諾頓 (NLOK) 2006 Q1 法說會逐字稿

Good day, and welcome to the Symantec Corporation first quarter fiscal year 2006 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Ms. Helyn Corcos, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us. With me today are John Thompson, Chairman of the Board and CEO of Symantec; Gary Bloom, Vice Chairman and President of Symantec; and Greg Myers, Senior Vice President of Finance and CFO. Today's call is structured in a slightly different format from prior earnings calls. Greg will begin by discussing financial results for Symantec's fiscal first quarter 2006, which ended July 1, 2005, and will provide limited financial detail on VERITAS's June 2005 quarter. Next, Gary will provide additional comments on VERITAS's results. Then, John will discuss highlights of Symantec's performance. Finally, Greg will review methodology that will be used to present combined historical financial information going forward and will provide an update to Symantec's guidance for fiscal 2006, and September 2005 quarter. We will then open up the call for questions. Today's call is being recorded and will be available for replay on Symantec's Investor Relations home page at Symantec.com/invest. In addition today's press release, a copy of our prepared remarks and supplemental information is also available on the IR website. I also want to note that as Greg is providing the guidance update, additional supplemental information will be posted to our Investor Relations home page to assist you in following along with this discussion.

Before we begin, I would like to remind everyone that some of the information discussed on this call, particularly our revenue and operating model targets for the coming quarter and fiscal year, contain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations. Actual results may differ materially from those set forth in such statements. Additional information concerning factors that may cause actual results to differ can be found in the company's filings with the U.S. Securities and Exchange Commission. In addition to reporting financial results in accordance with generally accepted accounting GAAP principles, or GAAP, Symantec reports non-GAAP financial results. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which can be found in the press release and on the Investor Relations website. And now, it is my pleasure to introduce our CFO, Greg Myers.

Thanks, Helyn. Good afternoon, everybody, and thank you for joining us for today's earnings release. I'm very pleased to provide you with Symantec's financial details for the June quarter, the first quarter of our fiscal year June 2006. Revenue for our June 2005 quarter was $700 million, up 26% from last year's revenue of $557 million. GAAP earnings per share of $0.27 for the quarter was 69% higher than last June's GAAP earnings per share of $0.16. Non-GAAP earnings per share for the quarter was $0.27, 50% higher than the June 2004 quarter's non-GAAP earnings per share of $0.18. Our non-GAAP earnings per share excluded charges of $299,000, due too a $20 million benefit related to a change in the tax rules associated with the American Jobs Creation Act, partly offset by the amortization of acquisition related intangibles, IP R&D costs, the amortization of deferred compensation, restructuring charges, and integration expenses associated with our announced acquisition of VERITAS, which was completed on July 2, the first day of our September 2005 quarter.

Revenue by segment for the June 2005 quarter was as follows: Consumer revenue was $357 million, and grew 28% over the June 2004 quarter. It should be noted that June has historically been a seasonally slow period in our consumer markets and this quarter played out fairly close to our expectations. Our electronic distribution channels continued to be our fastest growing channel, growing 47% over last June. Our traditional retail channel was up 11% from last year, as the seasonal summer slowdown took effect in the brick and mortar channel. Enterprise revenue totaled $343 million, 23% over the June 2004 quarter. Revenue by segment is as follows: Enterprise security revenue for the June 2005 quarter was $266 million, and grew 26% over the June 2004 quarter. It should be noted that this segment now includes our managed security services business.

Enterprise administration revenue was $67 million, and grew 10% over the June 2004 quarter. Within this segment remote access, or PC anywhere, was within expectations declining 17% from last year. The balance of this segment grew 27%. Services revenue, which is comprised of consulting and education, was $10 million for the quarter, up 85% over the June quarter last year. International revenues of $354 million grew 27%, and accounted for 51% of this quarter's revenue. U.S. revenues for the quarter were $346 million, and grew 25%.

The revenue impact from currency on the June quarter, as compared to our March 2005 quarter, was a negative $12 million, as the euro fell about 6% from April 1 to July 1. In addition, the drop in the euro affected our balance sheet positions where currency had a negative effect on cash of $71 million, and on deferred revenue of $43 million. The effect from currency on revenue as compared to the June 2004 quarter was a favorable $12 million. This added 2 points of growth to the June 2005 quarter. In addition, net income for the quarter as compared to the June 2004 quarter was $6 million higher due to the effects from currency. Non-GAAP gross margin was 84.9% for the June 2005 quarter, comparing well to the 84% we posted last June.

Lower sell-in, resulting from the seasonal nature of the quarter and lower OEM royalty payments, were the most notable contributors to the margin improvement. Non-GAAP operating expenses of $333 million were 48% of revenue for the June 2005 quarter. This compared favorably to the June 2004 quarter, where expenses of $285 million were at 51% of revenue. The notable improvement in our expense ratio is mostly due to head count related expenses. Head count at the end of the June quarter was at 6,540 employees, 955 employees, and 17% higher than the June 2004 quarter. Excluding employees from acquisitions for the past 12 months head count grew 14%.

