Business context and reporting period
Registrant: Symantec Corporation, a global security company, as identified in this filing. The request metadata names Gen Digital; investors should verify the intended issuer. This is Symantec’s unaudited Form 10-Q for fiscal Q1 2017, the 13 weeks ended July 1, 2016, compared with the 13 weeks ended July 3, 2015. Veritas, sold in January 2016, is reported as discontinued operations.
Financial performance and position
| Metric | Q1 FY2017 | Prior-year quarter |
|---|---|---|
| Revenue | $884 million | $912 million |
| Gross profit / margin | $735 million / 83% | $754 million / 83% |
| Operating income / margin | $106 million / 12% | $83 million / 9% |
| Continuing operations income | $66 million | $25 million |
| Discontinued operations income, net of tax | $69 million | $92 million |
| Net income / diluted EPS | $135 million / $0.22 | $117 million / $0.17 |
| Cash flow from continuing operations | $(742) million | $59 million |
Consumer Security revenue was $403 million, down 6%; Enterprise Security revenue was $481 million, essentially flat. Segment operating income was $225 million for Consumer and $28 million for Enterprise. Cash and cash equivalents were $6.108 billion at quarter-end; short-term investments were $10 million. Debt had a $3.204 billion carrying amount ($3.250 billion principal), including $599 million current and $2.605 billion long-term. The company reported $1.0 billion available on its revolving facility and compliance with debt covenants.
Material changes and management commentary
- Revenue fell 3%, primarily from Consumer Security, reflecting lower renewals and reduced customer acquisition through OEM and retail arrangements. Consumer revenue declined $27 million; Enterprise revenue was broadly unchanged.
- Operating income rose $23 million, but management attributed the improvement chiefly to $99 million less in unallocated corporate charges previously associated with Veritas. Segment operating income declined, and higher restructuring and stock-based compensation costs partly offset savings. Management expected the lower unallocated corporate costs to benefit quarterly operating income versus the prior year through Q3 FY2017.
- Continuing operating cash flow declined by $801 million, mainly because of cash taxes paid on the Veritas sale. Income taxes paid, net of refunds, were $953 million versus $50 million in the prior-year quarter.
- Veritas discontinued operations contributed $69 million of after-tax income, including a $38 million purchase-price adjustment gain. Symantec also recorded $9 million of income from transition services provided to Veritas.
Outlook, transactions, and risks
- Blue Coat acquisition: The approximately $4.65 billion cash acquisition closed August 1, 2016, after quarter-end. The company said it funded part of the transaction with $2.8 billion of term-loan borrowings and $1.25 billion of 2.0% convertible notes, used existing cash for the remainder, and repaid approximately $1.9 billion of Blue Coat debt. Purchase accounting was not complete; Symantec expected a substantial majority of the purchase price to be allocated to goodwill and intangible assets. Management cited strategic growth and cybersecurity opportunities, while warning that integration costs, delays, and failure to realize synergies could impair expected benefits. The filing provides no quantified post-acquisition earnings or synergy guidance.
- Restructuring: The FY2017 plan targets complexity reduction, headcount cuts, and facility closures, with completion expected in FY2018. Estimated total costs are $230–$280 million, including $180–$230 million expected cash expenditures; $48 million of plan costs were recorded in the quarter.
- Capital returns: The quarter’s declared dividend was $0.075 per share; management said it remained committed to a quarterly dividend totaling $0.30 per share annually, subject to Board approval. No shares were repurchased during the quarter.
- Contingencies: Symantec accrued $25 million for the government GSA contract/False Claims Act matter, but said additional loss was reasonably possible and the high end could not be estimated. A $30 million EDS/NDI settlement had received final court approval; objectors appealed.
- Other risks: The company cited exposure to foreign exchange movements and uncertain tax examinations. It noted that $5.2 billion of cash, cash equivalents, and short-term investments were held by foreign subsidiaries. Management reported disclosure controls and internal control over financial reporting were effective as of July 1, 2016.
Key facts for investors to verify
- Confirm the intended issuer: the filing is for Symantec Corporation, notwithstanding the Gen Digital metadata.
- Assess the underlying operating trend separately from corporate-charge reductions: segment operating income fell despite higher consolidated operating income.
- Reconcile liquidity and leverage after the August 1 Blue Coat closing, including acquisition funding, debt repayment, and use of cash.
- Track restructuring cash costs and execution, integration spending and expected synergies, and the completed purchase-price allocation.
- Monitor the GSA litigation exposure beyond the $25 million accrual and the status of the EDS/NDI settlement appeal.