ANNUAL REPORT 2006 TWO YEAR SUMMARY OF FINANCIAL RESULTS RECONCILIATION OF GAAP TO NON-GAAP FINANCIALS (in millions, except per share amounts) 2006 2005 The non-GAAP information reflects the combined results of Symantec and Veritas Revenue Software, including adjustments based on the fair values of assets acquired and GAAP Revenue $ 4,143 $ 2,583 liabilities assumed by Symantec as of Veritas revenue 559 2,042 the actual acquisition date of July 2, 2005. Fair value adjustment to Veritas deferred revenue 302 - For comparative purposes, the information Non-GAAP Revenue $ 5,004 $ 4,625 presented assumes that the acquisition took place on April 1, 2004. Symantec’s Gross Profit fiscal years ended March 31st whereas GAAP Gross Profit $ 3,162 $ 2,131 Veritas’ fiscal years ended December 31st. Veritas gross profit 398 1,396 The 2005 fiscal year amounts combine Symantec’s 2005 fiscal year with Veritas’ Fair value adjustment to Veritas deferred revenue 302 - 2004 fiscal year. The 2006 fiscal amounts Integration planning 1 - combine Symantec’s 2006 fiscal results Amortization of acquired product rights 386 383 with Veritas’ historical results for the three Amortization of deferred stock-based compensation 1 4 months ended March 31, 2005. Additional Non-GAAP Gross Profit $ 4,250 $ 3,914 non-GAAP adjustments consist of: non-cash charges related to acquisitions, such as Operating Expenses the amortization of intangibles and stock- based compensation expense, and the GAAP Operating Expenses $ 2,888 $ 1,311 write-off of in-process research and devel- Veritas operating expenses 400 1,338 opment; restructuring charges; integration Amortization of other intangible assets (196) (193) planning costs; and the impact of other Amortization of deferred stock-based compensation (43) (24) special items, such as other stock-based Acquired in-process research and development (285) (3) compensation expense, litigation mat- Restructuring (25) 7 ters, gain / loss on investments and related Integration planning (27) (3) adjustments to provision for income taxes, on our operating results. Patent settlement (2) - Proposed SEC legal settlement (30) - These non-GAAP financial measures are Executive incentive bonuses (10) - not prepared in accordance with generally Non-GAAP Operating Expenses $ 2,670 $ 2,433 accepted accounting principles and may be different from non-GAAP financial mea- Net Income sures used by other companies. Non-GAAP GAAP Net Income $ 157 $ 536 financial measures should not be considered a substitute for, or superior to, measures Gross margin adjustment 1,089 1,783 of financial performance prepared in accor- Operating expenses adjustment 218 (1,122) dance with GAAP. Veritas other income and tax (12) (31) Gain on strategic investments (1) (9) Income tax provision (306) (111) Non-GAAP Net Income $ 1,145 $ 1,046 Earnings Per Share GAAP Earnings Per Share - diluted $ 0.15 $ 0.74 Non-GAAP adjustments per share - diluted 0.85 0.12 Non-GAAP Earnings Per Share - diluted $ 1.00 $ 0.86 Deferred Revenue GAAP Deferred Revenue $ 2,163 $ 1,330 Veritas deferred revenue - 548 Fair value adjustment to Veritas deferred revenue 58 - Non-GAAP Deferred Revenue $ 2,221 $ 1,878 DEAR STOCKHOLDERS, Fiscal 2006 was a solid year for Symantec and positioned us to extend our leadership into the new fi scal year. Admittedly, though, the year was not without its challenges. The tough headwinds of strengthening currencies around the world, an evolving threat environment, and our own business plan execution missteps were just some of the issues we faced dur- ing the course of the year. When our stockholders voted overwhelmingly in June 2005 to approve Symantec’s merger with Veritas in June 2005, the size, scope, and reach of our company changed dramatically. We instantly became the market leader in storage and backup software, otherwise known as availability, which complements our market leadership in enterprise and consumer secu- rity. Equally important, through the merger we have realized our goal of providing a more complete solution for customers who want to better protect their digital assets and their online experiences. We have seen this market need developing for several years now, and we have taken steps to build or acquire key technologies to meet that need. Combining two large and complex companies is a tremendous undertaking, and thousands of man hours have gone into the planning and implementation process. That hard work is paying off, and today our company is well positioned for the changing competitive land- scape in the overall software industry. Together, we are now One Company, One Team working to help our customers protect their digital assets and IT infrastructure. THE NEW SYMANTEC So, who is the “new” Symantec? We are the recognized leader in several key industry segments, including storage management, backup and recovery software, secure content management, and consumer security, to name just a few. Our software protects more than 370 million computers or email accounts worldwide, and 99 % of the Fortune 