Non-GAAP net income was $199 million for the quarter. This was 55% higher than the June 2004 quarter's non-GAAP net income of $128 million. Symantec's balance sheet continued to be very well positioned as we exited the June quarter. Cash and short-term investments of $3,351,000,000 comprised 59% of total assets and were $145 million higher than the March 2005 quarter. Cash from operating activities in the quarter was $211 million. The company's net accounts receivable balance at the end of the June 2005 quarter was $241 million, $9 million lower than last June. Days sales outstanding were 31 days as we exited the June 2005 quarter, versus 40 days at the end of the June 2004 quarter.

Deferred revenue at the end of the June 2005 quarter was $1,268,000,000, up $204 million, or 19% from last June. This quarter's deferred revenue balance, as measured against the March 2005 quarter, was affected negatively by $43 million from the strengthening of the U.S. dollar during the quarter, as well as an expected slowdown in sell-through as we entered the summer season.

VERITAS's results in revenue was $529 million for the June quarter, 9% percent higher than their June 2004 quarter. The VERITAS June quarter non-GAAP cost of sales and operating expenses, including $37 million of amortization of acquisition-related intangibles and deferred compensation and merger related expenses, were $407 million, and 77% of revenue. This compared with $356 million, and 73% last June.

The VERITAS balance sheet was in a very strong position at the end of June. Cash was at $2,945,000,000, up $523 million from the March 2005 quarter. The cash balance included the proceeds from a $497 million short-term international loan that was incurred to facilitate their cash repatriation under the American Jobs Creation Act. This loan was paid off in early July. Accounts receivable for VERITAS was at $252 million, and DSO was at 45 days versus 32 days last June. Changes in linearity, where a higher percentage of their sales are occurring later in the quarter, was the most notable change driving the increase in DSO. Deferred revenue at the end of the June quarter was up $521 million. This is 23% higher than last June.

As the VERITAS accounts are merged with Symantec, we should expect 65% to 70% of the balance would be lost through purchase accounting for the transaction. The balance of 30% to 35% would be recognized as revenue over time. Most of the lost deferred revenue will be replenished within 12-15 months. Now, I would like to turn the call over to Gary Bloom to give additional color on the VERITAS results.

Thanks, Greg. I'm very pleased with the VERITAS team success in balancing merger related activities with solid June quarter execution. Total revenue for the quarter was $525 million, and aligns our revenue results with our plan for the first half of the year. Both license and service revenue posted positive growth in the quarter. License revenue benefited from healthy large deal activity, demonstrating both strong demand for our solutions, and our customers' comfort with the merger. On a worldwide basis, our sales team generated 253 deals greater than $100,000, and 19 deals greater than $1 million. Service revenue continues to deliver a predictable revenue stream, driven by an increasing installed base, healthy maintenance renewals, and growth in our training and consulting business.

As has been the case for several quarters, our geographic expansion strategy continued to deliver results, with the ME/A region growing 22%, and Asia-Pacific/Japan growing 56% year-over-year. While results in the U.S. were sluggish with the 3% decline, we experienced great momentum with our market leading KVS Enterprise Vault products. We are optimistic that the sales leadership changes announced in conjunction with the merger will help to improve our execution and performance in the region.

Our channel performed very well this quarter with our two-tier distribution channel delivering a record revenue quarter, driven by strength in Backup Exec product sales. This product line is enjoying very good momentum in the market, helping both our success and that of our channel partners. And now I would like to provide a few highlights within our product segments. Our data availability and archiving products enjoyed healthy results, with Net Backup 6 planned for delivery in the early part of the December quarter, we are well positioned to further our leadership position at the high end of the enterprise.

Our continued innovation, investments and vision in the data protection space are keeping us well positioned in this market and we are happy with activity level of competitive replacements in enterprise shops. Our activity in this market is supported by our leadership position in Gartner Group's most recently published Magic Quadrant, for the enterprise backup recovery software market. We are not only the leader, but we improved our position relative to our largest competitors. The Enterprise Vault continues to gain traction around the world, with Aegis Pacific seeing its largest e-mail archive deal ever.

In early July we began shipping Enterprise Vault 6.0 providing a comprehensive records management and retention platform. Our data base-editions posted strong growth and delivered its second best revenue quarter, which is consistent with our plan to migrate customers to higher value bundles within our storage management business. While our overall storage management business experienced continued weakness, our planned introduction of Storage Foundation's 4.1 in the September quarter should drive improvement in this part of our business. Utility computing infrastructure continues to execute very well with solid demand for high availability bundles, OpForce and Command Central Suite. Consistent with other suppliers in the market, our APM products were weak in the quarter after several record quarters. Furthering our platform expansion, VERITAS signed a partnership agreement during the quarter with IBM to resell VERITAS cluster servers, and Storage Foundation products for IBM's E server, X series and blade center servers.

In addition, we expanded our support for AMD Opteron processors, with product offerings of Storage Foundation, OpForce, Net Backup, and Backup Exec for Windows. In summary, the VERITAS team delivered strong results in the June quarter, as our strong brand, market leadership, and competitive advantages in key product segments continue to strengthen. The merger further heightens our value proposition to our customers and our integration planning seems to have paid off with the first three weeks of combined operations going very well. I would now like to turn the call over to John Thomson. John?

