 2020, we were in compliance with all debt covenants.
In connection with the credit agreement, on November 4, 2019, we fully prepaid the principal amount of $500 million of our Senior Term Loan A-5 and terminated our existing revolving line of credit. This transaction was accounted for as an extinguishment of debt and resulted in accelerated recognition of interest expense for unamortized debt issuance costs, which was not significant. Out of the repayments, $198 million was replaced by borrowings under the term loan of $500 million issued on November 4, 2019 to the same creditors.
As of January 3, 2020 and March 29, 2019, there were no borrowings outstanding under our revolving credit facilities.
Amendments to Convertible Senior Notes
On March 4, 2016, we issued $500 million of convertible notes with maturity on April 1, 2021 and bear interest at an annual rate of 2.5% (2.5% Convertible Notes). On August 1, 2016, we issued an additional $1.25 billion of convertible notes with maturity on August 15, 2021 and bear interest at an annual rate of 2.0% (2.0% Convertible Notes). Both the 2.5% Convertible Notes and the 2.0% Convertible Notes (collectively, Convertible Senior Notes) have coupon interest payable semiannually in arrears in cash. Interest payments on the Convertible Senior Notes are due on October 1 and April 1 of each year in the case of the 2.5% Convertible Notes, and February 15 and August 15 in the case of the 2.0% Convertible Notes. The fair value of the equity component of our Convertible Senior Notes of $41 million, net of tax, was recorded in additional paid-in capital and is being amortized as interest expense. Additionally, as of March 29, 2019, the principal amount and associated unamortized discount and issuance costs of the 2.5% Convertible Notes were classified as current because upon the 4-year anniversary of the issuance of the notes, holders of thereof had the option to require us to repurchase the notes, in cash, equal to the principal amount and accrued and unpaid interest of the 2.5% Convertible Notes.
Holders of the Convertible Senior Notes could convert the notes into our common stock at any time up to the maturity date of each note. The conversion rate for all the 2.0% Convertible Notes was 48.9860 shares of common stock per $1,000 principal amount of the notes, which represented an initial conversion price of approximately $20.41 per share. The conversion rate for the 2.5% Convertible Notes was 59.6341 shares of common stock per $1,000 principal amount of the notes, which represented an initial conversion price of approximately $16.77 per share. If holders of the Convertible Senior Notes convert them in connection with a fundamental change, we may be required to provide a make-whole premium in the form of an increased conversion rate, subject to a maximum amount, based on the effective date of the fundamental change as set forth in a table contained in the indenture governing each of the Convertible Senior Notes. A fundamental change, as defined, includes a sale of substantially all our assets, a change of the control of NortonLifeLock, or a plan for our liquidation or dissolution. The conversion rates under the Convertible Senior Notes are subject to customary anti-dilution adjustments. If the holders request a conversion, we have the option to settle the par amount of the Convertible Senior Notes using cash, shares of our common stock, or a combination of cash and shares with the cash settlement not exceeding the principal amount and accrued and unpaid interest of the Convertible Senior Notes.
Additionally, we could redeem all or part of the principal of the 2.5% Convertible Notes, at our option, at a purchase price equal to the principal amount plus accrued interest on or after the 4-year anniversary of the issuance date of the 2.5% Convertible Notes, if the closing trading price of our common stock exceeds 150% of the then-current conversion price for 20 or more trading days in the 30 consecutive trading-day period preceding our exercise of the redemption right (including the last three such trading days) and provided that we have satisfied all regulatory common stock registration requirements. The 2.0% Convertible Notes are not redeemable at our option.
As long as the holders of the Convertible Senior Notes each own at least 4% of our common stock on an as-converted basis, they are entitled to nominate one director to our Board of Directors. As of January 3, 2020, the holders’ percentage interest in our common stock exceeded this threshold.
On November 11, 2019, we amended the Convertible Senior Notes agreements to provide that, if and when we pay a special dividend of $12 to our stockholders, we would exchange $250 million of the principal amount underlying the 2.5% Convertible Notes for new notes to be issued pursuant to a new indenture (the “New 2.5% Convertible Notes”) and make a payment of $12 for each share underlying the New 2.5% Convertible Notes, and exchange $625 million of the principal amount underlying the 2.0% Convertible Notes for new notes to be issued pursuant to a new indenture (the “New 2.0% Convertible Notes”) and make a payment of $12 for each share underlying the New 2.0% Convertible Notes, in each case in lieu of a conversion price

