NORTONLIFELOCK INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)
Please read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related Notes thereto included under Item 15 of this Annual Report on Form 10-K. OVERVIEW
NortonLifeLock Inc.has the largest consumer Cyber Safety platform in the world, empowering nearly 80 million users in more than 150 countries. We are the trusted and number one top of mind brand in consumer Cyber Safety, according to the 2022 NortonLifeLock brand tracking study. We help prevent, detect and restore potential damages caused by many cybercriminals.
May 2021, we entered into the first amendment to our credit agreement (the First Amendment), which provided for an incremental increase under the Initial Term Loan, and extended the maturity date of the Initial Term Loan, the Delayed Draw Term Loan and revolving credit facility from November 2024to May 2026. We borrowed $525 millionunder the First Amendment of our Initial Term Loan. •In May 2021, we settled the $250 millionprincipal and conversion rights of the New 2.5% Convertible Senior Notes in cash. The aggregate settlement amount of $364 millionwas based on $24.40per underlying share into which the 2.5% Convertible Notes were convertible. The extinguishment resulted in an adjustment to stockholders' equity of $112 millionand a loss on extinguishment of $2 million. •In July 2021, we completed the sale of certain land and buildings in Mountain View, Californiafor cash consideration of $355 million, net of selling costs. We recognized a gain of $175 millionon the sale. In conjunction with the sale, we signed a 7-year leaseback agreement for a portion of the property.
March 2022, we completed our restructuring plan (the December 2020Plan) to consolidate facilities and reduce operating costs in connection with our acquisition of Avira during fiscal 2021. We incurred total costs of $24 millionsince the inception of the December 2020Plan, primarily related to severance and termination costs. Proposed Merger with Avast On August 10, 2021, we announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in Englandand Walesand a global leader of digital security and privacy headquartered in Prague, Czech Republic(Avast and such transaction, the Proposed Merger). The Proposed Merger will be implemented by means of a court-sanctioned scheme of arrangement under the UKCompanies Act 2006, as amended (the Scheme), and remains subject to a certain number of conditions. Under the terms of the Proposed Merger, Avast shareholders will be entitled to elect to receive, for each ordinary share of Avast held, in respect of their entire holding of Avast shares, either: (i) $7.61in cash and 0.0302 of a new share of our common stock (such option, the Majority Cash Option); or (ii) $2.37in cash and 0.1937 of a new share of our common stock (such option, the Majority Stock Option). Based on our undisturbed closing share price of $27.20on July 13, 2021, and depending on the Avast shareholder elections, the estimated purchase price range for the Avast shares under the Proposed Merger is $8.1 billionto $8.6 billion. Each of the directors of Avast who holds shares has undertaken to elect for the Majority Stock Option in respect of their entire beneficial holdings of Avast shares. We plan to finance the Proposed Merger with existing cash, cash to be generated by operations and new debt financing. In conjunction with the Proposed Merger, on August 10, 2021, we entered into an agreement (as amended, the Interim Facilities Agreement) with certain financial institutions, in which they agreed to provide us with (i) a $3,600 millionterm loan interim facility B (the Interim Facility B), (ii) $750 millionterm loan interim facility A1 (the Interim Facility A1) and $3,500 millionterm loan interim facility A2 (the Interim Facility A2), and (iii) a $1,500 millioninterim revolving facility (the Interim Revolving Facility) (collectively, the Interim Facilities) and a commitment letter (as amended, the Commitment Letter) with certain financial institutions, in which they agreed to provide us with financing no less than the financing available under the Interim Facilities (the Definitive Facilities and, together with the Interim Facilities, the Facilities) to finance the cash consideration payable in connection with the Proposed Merger. The Definitive Facilities will be financed by a syndicate of lenders led by Bank of America, N.A. and Wells Fargo