Thanks, Gary. Our team's fiscal first quarter performance was a continuation of the well-established trends of revenue growth, solid profitability, and strong cash generation. These results underpin the focus we always have on execution and demonstrate our resolve to not become distracted by merger-related activities. Over the past four quarters, the malicious threat environment has evolved to more targeted attacks focused on stealing valuable personal information. As the threat landscape continues to increase lesser known threats like pharming, phishing, e-mail fraud and identity theft are forcing users to take additional steps to safeguard their computers, and most importantly, their personal information.

We believe these new types of threats will require a more vigilant focus on innovation and more rapid introduction of new features and functions to address the changing landscape. Furthermore, we believe Symantec is uniquely positioned to protect our customers from these new threats given the broad range of threat protection and availability capabilities we have in our portfolio. During the June quarter, all of the geographic regions posted 20% or better revenue growth. EMEA had the strongest growth at 28%, even in the face of the strengthening dollar impacting results. We are very pleased with the performance of the Global Enterprise Group. They delivered another solid quarter of execution as revenue grew 23% over June 2004's quarter. Breaking it down, we saw 26% growth year-over-year in our enterprise security segment, 85% year-over-year growth in our services segment, and our Enterprise Administration Business Group posted 10% year-over-year growth.

On a worldwide basis, the total number of transactions valued at more than $100,000 reached 274, including 15 deals worth more than $1 million. This represents a 22% growth in large deals compared to the June quarter last year. In addition, 53% of these transactions included multiple Symantec products or services as the transactions continue to be driven by the depth and breadth of our product and service offerings.

Our Enterprise AntiVirus revenues grew almost 20% versus June 2004, in line with expectations. We continue to benefit from our ability to penetrate customer opportunities around the world with a very strong set of offerings. Our Gateway appliance sales were boosted by contributions from the Symantec Gateway Security 5400 series and the Symantec Network Security 7100 series of intrusion prevention appliances.

During the quarter, we displaced an incumbent vendor and signed a multimillion dollar multi-year deal for the 7100 IPS appliances bundled with our managed security services. The customer was a global insurance company seeking a solution to make their systems easier to manage and audit in order to meet Sarbanes-Oxley requirements. This quarter we are excited about the launch of our third generation appliance, our Symantec Gateway Security 5600 series. This new series includes several new features, such as enhanced anti-spam and content filtering. We also believe that we will be the first security appliance to fully integrate both IP SEC and SSL-VPN technology.

One year after our acquisition of Brightmail, our secure e-mail and anti-spam business continues its strong momentum, growing 33% sequentially. Our Brightmail solution has established itself as the secure e-mail leader with a very strong customer base of ISPs and large enterprises. While these segments continue to perform very well, we are also seeing strength in the SMB market, where the reach of our channel partners is allowing us to capture new buyers. Our ability to offer customers a choice of solutions ranging from software, appliances, or a hosted service, continues to position us very well in the secure mail market segment.

In a recent Gartner Magic Quadrant report, Symantec's e-mail security solutions were positioned as providing the best vision in the industry in addition to executing far better than any of our competitors. We continue to believe mail security is not just about AntiVirus and antiSpam but a host of tightly integrated capabilities. Just last month we launched a new product that defends against day-zero attacks, and maintains systems compliance on clients and servers. The innovative Symantec Critical System Protection solution integrates recently acquired technologies, and utilizes behavior-based security policy. When deployed with our Enterprise AntiVirus capability, this product safeguards applications and operating systems from new and unknown threats. The Enterprise Administration Segment performed in line with expectations during the June quarter, posting revenue of $67 million and year-over-year growth of 10%.

As Greg mentioned, this business would have grown 27% had you excluded pcAnywhere, which continued to decline as expected. Security concerns, ever changing compliance requirements, and strong ROI are top concerns of today's IT leaders. Symantec's focus is to address the overall complexity of managing their environments while delivering a rapid return. The latest edition of our LiveState family is the LiveState Client Management Suite, which is a comprehensive configuration in life cycle management solution for highly distributed and heterogeneous environments. This is a critical component in our information integrity initiative and will help organizations build a resilient infrastructure by taking a holistic view of security, systems, and storage management.

Overall, our enterprise business continues to build momentum. Now, let's take a look at our consumer performance. The consumer business grew 28% versus the June quarter a year ago and generated $357 million in revenue. As expected, our consumer business returned to more normal patterns as we experienced prior to the high profile threat environment of the last few years. The electronic distribution channels continued to be an area of tremendous success for our team. OEM, online, and subscription renewal channels posted revenue of $204 million, and grew 47% versus the same period last year. However, some weakness in retail execution, particularly in a few countries in the EMEA region, coupled with the impact of a strengthening dollar, affected overall consumer results.