19


adjustment (the Cash Note Payment). The remaining principal of the Convertible Senior Notes would receive a conversion price adjustment with respect to such special dividend.
The special dividend was payable to stockholders on January 31, 2020 and on February 4, 2020, we issued the New 2.5% Convertible Notes and the New 2.0% Convertible Notes pursuant to two new indentures, and then made the Cash Note Payment. The Cash Note Payments consisted of $179 million with respect to holders of the New 2.5% Convertible Senior Notes and $367 million with respect to holders of the New 2.0% Convertible Senior Notes. After giving effect to the conversion rate adjustment that was made in connection with the payment of the special dividend on January 31, 2020, the conversion rate for the remaining $250 million of the 2.5% Convertible Notes is 118.9814 shares of common stock per $1,000 principal amount of the notes, which represents an adjusted conversion price of approximately $8.40 per share and the conversion rate for the remaining $625 million of the 2.0% Convertible Notes is 97.7364 shares of common stock per $1,000 principal amount of the notes, which represents an adjusted conversion price of approximately $10.23 per share.
In addition, in connection with the amendments, we extended the maturity dates of all of the 2.5% Convertible Notes, including the New 2.5% Convertible, Notes to April 1, 2022 and all of the 2.0% Convertible Notes, including the New 2.0% Convertible Notes, to August 15, 2022. Further, holders of the Convertible Senior Notes will only be able to convert the notes in a period of six months prior to the extended maturity dates. For the 2.5% Convertible Notes, we no longer have the redemption right, nor do the holders of the 2.5% Convertible Notes have the right to require us to repurchase the notes.
Based on the closing price of our common stock of $25.83 on January 3, 2020, the if-converted value of our 2.5% Convertible Notes exceeded the principal amount by approximately $270 million and the if-converted value of our 2.0% Convertible Notes exceeded the principal amount by approximately $332 million.
During the three and nine months ended January 3, 2020, we made payments totaling $5 million to holders of the Convertible Notes in lieu of conversion price adjustments because our dividend of $0.125 per share to our common stockholders that was paid in December 2019 exceeded the amounts defined in the Convertible Senior Notes agreements. These payments were recorded as interest expense during the three and nine months ended January 3, 2020.
The following table sets forth total interest expense recognized related to our 2.5% and 2.0% Convertible Senior Notes:
 
Three Months Ended
 
Nine Months Ended
(In millions)
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Contractual interest expense
$
9

 
$
9

 
$
28

 
$
28

Amortization of debt discount and issuance costs
$
3

 
$
4

 
$
11

 
$
12

Payments in lieu of conversion price adjustments
$
5

 
$

 
$
5

 
$


Note 10. Derivatives
We conduct business in numerous currencies throughout our worldwide operations, and our entities hold monetary assets or liabilities, earn revenues, or incur costs in currencies other than the entity’s functional currency. As a result, we are exposed to foreign exchange gains or losses which impacts our operating results. As part of our foreign currency risk mitigation strategy, we have entered into foreign exchange forward contracts with up to twelve months in duration. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of the changes in foreign exchange rates.
To help protect the net investment in a foreign operation from adverse changes in foreign currency exchange rates, we conduct a program under which we may enter into foreign currency forward and option contracts to offset the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. We exclude changes in forward points for the forward contracts from the assessment of hedge effectiveness. We recognize changes in the excluded component in other income (expense), net. As of January 3, 2020 and December 28, 2018, the fair value of these contracts was insignificant. During the nine months ended January 3, 2020, a net loss of $1 million was recorded in Accumulated other comprehensive loss.
We also enter into foreign currency forward contracts to hedge foreign currency balance sheet exposure. These forward contracts are not designated as hedging instruments. As of January 3, 2020 and December 28, 2018, the fair value of these contracts was insignificant. The related gain (loss) recognized in Other income (expense), net in our Condensed Consolidated Statements of Operations was as follows:
 
