Symantec Corporation — Form 10-Q Summary
Business context and reporting period
This filing is for Symantec Corporation, not an issuer identified as Gen Digital in the filing. It covers the second quarter and first six months of fiscal 2011, ended October 1, 2010; comparative periods ended October 2, 2009. Symantec sold security, storage, systems-management software and related services.
Financial performance and position
| Metric | Q2 FY2011 | Q2 FY2010 | Six months FY2011 | Six months FY2010 |
|---|---|---|---|---|
| Revenue | $1.480B | $1.474B | $2.913B | $2.906B |
| Gross profit / margin | $1.234B / 83% | $1.215B / 82% | $2.402B / 82% | $2.335B / 80% |
| Operating income | $218M | $257M | $412M | $409M |
| Net income attributable to Symantec / diluted EPS | $136M / $0.17 | $155M / $0.19 | $297M / $0.37 | $229M / $0.28 |
| Operating cash flow | Not separately reported for the quarter | $645M | $597M |
At October 1, cash and cash equivalents were $2.256B, short-term investments $8M, and current assets $3.443B against current liabilities of $4.234B. Total debt was approximately $2.540B, comprising $578M current and $1.962B long-term. Symantec reported $3.3B of net liquidity, defined as cash, short-term investments and unused capacity under its $1B revolving facility; no revolver borrowings were outstanding, and the company said it was covenant-compliant. Total assets were $11.819B.
Changes versus the prior comparable period
- Quarterly and six-month revenue were essentially flat. Subscription, content and maintenance revenue rose 1% in Q2 and 2% year to date; license revenue fell 5% and 11%, respectively.
- Q2 operating income declined $39M despite a $19M increase in gross profit, as operating expenses rose $58M. The six-month operating income increase was modest; year-to-date attributable net income improved partly because of tax benefits.
- Operating cash flow increased $48M year over year. Investing cash outflow was $1.647B, principally reflecting about $1.5B of acquisition spending; financing provided $192M.
- Q2 segment revenue increased in Consumer and Security and Compliance, but fell in Storage and Server Management and Services. Security and Compliance operating income fell to $57M from $89M, while Consumer and Storage and Server Management remained comparatively profitable.
Outlook, commentary, risks and unusual items
- Management gave no specific revenue or earnings guidance in this filing. It expected cash, investments, borrowing capacity and operating cash generation to cover working-capital and capital-expenditure needs for at least 12 months.
- Symantec completed acquisitions of VeriSign’s identity and authentication business, PGP and GuardianEdge, among others, for approximately $1.5B net of acquired cash during the half-year. Management expected the acquisitions to contribute positively to future Security and Compliance revenue; VeriSign purchase accounting remained preliminary.
- Management cited cautious IT purchasing, weaker storage-management demand and lower Sun/Oracle-related revenue, foreign-exchange pressure, and increased acquisition, OEM and eCommerce-platform costs. Currency movements reduced international revenue by approximately $29M in Q2 and $51M year to date.
- Q2 included a $16M loss on extinguishment of debt after repurchasing $500M principal amount of 0.75% convertible notes. The company issued $1.1B of senior notes: $350M at 2.75% due 2015 and $750M at 4.20% due 2020.
- Year-to-date tax benefits included $38.5M related to the Veritas tax-court decision and other discrete tax benefits. The IRS had asserted $867M of additional tax, excluding interest and penalties, for Veritas tax years 2000–2001; the Tax Court issued a final decision reflecting an agreed adjustment, with an IRS appeal deadline of November 8, 2010. For 2002–2005, Symantec disputed $80M of assessed tax and all penalties, while agreeing with $30M.
- Restructuring charges were $68M year to date. Management estimated remaining severance, facilities and transition/transformation costs, with activities expected to be substantially completed on varying timelines through fiscal 2012. The filing reported no material change in previously disclosed risk factors and no identified goodwill impairment indicators.
Investor verification priorities
- Confirm the issuer and period: this is Symantec Corporation’s Q2 FY2011 filing, not a 2010 filing under the Gen Digital name.
- Assess whether flat reported revenue masks underlying demand, including acquisitions, foreign exchange, the consumer subscription adjustment and weakness in storage-management licensing.
- Review acquisition integration, preliminary purchase accounting and the expected contribution to revenue and margins, alongside rising acquired-intangible amortization.
- Track debt maturities, interest costs, repurchases and cash use after the acquisitions; reconcile the $3.3B net-liquidity measure to cash and undrawn credit availability.
- Follow the Veritas tax proceedings and restructuring costs, and verify the effects of the disclosed $10M Consumer revenue reduction and $10M research-cost capitalization adjustment.