During the quarter we released Norton Internet Security spyware edition to the marketplace. The delivery of this real time solution addresses the changing security needs of consumers by providing detection and automatic removal of spyware/adware from users computers, and preventing new spyware risks from impacting the PC in the future. As is typical for us in the September quarter, we will refresh our Norton line of consumer products. These products will offer exciting new features which will provide stronger security and more personalized protection. In light of the constantly changing requirements for security solutions for consumers, our 2006 releases will offer our customers not only updates for virus definitions and attack signatures but we will also provide new product functions that will be delivered throughout the year.

By doing so, we enhance the product's competitives on a continual basis versus our current once a year upgrade cycle. In addition, this better positions our company in the changing competitive environment. The result of this change will move the consumer business to a fully rateable revenue recognition model. On the merger front, following the close of the transaction, we launched an outreach program to over 450 accounts to make introductions and begin discussions about the new Symantec.

Feedback has been uniformly positive and has set the stage or our team to continue to make progress with large enterprise buyers. We believe the combination better positions us to help customers build a resilient infrastructure, manage a complex heterogeneous environment, and reduce overall IT risk. In addition, bringing our market leading capabilities together improves our ability to continuously optimize performance and help companies bounce back from disruptions when they occur. The combined team is now focused on innovation and execution.

In closing, I'm excited about the prospects for the new Symantec. We continue to find ways to make our business more competitive and we continue to assess our portfolio with an eye toward optimizing revenue and earnings growth. The combined company will offer customers one of the broadest portfolios of leading software and solutions and on the most complete set of operating platforms, and across all tiers of the infrastructure.

Before I turn the call over to Greg to review guidance for the September quarter and the full year, I would like to put some context around our view. Since our initial forecast in December, a number of important changes have occurred, most notably, a significant change in the dollar reflecting nearly a 6% decline from our plan assumption, an announced plan to repurchase $3 billion of stock, and a change in the structure of our consumer business to enable accelerated delivery of our newest innovations to our customers. The consumer model change sets up the eventual move to softwares of service, thereby, offering customers, consumers, and small business users greater convenience in the buying process. All of these changes are reflected in our new outlook, which represents our best view of the changing environment. Most importantly, they are a reflection of the realities of today's competitive market. And now, I would like to give a hand, or hand the call back to Greg to provide details on our guidance for the September quarter and the fiscal year.

Thanks for that hand, John. [ LAUGHTER ] Before I begin the guidance discussion I would like to remind everyone that we posted additional supplemental information on the IR home page to assist you in following along with this discussion. As I begin to develop our historical and projected financial views for fiscal year 2006, and our September 2005 quarter, including the VERITAS operations, it will be important for all of us to understand how the data will be displayed. As such the following will be the basis for all comparative data. Prior to the merger, all historical pro forma information will combine each Symantec fiscal period with the corresponding VERITAS fiscal period. Some examples of this convention are as follows: Symantec's fiscal fourth quarter of 2005, which was our March 2005 quarter, would be consolidated with VERITAS's fiscal fourth quarter, which was their December 2004 quarter. Another example would be Symantec's fiscal first quarter of 2006, the June 2005 quarter, would be combined with VERITAS's fiscal first quarter, which was their March 2005 quarter. Our current fiscal year ending March of 2006 will include consolidated quarterly results for Symantec and VERITAS for the fiscal quarters ending September 2005, December 2005, and March 2006.

The June quarter will be presented in a pro forma format that includes Symantec's June 2005 results, our first fiscal quarter, with the VERITAS March 2005 result, which was their first fiscal quarter. These results will be compared to a consolidated view of fiscal 2005 that will include Symantec's fiscal year ended in March of 2005 and VERITAS's fiscal year ended in December, 2004. We will continue to report both GAAP and non-GAAP results. Non-GAAP results will exclude the amortization of acquisition related intangibles, IP R&D charges, the amortization of deferred compensation, and restructuring charges.

In addition, we will continue to exclude other unusual type expenses. Our GAAP results are required to exclude a portion of VERITAS's deferred revenue. Our non-GAAP results will include all of the VERITAS deferred revenue. The company feels this non-GAAP measure will assist investors by allowing for a growth measurement that ties into prior year revenues in a more comparable way. In addition, the allocation of the purchase price across its various elements, such as tangible assets, IP R&D, developed software, goodwill, and other intangibles are estimates in this forecast. The allocation of the purchase price will not be finalized for a few more months. After we finalize the purchase price allocations we will update our forecast for our next earnings call.

In every case the company will continue to provide reconciliations between non-GAAP and GAAP results to assist the reader's comprehension of our financials. Finally, it should be noted that there are numerous risks as we bring these two large entities together. Investors should continue to review 10-Qs and 10-Ks for the risk factors associated with our business and with the VERITAS business prior to the acquisition. In addition, we need to be clear that there is always risk in integration. Although we feel we are seasoned at managing M&A integrations, this combination is clearly the largest acquisition Symantec has ever been involved in and this activity does present the complexities associated with scale. Last December, when we announced our merger with VERITAS we provided the following guidance. First, $5.3 billion in non-GAAP revenue before an estimated purchased accounting adjustment of $300 million for VERITAS's deferred revenue, therefore, $5 billion of GAAP revenue. Secondly, we estimated $0.99 of non-GAAP earnings on the $5.3 billion of forecasted non-GAAP revenue. The company's current non-GAAP revenue guidance is at $5,131,000,000. The delta of approximately $200 million from our original estimate of $5.3 billion is driven by two changes. First, our original revenue forecast was based on $1.28 per euro. Our current forecast is at $1.21 per euro, due to the strength of the U.S. dollar over the past three months. This will result in a $115 million decline in revenue as compared to our original forecast. Secondly, with the launch of our 2006 consumer products in September various technology and product enhancements will be made available to customers at the Company's discretion during the term of their license.