Bank N.A.On January 28, 2022, Bank of America, N.A. and Wells Fargo Bank N.A.agreed to arrange, on a best efforts basis, additional term loans under the Definitive Facilities in an amount up to $500 million. The Interim Facilities Agreement contains, and any definitive financing documentation for the Definitive Facilities entered into in connection with the Commitment Letter (the Facilities Agreement) will contain, customary representations and warranties, events of default and covenants for transactions of this type. The Facilities Agreement will replace the existing credit facility agreement upon the close of the transaction. In conjunction with the Proposed Merger, on August 10, 2021, we entered into a Co-operation Agreement (the Co-operation Agreement) with Nitro Bidco Limited, our wholly-owned subsidiary (Bidco), and Avast, pursuant to which we and Bidco agreed to, among other things, use all reasonable endeavors for the purposes of obtaining any regulatory authorizations which are required to implement the Proposed Merger, and we, Bidco and Avast agreed to cooperate with each other in preparing required transaction documents and certain other matters in connection with the Proposed Merger. The Co-operation Agreement also contains certain termination rights. The Co-operation Agreement also provides that, if we fail to receive approval from the U. K Competitionand Markets Authority and cannot consummate the Proposed Merger, we may be required to pay Avast a break fee of up to $200 million. 25
The Proposed Merger was approved by our Board of Directors and by our shareholders, the Board of Directors and shareholders of Avast and regulators including the
Federal Trade Commissionunder the U.S.Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR" Act) and in Europe, the German Federal Cartel Office and the Spanish National Markets and Competition Commission. On March 25, 2022, the U. K Competitionand Markets Authority referred the Proposed Merger to a Phase 2 review investigation. The Proposed Merger is currently expected to close mid-to-late calendar year 2022, subject to regulatory approvals and the satisfaction or waiver of other customary closing conditions.
Tax calendar and basis of presentation
We have a 52/53-week fiscal year ending on the Friday closest to
March 31. Fiscal 2022, 2021 and 2020 in this report refers to fiscal years ended April 1, 2022, April 2, 2021and April 3, 2020, respectively. Fiscal 2020 was a 53-week year, whereas fiscal 2022 and 2021 each consisted of 52 weeks.
Key financial indicators
The following table provides our key financial metrics for fiscal 2022 compared with fiscal 2021: Fiscal Year (In millions, except for per share amounts) 2022 2021 Net revenues
$ 2,796 $ 2,551Operating income (loss) $ 1,005$ 896 Income (loss) from continuing operations $ 836 $ 696 Income (loss) from discontinued operations $ - $ (142) Net income (loss) $ 836 $ 554 Net income (loss) per share from continuing operations - diluted $ 1.41 $ 1.16 Net income (loss) per share from discontinued operations - $ - $ (0.24)diluted Net income (loss) per share - diluted $ 1.41 $ 0.92 Net cash provided by (used in) operating activities $ 974 $ 706 As of (in millions) April 1, 2022 April 2, 2021 Cash, cash equivalents and short-term investments $ 1,891$ 951 Contract liabilities $ 1,306 $ 1,265•Net revenues increased $245 million, due to higher sales in both of our consumer security products and our identity and protection products. This was driven by an increase in our direct customer count year-over-year and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021.
• Operating profit (loss) increased
•Income (loss) from continuing operations increased
$140 million, primarily due to the increase in operating income as well as other income (expense), net, which was driven by the gain on sale of certain land and buildings in Mountain View, California. This is partially offset by an increase in income tax expense.
• Profit (loss) from discontinued operations, increased by a loss of
•Net income (loss) increased
$282 millionand net income per share increased $0.49, primarily due to the increase in income from continuing operations and the completion of discontinued operations activities during fiscal 2021 as discussed above. •Cash, cash equivalents and short-term investments increased by $940 millioncompared to April 2, 2021, primarily due to cash generated by operations during fiscal 2022.
