Business context and reporting period
This filing is Symantec Corporation’s Form 10-K for the fiscal year ended March 30, 2012 (52 weeks), comparing fiscal 2012 with fiscal 2011. The supplied metadata says “Gen Digital Inc.” and “2011 Q4,” but the filing itself identifies Symantec Corporation and reports fiscal 2012; it is an annual report, not a standalone quarterly filing.
Symantec provided security, backup and recovery, storage management, and related services to consumer and business customers. Its five segments were Consumer, Security and Compliance, Storage and Server Management, Services, and Other.
Financial results and liquidity
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Net revenue | $6.730 billion | $6.190 billion |
| Gross profit / margin | $5.648 billion / 84% | $5.145 billion / 83% |
| Operating income / margin | $1.079 billion / 16% | $880 million / 14% |
| Net income attributable to Symantec stockholders | $1.172 billion | $597 million |
| Diluted EPS | $1.57 | $0.76 |
| Cash from operating activities | $1.901 billion | $1.794 billion |
| Cash from investing activities | $(318) million | $(1.760) billion |
| Cash from financing activities | $(1.386) billion | $(184) million |
- Revenue rose 9%. Content, subscription, and maintenance revenue increased 11% to $5.823 billion and represented 87% of revenue; license revenue declined 4% to $907 million.
- Cash and cash equivalents were $3.162 billion, short-term investments $49 million, and current assets $4.633 billion versus current liabilities of $4.505 billion. Deferred revenue totaled about $4.0 billion, including $529 million classified as long term.
- Long-term debt was $2.039 billion carrying value; principal outstanding was $2.1 billion. This included $1.0 billion of 1.00% convertible notes due June 2013, $350 million of 2.75% notes due 2015, and $750 million of 4.20% notes due 2020. The $1 billion revolving facility was undrawn, and the company reported covenant compliance.
- Operating cash flow increased 6%. Investing cash use declined substantially from fiscal 2011, which included $1.537 billion of acquisition payments. Fiscal 2012 investing included $508 million of acquisition payments and $530 million of proceeds from the Huawei joint-venture sale.
Material changes versus the prior comparable period
- Operating income increased 23%; gross margin improved by one percentage point. Net income nearly doubled, but the comparison was materially affected by a $526 million gain on the Huawei joint-venture sale and tax-related benefits. The gain was a significant, nonrecurring contributor to fiscal 2012 results.
- Revenue growth came from Security and Compliance (up 20% to $1.965 billion), Consumer (up 8% to $2.104 billion), and Storage and Server Management (up 4% to $2.410 billion). Services revenue fell 14% to $251 million as consulting work shifted to partners.
- Storage and Server Management operating income declined 8% to $977 million despite higher revenue, mainly due to increased compensation and cost of revenue. Security and Compliance operating income rose to $442 million from $260 million; Consumer operating income rose to $1.013 billion from $899 million.
- Content, subscription, and maintenance revenue growth included $145 million of favorable foreign-exchange impact. Management attributed approximately $486 million of the $540 million total revenue increase to existing products and services and $54 million to fiscal 2012 acquisitions.
- Symantec acquired Clearwell, LiveOffice, and another company for $508 million net of cash acquired. It repurchased 51 million shares for $893 million and repaid $600 million of maturing convertible notes. Cash increased $212 million to $3.162 billion.
Outlook, commentary, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management expected acquisitions to continue contributing positively to revenue, anticipated committing substantial resources to R&D, and stated that available cash, borrowing capacity, and operating cash flow should meet working-capital and capital-expenditure needs for at least 12 months.
- Key risks include intense competition and free or lower-priced alternatives; execution and margin risks as the business shifts toward SaaS and appliances; service reliability, data security, and cyberattack exposure; dependence on sales partners and OEMs; international and currency exposure; and disruption or added cost from planned enterprise resource planning system enhancements.
- In January 2012, Symantec disclosed exposure of source code for certain 2006-era Norton and pcAnywhere products, believed stolen in 2006. The company said planned remediation was complete; pcAnywhere represented less than 0.3% of fiscal 2012 revenue.
- Tax matters remain significant: the balance sheet included $393 million of long-term income taxes payable, while gross unrecognized tax benefits were $619 million. The company contested $80 million of assessed tax and all penalties related to Veritas tax years 2002–2005; management said outcomes and timing remained uncertain.
- Goodwill was $5.826 billion. The annual impairment analysis found each reporting unit’s estimated fair value exceeded carrying value by more than 10%; a separate $19 million goodwill impairment was recorded as a cumulative-effect adjustment upon adopting accounting guidance. Fiscal 2012 also included $56 million of restructuring and transition costs, including ERP planning and design costs.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at the reasonable-assurance level; the acquired Clearwell and LiveOffice operations were excluded from the internal-control assessment.
Most important facts for investors to verify
- Reconcile fiscal 2012 net income and EPS to recurring operating performance, separating the Huawei sale gain and tax benefits.
- Review the timing and refinancing or repayment plan for the $1.0 billion convertible notes due June 2013, and confirm current liquidity and revolver availability.
- Assess the assumptions behind continued subscription growth, deferred-revenue conversion, segment margins, and the expected contribution from acquisitions.
- Track the IRS and other tax disputes, uncertain-tax-position reserves, and the potential effect of settlements on cash taxes and reported earnings.
- Monitor SaaS and appliance execution, ERP-system implementation, cybersecurity remediation, and goodwill valuation sensitivities.