Because of this change in our delivery model consumer revenues will need to be recognized on a pro rata basis over the term of the license. This will result in a $92 million reduction in revenue from our original estimates last December. It should be noted that $79 million of this revenue reduction is expected to occur over the next two quarters. Moving to EPS, last December we estimated non-GAAP EPS of $0.99 on the $5.3 billion of non-GAAP revenue. Our going forward guidance remains at $0.99 given that there have been a number of ins and outs over the course of the past 7 months. The most notable differences in the composition of our forecasted non-GAAP EPS is as follows: The earnings affect and change in FX from our original estimate of $1.28 per euro to $1.21 per euro today is a $0.06 decline. The change in our consumer offering will dictate ratable revenue recognition. This will result in a $0.03 decline in EPS.

Our operating tax rate going forward is estimated at 31% versus the prior forecast of 32%. This will represent a $0.01 increase in earnings. The company's announced repurchase activity net of loss interest income is expected to be $0.05 accretive to EPS. And finally, we expect a $0.03 increase in earnings from other non-operating and operating activities, most of which is from higher interest income due to an improvement in the yields on our invested cash assets.

With these noted changes from our original guidance of last December, our current GAAP and non-GAAP guidance is as follows. For the fiscal year ending March 31, 2006 our GAAP revenue is forecasted at $4,852,000,000, excluding $279 million of deferred revenue from the VERITAS transaction. Our non-GAAP revenue projection is forecasted at $5,131,000,000 including all of the VERITAS deferred revenue. The forecasted non-GAAP revenue is 11% higher than the fiscal year 2005 pro forma revenue of $4,625,000,000.

For the September 2005 quarter GAAP revenue is estimated at a billion, 51 million, excluding $129 million of deferred revenue from the VERITAS transaction. Non-GAAP revenue is forecasted at $1,180,000,000 including all of the VERITAS deferred revenue. Non-GAAP revenue is about $50 million below our June 2005 stand alone revenue run rate of $700 million for Symantec and $529 million for VERITAS. This change is tied to $40 million in reductions for the Symantec consumer revenue as we implement the new 2006 products under a pro rata revenue recognition model. The remaining reduction of $9 million is related primarily to the sequential FX effect due to a strong dollar.

Non-GAAP gross margin is forecasted at 83.9% for fiscal year 2006 and the September quarter is forecasted at 83.4%. Non-GAAP operating expenses are forecasted at $2,790,000,000 for fiscal year 2006 with a September 2005 quarter forecasted at $680 million. Operating income on a non-GAAP basis is estimated at $1,517,000,000, 29.6% of non-GAAP revenue. For the September 2005 quarter non-GAAP operating income is forecasted at $304 million, 25.8% of non-GAAP revenue. Forecasted interest income has been lowered by $45 million in anticipation of the announced $3 billion stock repurchase.

The company expects to begin the repurchase in early August. We would anticipate the completion of the repurchase by the end of December. GAAP net income for fiscal year 2006 is projected at $540 million. The September 2005 quarter is forecasted at a GAAP loss of $100 million. It should be noted that the forecasted fiscal year 2006 GAAP income and the September 2005 quarter loss include purchase price allocation estimates that could vary significantly from the actual allocation of the purchase price that will be booked as part of our September results. Notable items in the purchase price allocation are IP R&D, developed software, deferred compensation, and other intangibles.

Based on the forecasted GAAP income, and GAAP income, GAAP EPS is estimated at $0.47 for fiscal year 2006. The company expects a GAAP loss per share in the September quarter of $0.08. Non-GAAP net income is forecasted at $1,139,000,000 for fiscal year 2006, and $239 million for September 2005 quarter. Our non-GAAP results exclude all merger-related costs, restructuring charges, settlement charges, and deferred compensation expenses.

The forecasted non-GAAP income is 22.2% and 20.3% of non-GAAP revenue for fiscal year 2006, and the September 2005 quarter, respectively. Based on our non-GAAP income, net income projections, non-GAAP EPS is forecasted at $0.99 for fiscal year 2006, and $0.20 for the September 2005 quarter. From a balance sheet perspective, selected data for cash and deferred revenue is as follows: Cash balances as of the merger date of July 2, 2005 were $6.3 billion. It should be noted that the cash balance includes the proceeds from a $497 million loan that was incurred by VERITAS to facilitate their cash repatriation under the American Jobs Creation Act. This was paid off in early July. Deferred revenue as of the merger date is estimated at $1,479,000,000. This excludes $350 million of VERITAS deferred revenue, resulting from purchase price adjustments. Including the $350 million of VERITAS deferred revenue, the revised total is $1,829,000,000. Assuming this deferred non-GAAP balance, we would expect to recognize about $629 million in the September 2005 quarter. This is 53% of the non-GAAP revenue projection of $1,180,000,000. Now, I would like to hand the call over to Helyn.