• Contract liabilities increased
Table of Conten ts COVID-19 UPDATE The COVID-19 pandemic has had widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. At the onset of the pandemic, to protect the health and well-being of our employees, partners and third-party service providers, we facilitated a work-from-home requirement for most employees and established site-specific COVID-19 prevention protocols. We continue to monitor the situation and over the past several months have adjusted our policies and protocols to reflect changes to public health regulations and guidance. A majority of our offices are now open to employees on a voluntary return basis, and we anticipate opening the remaining offices on a voluntary return basis within the first quarter of fiscal 2023. To date, we have not seen any meaningful negative impact on our employee productivity. Nevertheless, as more employees, partners or third-party services providers return to work during the COVID-19 pandemic, the risk of inadvertent transmission of COVID-19 through human contact could still occur and result in litigation. While the COVID-19 pandemic has negatively impacted many sectors of the
U.S.and global economies, the consumer Cyber Safety market experienced increased demand as the pandemic greatly accelerated the digital lives of people around the world. However, with the extended duration of the pandemic and the easing of prevention protocols and restrictions, we are seeing decreasing demand and increased competition. In addition, while we did not experience a material increase in cancellations by customers or a material reduction in retention rate in fiscal 2021 or fiscal 2022, should the negative macroeconomic impacts of the COVID-19 pandemic persist or worsen, we may experience continued slowdowns in our business activity and an increase in cancellations by customers or a material reduction in our retention rate in the future, especially in the event of a prolonged recession. A prolonged recession could adversely affect demand for our offerings, retention rates and harm our business and results of operations, particularly in light of the fact that our solutions are discretionary purchases and thus may be more susceptible to macroeconomic pressures, as well impact the value of our common stock, ability to refinance our debt and our access to capital. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately forecasted at this time, such as the severity and transmission rate of new variants of the disease, the extent, effectiveness and acceptance of containment actions, such as vaccination programs, and the impact of these and other factors on our employees, customers, partners and third-party service providers. For more information on the risks associated with the COVID-19 pandemic, please see "Risk Factors" in Item 1A. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our Consolidated Financial Statements and related notes in accordance with generally accepted accounting principles in the U.S.(GAAP) requires us to make estimates, including judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates on a regular basis and make changes accordingly. Management believes that the accounting estimates employed, and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows. A summary of our significant accounting policies is included in Note 1, and a description of recently adopted accounting pronouncements and the Company's expectations of the impact on our Consolidated Financial Statements and disclosures is included in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of our Consolidated Financial Statements.
We allocate the purchase price of acquired businesses to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. Any residual purchase price is recorded as goodwill. The allocation of purchase price requires management to make significant estimates and assumptions in determining the fair values of the assets acquired and liabilities assumed especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, future expected cash flows from customer relationships, developed technology, trade names, and acquired patents, and discount rates. Management estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Third-party valuation specialists are also utilized for certain estimates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Income taxes We are subject to tax in multiple
U.S.and foreign tax jurisdictions. We are required to estimate the current tax exposure as well as assess the temporary differences between the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently deductible for tax purposes. We apply judgment in the recognition and measurement of current and deferred income taxes which includes the following critical accounting estimates. 27
We use a two-step process to recognize liabilities for uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that the tax position will more likely than not be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
We are subject to contingencies that expose us to losses, including various legal and regulatory proceedings, asserted and potential claims that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. We review the status of each significant matter quarterly, and we may revise our estimates. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material impact on our Consolidated Financial Statements for that reporting period. RESULTS OF OPERATIONS We have elected to omit discussion on the earliest of the three years presented in the Consolidated Financial Statements of this Annual Report on Form 10-K. Refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended
April 2, 2021for year-over-year comparisons of the results of operation between fiscal 2021 and fiscal 2020 as well as discussion of fiscal 2020 performance metrics and cash flow activity, all of which are incorporated herein by reference.
The following table sets forth our Consolidated Statements of Income data as a percentage of net revenues for the periods indicated:
Fiscal Year 2022 2021 Net revenues 100 % 100 % Cost of revenues 15 % 14 % Gross profit 85 % 86 % Operating expenses: Sales and marketing 22 % 23 % Research and development 9 % 10 % General and administrative 14 % 8 % Amortization of intangible assets 3 % 3 % Restructuring and other costs 1 % 6 % Total operating expenses 49 % 51 % Operating income (loss) 36 % 35 % Interest expense (5) % (6) % Other income (expense), net 6 % 5 % Income (loss) from continuing operations before income taxes 37 % 34 % Income tax expense (benefit) 7 % 7 % Income (loss) from continuing operations 30 % 27 % Income (loss) from discontinued operations - % (6) % Net income (loss) 30 % 22 %
Note: Percentages may not add up due to rounding.
