Business context and reporting period
The supplied filing is Symantec Corporation’s Form 10-K for the fiscal year ended April 1, 2011—not a Gen Digital filing or a standalone 2010 Q4 report. Fiscal 2011 and fiscal 2010 each comprised 52 weeks. Symantec provided security, storage, and systems-management software and services through Consumer, Security and Compliance, Storage and Server Management, Services, and Other segments.
For the quarter ended April 1, 2011, the filing reports revenue of $1.673 billion, operating income of $239 million, net income attributable to Symantec stockholders of $168 million, and diluted EPS of $0.22.
Key financial metrics
Amounts below are in millions of dollars except per-share data and margins.
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net revenue | $6,190 | $5,985 | +$205; 3% |
| Gross margin | 83% | 82% | +1 percentage point |
| Operating income | $880 | $933 | -$53 |
| Net income attributable to Symantec stockholders | $597 | $714 | -$117 |
| Diluted EPS | $0.76 | $0.87 | -$0.11 |
| Cash provided by operating activities | $1,794 | $1,693 | +$101 |
| Cash used in investing activities | $(1,760) | $(65) | Primarily acquisitions |
| Cash used in financing activities | $(184) | $(441) |
At April 1, 2011, cash and cash equivalents were $2.950 billion; total assets were $12.719 billion and total stockholders’ equity was $4.605 billion. Balance-sheet debt was $596 million current and $1.987 billion long-term. The filing also describes $2.7 billion of aggregate debt principal, including $600 million of convertible notes due June 2011 and $1.0 billion due June 2013. A $1 billion revolving facility was undrawn, with the company in compliance with its covenants. Management reported approximately $4 billion of net liquidity, defined as cash and unused revolver capacity.
Deferred revenue totaled approximately $3.8 billion. The company reported a 14% effective tax rate, versus 13% in FY2010. No cash dividends had been declared or paid.
Material changes versus the prior comparable period
- Revenue rose 3%, driven principally by acquired identity, authentication, and encryption businesses and growth in subscription, content, and maintenance revenue. License revenue fell 3% to $924 million.
- Content, subscription, and maintenance revenue increased 5% to $5.266 billion and represented 85% of revenue, compared with 84% in FY2010.
- Security and Compliance revenue grew 11% to $1.566 billion, while operating income fell 35% to $243 million. Acquisition costs and purchase-accounting reductions to acquired deferred revenue weighed on segment margins.
- Consumer revenue rose 4% to $1.953 billion; operating income increased 5% to $899 million. Storage and Server Management revenue edged up 1% to $2.307 billion, but operating income declined 3% to $1.063 billion. Services revenue decreased 13% to $364 million.
- Operating income and net income declined despite higher revenue. Sales and marketing expense increased 11% to $2.622 billion, while acquired product-rights amortization decreased $119 million to $115 million.
- The company completed acquisitions including VeriSign’s identity and authentication business, PGP, and GuardianEdge. Acquisition cash payments totaled $1.537 billion, net of cash acquired; goodwill increased to $5.494 billion.
Outlook, commentary, risks, and unusual items
- Management said cash, investments, borrowing capacity, and operating cash generation should be sufficient for working capital and capital expenditures for at least the next 12 months. It provided no specific revenue or earnings guidance in the supplied text.
- Management expected the fiscal 2011 acquisitions to contribute positively to future Security and Compliance revenue. Strategy emphasized cloud/SaaS, virtualization, mobile security, backup, and data management.
- On May 19, 2011, Symantec signed an agreement to acquire Clearwell Systems for approximately $390 million net of cash acquired, subject to customary closing conditions and expected to close in FY2012’s second quarter.
- Unusual FY2011 items included a $27 million impairment of consumer-related indefinite-lived tradenames, a $21 million loss on liquidation of foreign entities, and a $16 million loss on early extinguishment of debt. Tax benefits included $49 million related to the Veritas tax matter. FY2010 included a $47 million foreign-entity liquidation gain.
- Foreign exchange movements reduced international revenue by approximately $53 million versus FY2010. A $1.6 billion portion of cash, cash equivalents, and marketable securities was held by foreign subsidiaries.
- Key risks include intense competition, free or lower-priced security offerings, technology and product-development execution, SaaS service interruptions or security breaches, acquisition integration, currency movements, debt maturities, and tax disputes. The company had $361 million of long-term income taxes payable related to uncertain tax positions and continued to contest $80 million of tax assessed for Veritas tax years 2002–2005, excluding penalties.
- Management and KPMG reported effective disclosure controls and internal control over financial reporting; the acquired VeriSign business was excluded from the year-end internal-control assessment. KPMG issued unqualified audit opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Confirm the reporting-period mismatch: this is Symantec FY2011, with a reported quarter ended April 1, 2011, not a Gen Digital 2010 Q4 filing.
- Review the June 2011 maturity and repayment or refinancing of the remaining $600 million of 0.75% convertible notes, plus the $1.0 billion due in 2013.
- Assess whether acquired businesses can sustain revenue growth and recover the sharp FY2011 decline in Security and Compliance operating margin.
- Check the eventual cash costs and outcomes of the outstanding tax assessments, uncertain tax positions, and restructuring obligations.
- Evaluate the cash-flow contribution from deferred-revenue growth and the effects of acquisitions, repurchases, and the announced Clearwell transaction on liquidity.