Thanks, Greg. Jennifer, will you please begin polling for questions?

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions.] We will pause for just a moment to assemble our roster.

While Jennifer is polling for questions I would like to announce that Symantec plans to attend five conferences this quarter. For a complete list of investor-related events, please visit our Events Calendar on the calendar on the Investor Relations website. Jennifer, we are ready for our first question.

We go first to Robert Breza of RBC Capital Markets.

Real quick question. John, can you talk a little bit about the consumer business, some of the new functions that you are going to be adding in the products, you know, maybe going forward over the next 12 months, specifically, what you see as highly desirable content or features? And then, Greg, can you just refresh the $92 million that the consumer went down. What effect does that have on the deferred revenue as you are changing to this ratable recognition policy? Thanks.

Greg, I'll let you go first.

First of all, the $92 million is the revenue effect from an earnings point of view we pick up 40 some odd million netting off against that, and then tax effect, and that's where the $0.03 comes from. I don't have the effect on deferred right in front of me and I'll have to go grab that, Rob, but clearly it is very positive to the deferred revenue balance.

With respect to product features, we obviously will refresh the consumer products this quarter, the September quarter, which is typical for us. Historically, however, we've only introduced new product functions once a year, about this time of year. What we have observed is that the current environment does suggest that we have to be able to introduce features more rapidly than that. The spyware addition was a good example where we had to completely repackage the Norton Internet Security product in its entirety, rather than just shipping the spyware enhancement. We suspect there will be other things we'll have to do like that throughout the course of the year, particularly, given the new focus that hackers and attackers seem to have on pilfering personal private information. So rather than disclose the entire product road map here, let's just leave it to say that the consumer team knows exactly what they need to do to not only maintain their competitiveness against existing competitors, but anticipating new entrants into the marketplace between now and the end of the first half of next year.

We go next to Adam Holt with JP Morgan.

I also had a question on the new pricing program. Do you think in aggregate it changes the potential value per customer, and does it change the way that customers will pay, or does it just change the way that you will recognize the revenue?

It's only the latter. It only changes the way we recognize the revenue.

And in terms of what it does to the aggregate value per customer, do you think it increases that value over time or would you expect to have any pricing change on per customer basis?

Well, it is clearly a view that it changes the value because to the extent that we are able to deliver new features and functions as the team builds them, that is a more powerful value proposition than what we deliver today, as a matter of fact. I would expect that you will see consumers be significantly excited about this change themselves.

We will go next to Todd Raker of Deutsche Bank.

Hi, guys. Can you hear me?

Yeah.

Two questions for you. First, from a consumer perspective what exactly is going to change as you move to this rateable model, and then second question is, can you talk about your relationship with Dell? I believe you guys have moved that U.S. pre-load scenario. What kind of impact will that have on the business, and is Dell bidding this off on a quarterly basis and if so what is happening to economics there?

Dell is an important partner for us and for others around the world, and so we have to be very careful about how we talk about our relationship with Dell because they would prefer that we not talk about it publicly. That being said, we happen to be on the systems at this moment in time, and the economics are always a battle as we look at what value we are delivering versus what others might be delivering at a moment in time. And so without saying much more than that let me just say that we continue to have a great relationship with Dell, and to the extent that we're on the machine it's a valuable thing, if we are off the machine it does have an impact on our business. With respect to our plans in the consumer space, it is our belief that let me one more time look at the spyware thing again. We could have shipped spyware capability earlier, but had to package it with the entire product, which took a lot more time. I would rather have our team in a position when new capabilities are available they can ship them into a customer via LiveUpdate instantly as opposed to having to wait for the packaging process associated with a new release. That is far more value to customers over the term of their license and I think that improves our effectiveness and competitiveness in the marketplace.

We go next to Philip Winslow of Credit Suisse First Boston.

Two quick questions. First, on the VERITAS side I was wondering if you could give us a sense for license versus services during the quarter, just how the data protection storage management and utility computing lines did from a year-over-year basis?

We are not going to give a lot of detail on VERITAS because it will only confuse things over time. But needless to say that all segments of the business performed well. And performed to expectations. License revenues were up. Services revenues were up. The data protection business was very, very solid and so I think the VERITAS team can be very, very proud of what they accomplished during the, not just the June quarter, but the entire first half of the calendar year. Gary, let me ask you to comment.

Yes, I think John hit the key points. The number one point is both had positive growth, services and license revenue. I talked during the prepared remarks about where we saw strength. I think the real highlight in the quarter was the Backup Exec revenue stream. We saw earlier in the year, it is a kind of a cyclical nature of the new release coming out and, now we are benefiting from that new release, and it drove two things that were great, a) it drove revenue for us, secondly, it drove revenue for our channel partners. So relative to putting something out in the channel that generates revenue it was successful at doing that. The other thing that I noted was just utility computing, infrastructure continuing to be very strong. That certainly is where our high availability products are. Those are the products critical to what we are trying to do with the merger is really drive that connectivity between security and availability for our enterprise customers, and lastly, the Enterprise Vault Technology in the e-mail archiving space is going to be a great market. We are in the early phases of the e-mail compliance, e-mail management marketplace and it is a great position to have the leading product in that particular segment.