Fiscal Year %
(In millions, except for percentages) 2022 2021 2022 vs. 2021 Net revenues
$ 2,796 $ 2,55110 %
Fiscal 2022 vs. Fiscal 2021
Net revenues increased
$245 million, primarily due to a $156 millionincrease in sales of our consumer security products and a $89 millionincrease in sales of our identity and protection products. This was driven by the increase in our direct customer count year-over-year and revenue attributable to Avira, which was acquired during the fourth quarter of fiscal 2021. 28
We regularly monitor a number of metrics to measure our current performance and estimate our future performance. Our measures may be calculated differently than similar measures used by other companies.
The following table summarizes additional key performance indicators for our solutions:
(In millions, except amounts per user and percentages) 2022
Direct customer revenue (1)
$ 2,476 $ 2,286Partner revenues $ 331 $ 270Average direct customer count (2) 23.3
Direct customer count (at quarter-end) 23.5
Direct average revenue per user (ARPU)
$ 8.87 $ 9.01Annual retention rate 85 % 85 % (1) Direct customer revenues in fiscal 2022 and 2021 excludes a $11 millionand $5 million, respectively, reduction of revenue from a contract liability purchase accounting adjustment, which was recognized in the fourth quarter of fiscal 2021. We believe that eliminating the impact of this adjustment improves the comparability of revenues between periods. In addition, although the adjustment amounts will never be recognized in our GAAP financial statements, we do not expect the acquisitions to affect the future renewal rates of revenues excluded by the adjustments.
(2) The average number of direct customers for the fourth quarter of fiscal 2021 has been prorated to include 1.6 million customers resulting from the acquisition of Avira.
We define direct customer revenues as revenues from sales of our consumer solutions to direct customers, which we define as active paid users who have a direct billing relationship with us at the end of the reported period. We exclude users on free trials and promotions and users who have indirectly purchased our product or services through partners unless such users convert or renew their subscriptions directly with us, or sign up for a paid membership through our web store. From time to time, we update our methodology due to changes in the business. In fiscal 2021, the average direct customer count calculation was refined primarily to pro-rate for acquisitions that happen during a quarter, such as Avira, which was acquired in
January 2021. The full year average direct customer count is calculated as an average across the quarters. ARPU is calculated as estimated direct customer revenues for the period divided by the average direct customer count for the same period, expressed as a monthly figure. We monitor ARPU because it helps us understand the rate at which we are monetizing our consumer customer base.
The annual retention rate is defined as the number of direct customers who are more than one year old at the end of the last completed fiscal period divided by the total number of direct customers at the end of the period a year ago. one year old. . We monitor the annual retention rate to assess the effectiveness of our strategies for improving subscription renewals.
Net sales by geographical area
The revenue percentage by geographic region shown below is based on the customer’s billing location.
Fiscal Year 2022 2021 Americas 70 % 72 % EMEA 18 % 16 % APJ 12 % 12 %
Percentage of revenue by geographic region remained consistent in fiscal 2022 and 2021. Cost of revenues Fiscal Year % Change (In millions, except for percentages) 2022 2021 2022 vs. 2021 Cost of revenues
$ 408 $ 36213 %
Fiscal 2022 vs. Fiscal 2021
Our cost of revenue has increased
Table of Conten ts Operating expenses Fiscal Year % Change (In millions, except for percentages) 2022 2021 2022 vs. 2021 Sales and marketing
$ 622 $ 5768 % Research and development 253 267 (5) % General and administrative 392 215 82 % Amortization of intangible assets 85 74 15 % Restructuring and other costs 31 161 (81) % Total $ 1,383 $ 1,2937 %
Fiscal 2022 vs. Fiscal 2021
Sales and marketing expense increased
$46 million, primarily due to a $70 millionincrease in advertising and promotional expenses as a result of increased investment in advertising. This is partially offset by a $20 milliondecrease in IT and related support costs from corporate restructuring and cost reduction efforts in fiscal 2021.