Three Months Ended
 
Nine Months Ended
(In millions)
January 3, 2020
 
December 28, 2018
 
January 3, 2020
 
December 28, 2018
Foreign exchange forward contracts gain (loss)
$
7

 
$
(1
)
 
$
1

 
$
(39
)

The fair value of our foreign exchange forward contracts is presented on a gross basis in our Condensed Consolidated Balance Sheets. To mitigate losses in the event of nonperformance by counterparties, we have entered into master netting

20


arrangements with our counterparties that allow us to settle payments on a net basis. The effect of netting on our derivative assets and liabilities was not material as of January 3, 2020 and December 28, 2018.
The notional amount of our outstanding foreign exchange forward contracts in U.S. dollar equivalent was as follows:
(In millions)
January 3, 2020
 
March 29, 2019
Net investment hedges
 
 
 
Foreign exchange forward contracts sold
$
374

 
$
116

Balance sheet contracts
 
 
 
Foreign exchange forward contracts purchased
$
913

 
$
963

Foreign exchange forward contracts sold
$
51

 
$
122


Note 11. Restructuring, Transition and Other Costs
Our restructuring, transition and other costs consist primarily of severance, facilities, separation, transition and other related costs. Severance costs generally include severance payments, outplacement services, health insurance coverage, and legal costs. Included in other exit and disposal costs are advisory fees incurred in connection with restructuring events and facilities exit costs, which generally include rent expense and lease termination costs, less estimated sublease income. Separation costs primarily consist of consulting costs incurred in connection with the divestiture of our Enterprise Security business. Transition costs are incurred in connection with Board of Directors approved discrete strategic information technology transformation initiatives and primarily consist of consulting charges associated with our enterprise resource planning and supporting systems and costs to automate business processes. Such transition projects were completed by the end of fiscal 2019.
November 2019 Plan
In November 2019, our Board of Directors approved a restructuring plan (the November 2019 Plan) in connection with the strategic decision to divest our Enterprise Security business. Actions under this plan include the reduction of our workforce by approximately 3,100 employees, as well as asset write-offs, contract terminations, facilities closures, and the sale of underutilized facilities. We estimate that we will incur total costs of $800 million in connection with the November 2019 Plan, of which approximately $330 million are expected to consist of cash expenditures for severance and termination benefits and $170 million of cash expenditures for contract terminations. These actions are expected to be completed within the next twelve months. As of January 3, 2020, we have incurred costs of $285 million related to our November 2019 Plan.
In addition, as a result of our divestiture, our Board of Directors approved an equity-based severance program under which certain equity awards to certain terminated employees were accelerated. See Note 14 for more information on the impact of this program.
August 2019 Plan
On August 6, 2019, our Board of Directors approved a restructuring plan (the August 2019 Plan) to improve productivity and reduce complexity in the way we manage the business. We expect to reduce net global headcount by approximately 7% under the August 2019 Plan. We also plan to downsize, vacate or close certain facilities and data centers in connection with the restructuring plan. We estimate that we will incur total costs in connection with the restructuring of approximately $100 million, approximately $75 million for severance and termination benefits and $25 million for site closures. These actions are expected to be completed in fiscal 2020. As of January 3, 2020, we have incurred costs of $53 million related to our Fiscal 2020 Plan.
August 2018 Plan
In August 2018, we announced a restructuring plan (the August 2018 Plan) under which we incurred costs of $48 million as of October 4, 2019. These actions were substantially completed in fiscal 2020.
Restructuring, transition and other costs summary
Our restructuring, transition and other costs attributable to continuing operations are presented in the table below:
 
Three Months Ended
 
Nine Months Ended
(In millions)
January 3, 2020
 
December 28, 2018