Next we go to Rob Owens of Pacific Crest.

Good afternoon. A couple of questions. Number one, any thoughts to multiple-year consumer subscriptions as you are moving to this new model? And number two, I believe at the end of life after one year of a consumer subscription I have two options. I can either pay an upgrade price, or pay for new signatures. So does that new signature option go away, and effectively, I will be paying kind of the face value to buy the new product, once again? Thanks.

We will continue, Rob, to package up enhancements that we have delivered throughout the year and have an annual new release because there will be people who demonstrate a propensity to want to go into a store and buy a new product as opposed to doing it online. So there will always be both an upgrade option and extension, if you will, of the updates. With respect to multi-year pricing options for subscription renewals, we think that is a terrific idea and we will announce our plans on pricing as we normally do after we speak to our channel partners.

Next we go to Sarah Friar of Goldman Sachs.

Two questions. First, for the full fiscal year '06, can you give us a sense for the growth rates you expect from the three or four largest segments, the enterprise security, consumer, VERITAS, and SEA?

Yes, Sarah, we don't have today growth rates by segment to deliver across our forecast. Quite frankly, I think we have done pretty good to get the forecast we do have on the table. We will, at the October release, have more detailed information on our business.

We go next to Michael Turits of Prudential.

Hi, this is actually Silvia Jurassa (ph) standing in for Michael. Just one quick question. In terms of your, maybe you could give us a little more color on the integration process with your channel and sales?

Candidly things are going very, very well. I think the combination of Art Maiden (ph) from VERITAS and Tom Kendra from Symantec did an absolutely incredible job of planning what needed to be done leading up to day one. We have had very, very solid results in bringing the teams together where the morale seems to be quite high. Their ability to work together in joint customer relationships and customer calls seems to be very, very good, and we are starting to see positive traction, if you will, as we look to talk to customers about the strategy for the combined company, and what the product road map will be over the course of the next let's say 12-24 months. And so I'm quite encouraged by what we have seen. Both Gary and I have had a chance to talk to any number of both large customers and channel partners and the one thing that has come through loud and clear is that they are anxious to hear more about what the product road map will be and they are candidly comfortable with the fact that we did not make knee jerk changes in account coverage. We decided that it was appropriate to allow people to stay in their lanes, hence maintain the relationships that they have and over time we will transition the coverage such that we get deeper penetration in some accounts and broader coverage in others where we are not covered today.

The only thing I would add to it is I think kind of the best message I heard from customers or one of the strongest ones is I didn't really expect any disruption in the way my relationship has been with either company, and I haven't seen any. That is a good sign that we have the integration model within the sales organization figured out if customers don't find it to be disruptive. That is kind of just covering our bases. The positive side of it is that the merger itself opens doors for discussion and there is nothing a sales team wants more than the ability to go in at a higher level in our credit whole accounts and have a discussion about what their business requirements are in the security and availability space, and it is an important topic and this certain is helping us open more doors. While it has only been three weeks, roughly, since we closed the actual merger and we have been actively now kind of working together versus planning integration, as I said in the prepared remarks, I feel pretty good about where we are at three weeks into it in the sales and services areas.

Next we go to Tom Berquist of Smith Barney.

Thank you. One of my questions were the questions around the cost structure going forward and, in particularly, what's happened already now that the deal has been closed? Have you already made your cuts and your layoffs, and can you characterize what you did and what else you are planning on doing?

We have probably garnered about $150 million in gross synergies of which we expect to net about $100 million as we reinvest in important areas of our business, particularly around the infrastructure side. In terms of head count reductions they have been fairly minimal. Where there were obvious redundancies we've obviously dealt with that and that represents about 125 to 130 people across the Company. As we said from the beginning this was not about head count reductions, this was more about an opportunity that we view in the marketplace. Where the bulk of the savings will come from is three categories of activity, one around head count spending on-boarding ramp. In other words, we lower the on-boarding ramp as we were heading into the year and, hence, that will yield about two thirds of the savings for the whole year. Second, we will certainly consolidate facilities and we'll get a fair amount of synergy value out of the facilities consolidations over time, and, third, we will get it out of purchasing, whereas a $5 billion software company we should be able to negotiate better deals with some of suppliers. But those represent the three areas and does not necessarily represent a bunch of pink slips passed out across Symantec.

We will take our next question from Peter Kuper with Morgan Stanley.

I'm going to focus on consumer. I know we focused on it a lot but it has been two thirds of your growth the last two years. I think its certainly worthy of a few more questions. John, you said, specifically, the anticipation of new entrants into this space, I assume we are talking about Microsoft and ISPs. Going forward as you are bundling more capabilities is that going to include other things beyond security? I know you've done some other deals on technology, PowerQuest, et cetera. Is this going to become more of the one care type of answer here or what are we looking at longer term?