Research and development costs decreased
General and administrative expense increased
$177 million, primarily due to a $185 millionlegal accrual relating to an ongoing patent infringement lawsuit, partially offset by a decrease in compensation and benefits.
Amortization of intangible assets increased
Restructuring and other costs decreased
$130 million, in connection with the November 2019Plan, which was substantially completed in the second quarter of fiscal 2021. See Note 12 of the Notes to the Consolidated Financial Statements for details of the fiscal 2022 restructuring activities.
Net non-operating income (expenses)
Fiscal Year $ Change (In millions) 2022 2021 2022 vs. 2021 Interest expense
$ (126) $ (144)$ 18 Interest income - 4 (4) Foreign exchange gain (loss) (2) 1 (3) (Loss) gain on early extinguishment of debt (3) 20 (23) Gain on sale of properties 175 98 77 Transition service expense, net - (9) 9 Other (7) 6 (13) Non-operating income (expense), net $ 37 $ (24)$ 61
Fiscal 2022 vs. Fiscal 2021
Non-operating income (expense), net, increased
$61 million, primarily due to a $175 milliongain on the sale of certain land and buildings in Mountain View, Californiaduring fiscal 2022 compared to an aggregate $98 milliongain on the sale of two properties during fiscal 2021. This is partially offset by the absence of a $20 milliongain on early extinguishment of debt during the first quarter of fiscal 2021, as well as a $7 millionimpairment of long-term assets primarily associated with one of our equity investments, which is measured at cost minus impairment. Provision for income taxes We are a U.S.-based multinational company subject to tax in multiple U.S.and international tax jurisdictions. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict. Fiscal Year (In millions, except for percentages) 2022
Profit (loss) from continuing operations before income taxes
$ 872Provision for income taxes $ 206 $ 176Effective tax rate on income (loss) from continuing operations 20 %
Fiscal 2022 vs. Fiscal 2021
Our effective tax rate is consistent with that of the prior year.
Table of Conten ts Discontinued operations Fiscal Year (In millions, except for percentages) 2021 Net revenues $ 1 Gross profit $ 1 Operating income (loss)
$ (177)Income (loss) before income taxes $
Income tax expense (benefit) $
Profit (loss) from discontinued operations, net of tax
Fiscal 2022 vs. Fiscal 2021
Income (loss) from discontinued operations, net of tax, decreased primarily due to the completion of the discontinued operations activities in fiscal 2021. There was no discontinued operations activity during the year ended
April 1, 2022. LIQUIDITY, CAPITAL RESOURCES AND CASH REQUIREMENTS
Cash and capital resources
We have historically relied on cash flow from operations, borrowings under credit facilities, debt issuances and proceeds from divestitures for our liquidity needs.
Our capital allocation strategy is to balance driving stockholder returns, managing financial risk and preserving our flexibility to pursue strategic options, including acquisitions and mergers. Historically, this has included a quarterly cash dividend, the repayment of debt and the repurchase of our common stock. Cash flows
The following table summarizes our treasury activities during fiscal years 2022 and 2021:
Fiscal Year (In millions) 2022 2021 Net cash provided by (used in): Operating activities
$ 974 $ 706Investing activities $ 326 $ (69)Financing activities $ (333) $ (1,903)
Increase (decrease) in cash and cash equivalents
Cash flow from operating activities
Our cash flows provided by operating activities in fiscal 2022 increased
$268 million, primarily due to higher profit before taxes adjusted by non-cash items compared to fiscal 2021.
Cash from investing activities
Our cash flows provided by investing activities in fiscal 2022 increased
$395 million, primarily due to higher proceeds from the sale of properties and fewer payments for business acquisitions, partially offset by a decrease in proceeds from the maturities and sales of short-term investments.