1000 uti- lize Symantec products. We believe we have one of the strongest and deepest portfolios of intellectual property in our industry. And our nearly 16,000 employees around the world are complemented by one of the most extensive networks of partners in the industry. This strong organization is backed by our unique Global Intelligence Network, which gath- ers data on emerging threats and new sources of risk from more than 24,000 sensors in 180 countries worldwide. Our network tracks vulnerabilities in more than 30,000 technolo- gies, operating systems, and application product versions from more than 4,000 vendors. And we see more than 25 percent of the world’s email. In short, we believe our insight and intelligence around the connected world is unsurpassed. SYMANTEC ANNUAL REPORT 2006 1 FINANCIAL ACHIEVEMENT We achieved record fi nancial results in fi scal 2006, albeit, slightly below our initial expecta- tions. Our non-GAAP revenue ¹ grew 8 % to $ 5.0 billion, while non-GAAP earnings per share ¹ grew 16 % to $ 1.00. Our non-GAAP deferred revenue ¹ grew 18 % to over $ 2.2 billion. In addition, we generated $ 1.6 billion in pro forma combined cash fl ow from operating activities ². We ended the year with $ 2.9 billion in cash, cash equivalents and short-term investments. The board and I believe that repurchasing stock is an excellent way to enhance shareholder value, and during fi scal 2006 we invested approximately $ 3.6 billion buying back nearly 175 million shares of our common stock. In January the board authorized an additional $ 1 billion of stock repurchases. And, in June the board authorized another $ 1.5 billion. INNOVATION: DRIVING GROWTH Symantec has always grown by combining strategic acquisitions with strong internal technology and product development. In fi scal 2006 we executed on this strategy again and completed six acquisitions in addition to completing our merger with Veritas. And our R&D teams generated more than 100 new products and services across all of our categories, while our consumer products group shipped nearly 23 million boxes around the world. To ensure that we continue to offer industry-leading products and services, we intend to invest approximately 15 percent of annual gross revenue into R&D — protecting our custom- ers from tomorrow’s challenges and enabling them to take advantage of tomorrow’s opportunities. In addition, as we have for the past several years, we will look to augment our R&D efforts by acquiring leading technologies in adjacent markets. ESTABLISHING AND LEVERAGING A STRONG MARKET POSITION Enterprises need to keep their infrastructure up and running 24 × 7 × 365. They need to enable access to information anytime, anywhere. That means that critical business systems must be up and running all the time. It starts with the basics of protection. Sustaining the continuous availability of information, systems, and applications requires businesses to protect their entire data center infrastructure — from client to storage to servers. Symantec pioneered the idea of protection. We are the leader in creating and deploying new data security and availability technologies. Currently, we have numerous development projects underway that we believe will extend that leadership position, particularly in the enterprise market. 1 Non-GAAP results are As we pursue these projects, we will focus on the critical areas of message management, reconciled to GAAP results IT policy compliance, and endpoint compliance. Messaging systems, such as email, are on the inside front cover. fundamental to business operations, and managing the messaging environment requires 2 Pro forma combined cash fl ow from operating real-time protection at all layers of the infrastructure. We are also introducing innova- activities includes tive solutions to help our customers in the areas of IT policy compliance and endpoint Symantec’s fi scal 2006 cash fl ow from oper- compliance — areas that we believe will be important business drivers as organizations ations of $ 1.5 billion and Veritas’ June quarter increasingly recognize the need to demonstrate compliance with internal policies and 2005 cash fl ow from external regulations. operations of $ 106 million. 2 Our enterprise offerings grew significantly during the past year due to the addition of Veritas’ products, which are the leading enterprise software solutions for data center management and data protection. We know that in order for these products to remain suc- cessful we must continually innovate by adding new features and functionality. This year we plan to launch several new enterprise products including new versions of Veritas Storage Foundation™, CommandCentral™ and NetBackup™. ANTICIPATING MARKET NEED We believe the moves we have made in the market are instrumental in our keeping pace with the rapidly changing environment. The security threat landscape evolves with each passing year and last year was no exception. The main threat to information today isn’t necessarily a large-scale, fast-moving virus or worm.