Peter that is a good question. We do believe that consumers, not unlike large enterprise buyers, need us to focus with them on not just security but availability. As more critical information that they manage is digitized, as you put your personal portfolio online, as you put your personal photo album online, consumers want backup and recovery capability for those functions. They want us to help them protect not just the device, but the data that resides on the device itself. You should expect to see us, over the course of the next 12 months, deliver those kinds of capabilities into the marketplace to extend our competitiveness and, quite frankly, extend our lead in the consumer market.

We go now to Walter Pritchard of SG Cowen.

Hi, John, if you could, or actually, Greg, if you just could address, I know you are not talking about segment growth numbers, but could you just help us out with what the various segments are going to be when you report next time?

Yes, we will have our typical consumer segment, a very typical enterprise security type segment, we'll have a data recovery and storage type segment and we'll have a storage and management segment that will have things like foundation and performance management and some of the more emerging markets, and then, finally, we'll have a services segment. That is what we would expect to be our segment lineup, as we move forward.

No license and maintenance breakout going forward?

I think that starts to become very blurred and quite, frankly, we think it is less meaningful as we move forward.

We go now to Tim Klasell of Thomas Weisel Partners.

Yes, one quick question on the consumer side. In the past , you had, or you currently have some lower end just pure AV products, and then, obviously, ISS you have are for the Internet Security Suite. You have just about everything. Are you going to have layered products for that as a service, or are we going to have just sort of one product across the line for a consumer service product?

Well, I think the answer is we will have a variety of offerings that the consumer will be able to select based upon the particular problem that he or she is trying to solve. As the complexity of the security offerings grows, so does the need for us to help consumers understand exactly what problem the customer, or the product is solving. And so as we move forward with both our product packaging and our marketing, it will be much more focused on helping the consumer define the problem to be solved and point to the product, or capability, in our portfolio that addresses that particular problem. It is my belief that while at retail our strategy has always been on maintaining as broad a set of products to occupy shelf space, we have to have a similar strategy in the online world as well, because customers want choice and to the extent that we can offer that, given the breadth of our portfolio, we think that enhances competitiveness and ultimately the revenue and profit value that flows from this.

We take our next question from Chris Russ of Wachovia Securities.

Yeah, good afternoon. I may have missed this but Greg, what was the cash flow from operations for Symantec stand alone, and then cash flow from operations for VERITAS stand alone, excluding the $495 million of short-term financing? In other words, internal cash flow.

That was $211 million from Symantec. I don't have the stand alone operating activity from VERITAS and would have to look to give you that some other time.

All right. Can you give us any metrics on the balance sheet for VERITAS? In other words, the change in deferred, or the change in receivables from the first to the second quarter?

I think the most notable numbers are the ones that we spoke to at the end where as a combined entity we entered, as of July 2, with $6.3 billion of cash. We repaid the loan for the American Jobs Creation Act that helped bring more of the VERITAS cash into the U.S. coffers, and that nets us out at about $5.8 billion. On the deferred side, if you ignore for a moment the loss of the deferred revenue, we will have just north of $1.8 billion of deferred revenue and that should punctuate itself in the September quarter with about 53% of our non-GAAP revenue projections coming off the balance sheet.

And our last question today will come from Ed Maguire of Merrill Lynch.

Yes, a couple of things. First of all, on the antiSpam side, could you comment about where you are seeing the most traction, whether it's software, hardware, appliance, or hosted solutions, and as you are moving into a pure software-as-a-service model for the consumer business what are you contemplating, or what product areas might you look at for a similar transition on the enterprise side?

Well, on the antiSpam, our e-mail security products, the software product continues to be the largest of the three offerings that's in the marketplace, and the appliance product is go doing quite well, but it's small in terms of revenue relative to the total. The hosted service is just getting started and, obviously, it would, therefore, be in third place in terms of size. Now, in terms of software as a service I don't want you to put too much credence in all of this, guys, when it is all said and done for our enterprise customers today we offer a very important capability for them that allows us to deliver software updates and software functional enhancements over the course of the term of their contract. We don't do that for our consumer customers, so to a very large extent what we are doing is aligning the models between what we do in the enterprise space with what we think we have to do in the consumer space. The upgrade insurance, as it is called in the enterprise space, is what provides our enterprise customers the opportunity to take advantage of any software enhancements that we make during the term of their contract. That is the concept we want to apply in the consumer business as well.

Jennifer, our time is up.

Thank you. I would like to turn the conference back over to John Thomson for any additional, or closing remarks.

Thank you, Jennifer. I want to thank everyone for joining us this afternoon. I must admit I feel very, very confident about our business, where we stand competitively, and more importantly, how the two teams from VERITAS and Symantec have come together. The issue now is for us to do as we have always done and that is focus on building the most innovative products we know how to do, and execute well day in and day out in the marketplace. I'm confident as we continue on that path we will post very, very solid results. Thank you very much.

Once again, this will conclude the Symantec Corporation first quarter fiscal year 2006 earnings conference call. We do appreciate your participation in today's conference. You may disconnect at this time.