Cash provided by financing activities
Our cash flows used in financing activities in fiscal 2022 decreased
$1,570 million, primarily due to a decrease in repayments of debt and no repurchases of common stock. Fiscal 2022 reflects the settlement of our New 2.5% Convertible Notes of $364 millionand partial settlement of our New 2.0% Convertible Notes of $139 million, compared to the settlement of our 2.0% Convertible Notes and repayment of our 4.2% Senior Notes of $1,941 millionas well as repurchases of common stock of 304 million during fiscal 2021.
Cash and cash equivalents
April 1, 2022, we had cash, cash equivalents and short-term investments of approximately $1,891 million, of which $671 millionwas held by our foreign subsidiaries. Our cash, cash equivalents and short-term investments are managed with the objective to preserve principal, maintain liquidity and generate investment returns. The participation exemption system under current U.S.federal tax regulations generally allows us to make distributions of non- U.S.earnings to the U.S.without incurring additional U.S.federal tax; however, these distributions may be subject to applicable state or non- U.S.taxes. 31
We have an unused revolving credit facility of
May 7, 2021, we entered into the first amendment to our credit agreement (the First Amendment), which provided for an incremental increase under the Initial Term Loan, and extended the maturity date of the Initial Term Loan, the Delayed Draw Term Loan, and revolving credit facility from November 2024to May 2026. We borrowed $525 millionunder the First Amendment of our Initial Term Loan. For additional discussion on the amendment, see Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. On May 20, 2021, we settled the $250 millionprincipal and conversion rights of the New 2.5% Convertible Senior Notes in cash. The aggregate settlement amount of $364 millionwas based on $24.40per underlying share into which the 2.5% Convertible Notes were convertible. In addition, we paid $1 millionof accrued and unpaid interest through the date of settlement and $1 millionof cash dividends that we declared on May 10, 2021. On March 18, 2022, we settled $100 millionof principal and conversion rights of the New 2.0% Convertible Senior Notes in cash. The aggregate settlement amount of $139 millionwas based on $28.32per underlying shares into which the 2.0% Convertible Notes were convertible.
Sale of certain assets
Cash Requirements Our principal cash requirements are primarily to meet our working capital needs and support on-going business activities, including payment of taxes and cash dividends, payment of contractual obligations, funding capital expenditures, servicing existing debt, repurchasing our common stock and investing in business acquisitions and mergers. Proposed Merger with Avast On
August 10, 2021, the Company announced a transaction under which we intend to acquire the entire issued and to be issued ordinary share capital of Avast plc, a public company incorporated in Englandand Walesand a global leader of digital security and privacy headquartered in Prague, Czech Republic(Avast and such transaction, the Proposed Merger). Based on our undisturbed closing share price of $27.20on July 13, 2021, and depending on the Avast shareholder elections, the estimated purchase price range for the Avast shares under the Proposed Merger is $8.1 billionto $8.6 billion. In conjunction with the Proposed Merger, we and certain financial institution parties entered into an Interim Facilities Agreement, under which Bank of America, N.A. and Wells Fargo Bank N.A., as interim lenders, agreed to provide us with certain term loan and revolving facilities in order to finance the cash consideration payable and based on the terms and conditions set forth in a commitment letter. The Interim Facilities Agreement includes (i) the Interim Facility B, (ii) the Interim Facility A1 and the Interim Facility A2, and (iii) the Interim Revolving Facility which, on or before the final repayment date, are to be repaid/replaced in full by loans made under the definitive financing documentation for the Definitive Facilities (the Facilities Agreement). The obligations under the Facilities Agreement will be guaranteed, jointly and severally, by all of our present and future domestic subsidiaries, with certain exceptions, as applicable. The Facilities Agreement will replace the existing credit facility agreement upon the close of the transaction.
May 5, 2022, we announced a cash dividend of $0.125per share of common stock to be paid in June 2022. We currently expect to continue to pay quarterly cash dividends to stockholders in the future, but such payments will be subject to the approval of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, general business and market conditions and other investment opportunities.
Share buyback program
Under our stock repurchase program, we may purchase shares of our outstanding common stock through accelerated stock repurchase transactions, open market transactions (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act) and privately-negotiated transactions. As of
April 1, 2022, the remaining balance of our stock repurchase authorization is $1,774 millionand does not have an expiration date. We currently expect to repurchase shares in the future, but the timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and other investment opportunities.
The following is a schedule of our significant contractual obligations and commitments as of
April 1, 2022. The expected timing and amount of short-term and long-term payments of the obligations in the following table is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for certain obligations. Short-Term Payments Long-Term Payments Total (In millions) Contractual obligations: Debt (principal payments) (1) $ 1,001 $ 2,746 $ 3,747Interest payments on debt (2) 106 250 356 Purchase obligations (3) 353 73 426 Deemed repatriation taxes (4) 68 437 505 Operating leases (5) 22 80 102 Total $ 1,550 $ 3,586 $ 5,136(1)As of April 1, 2022, our total outstanding principal amount of indebtedness is comprised of $1,713 millionin Term Loans, $1,500 millionin Senior Notes, $525 millionin Convertible Senior Notes and $9 millionin Mortgage Loans. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about our debt and debt covenants. The credit agreement we entered into in November 2019, which was amended and extended through May 2026on May 7, 2021, 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 April 1, 2022, we were in compliance with all debt covenants. (2)Interest payments calculated based on the contractual terms of the related Senior Notes, Convertible Senior Notes and credit facility. Interest on variable rate debt was calculated using the interest rate in effect as of April 1, 2022. See Note 10 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on the Senior Notes, Convertible Senior Notes and Term loans. (3)Agreements for purchases of goods or services, with terms that are enforceable and legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. These amounts include agreements to purchase goods or services that have cancellation provisions requiring little or no payment. The amounts under such contracts are included because management believes that cancellation of these contracts is unlikely, and we expect to make future cash payments according to the contract terms or in similar amounts for similar materials. (4)Transition tax payments on previously untaxed foreign earnings of foreign subsidiaries under the Tax Cuts and Jobs Act, which may be paid through July 2025. (5)Payments for various non-cancelable operating lease agreements that expire on various dates through fiscal 2029. The amounts in the table above exclude expected sublease income. See Note 9 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on leases. Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits and other long-term taxes as of April 1, 2022, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Therefore, $556 millionin long-term income taxes payable has been excluded from the contractual obligations table. See Note 13 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information. Under the terms of the Proposed Merger, we expect to pay a purchase price for the Avast shares, ranging from $8.1 billionto $8.6 billion, upon the completion of the transaction in mid-to-late calendar year 2022. In conjunction with the Proposed Merger, we have secured debt under the Interim Facilities which will be available upon the close of the transaction. If the Proposed Merger is completed, our debt obligations will include principal and interest payments related to these credit facilities. See Note 4 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information regarding this business combination and the related debt instruments. Based on past performance and current expectations, we believe that our existing cash and cash equivalents, together with cash generated from operations and amounts available under our credit facility, will be sufficient to meet our working capital needs and support on-going business activities through at least the next 12 months and to satisfy our known long-term contractual obligations. We plan to finance the cash consideration payable to Avast primarily with borrowings under our Definitive Facilities. We believe that our existing cash and cash to be generated by operations, along with amounts available under the new credit facility, will satisfy our long-term cash requirements for this transaction. However, our future liquidity and capital requirements may vary materially from those as of April 1, 2022depending on several factors, including, but not limited to, economic conditions; political climate; the expansion of sales and marketing activities; the costs to acquire or invest in businesses; and the risks and uncertainties discussed in "Risk Factors" in Item 1A. 33
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, subsidiaries, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements or representations and warranties made by us. In connection with the sale of Veritas and the sale of our Enterprise Security business to Broadcom, we assigned several leases to
Veritas Technologies LLCor Broadcom and/or their related subsidiaries. In addition, our bylaws contain indemnification obligations to our directors, officers, employees and agents, and we have entered into indemnification agreements with our directors and certain of our officers to give such directors and officers additional contractual assurances regarding the scope of the indemnification set forth in our bylaws and to provide additional procedural protections. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers. Refer to Note 18 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information on our indemnifications.
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