Business context and reporting period
The filing is Symantec Corporation’s Form 10-Q for the fiscal third quarter ended December 28, 2012 (13 weeks), with nine-month results also presented. The filing identifies Symantec—not Gen Digital Inc.—as the registrant. Symantec provides security, storage, and systems-management products and services.
Financial performance
Amounts are in millions of dollars except per-share data. Comparisons are with the same periods a year earlier.
| Metric | Quarter | Nine months |
|---|---|---|
| Revenue | $1,791; up 4% | $5,158; up 2% |
| Gross profit / margin | $1,492 / 83% (84% prior year) | $4,291 / 83% (84% prior year) |
| Operating income | $298, down from $300 | $872, down from $887 |
| Net income attributable to Symantec | $212, down from $240 | $577, down from $613 |
| Diluted EPS | $0.30, versus $0.32 | $0.81, versus $0.82 |
| Operating cash flow | Not presented for the quarter | $981, versus $1,214 |
Quarterly revenue growth was led by Storage and Server Management (+8% to $666) and Security and Compliance (+3% to $527); Consumer revenue was nearly flat at $530. For the nine months, Security and Compliance grew 6% to $1,540, while Consumer was flat at $1,579 and Storage and Server Management rose 1% to $1,845. The nine-month revenue mix shifted toward recurring content, subscription, and maintenance revenue, up 3% to $4,494; license revenue fell 5% to $664.
Operating performance was pressured by higher costs: cost of revenue rose 9% for the nine months, while operating expenses rose 2%. Quarterly operating income was nearly unchanged, but net income declined, including a higher tax provision and interest expense. China VAT refunds of $27 were recorded in other income during the quarter. The effective tax rates were 25% for the quarter and 27% for the nine months, versus 12% and 21%, respectively, in the prior-year periods.
Cash, debt, and liquidity
Cash and cash equivalents were $4,200 at December 28, 2012, up from $3,162 at March 30, 2012. Current assets were $5,816 and current liabilities $5,482. Deferred revenue totaled $3,806, including current and long-term balances. The balance sheet reported $982 of current debt and $2,094 of long-term debt. The company reported $2.1 billion principal amount of fixed-rate senior notes and $1.0 billion of 1.00% convertible notes due June 2013; it intended to use cash to repay the convertible notes at maturity.
Management reported $5.2 billion of liquidity, comprising cash and an undrawn $1.0 billion revolving credit facility, and said available resources and operating cash generation should meet needs for at least 12 months. The company was in compliance with credit-facility covenants. Nine-month operating cash flow fell to $981, with a $144 increase in receivables and a $150 decrease in deferred revenue among the offsets. Investing cash outflow was $224, including $245 of capital expenditures; financing cash inflow was $284, including $996 net debt proceeds and $701 of share repurchases. Cash flow comparisons therefore reflect both working-capital movements and financing activity.
Material changes and management outlook
- Foreign exchange reduced revenue by $16 in the quarter and $127 in the nine months versus the prior-year periods. Management warned that currency movements may continue to affect results.
- Security and Compliance operating income increased 40% for the nine months, supported by revenue growth and lower expenses. Storage and Server Management operating income declined 5%, with higher appliance and service costs and increased staffing. Consumer operating income declined 2% for the nine months.
- The company issued $1.0 billion of senior notes in fiscal 2013: $600 due 2017 at 2.75% and $400 due 2022 at 3.95%. Interest expense increased year over year.
- On January 23, 2013, Symantec announced a strategy focused on product development, organizational changes, and operational improvements. It expected workforce reductions to be largely completed by the end of June 2013, with severance and investment spending potentially affecting income and operating cash flow. No numerical earnings or revenue guidance is provided in the filing.
- The company announced plans for a quarterly dividend beginning in fiscal Q1 2014, with an expected initial yield of 2.5% based on the cited January 22 share price. The board had not declared a dividend as of the filing date. A new $1.0 billion repurchase authorization was to begin in fiscal 2014; $283 remained under the prior authorization at quarter-end.
- The Department of Justice was investigating compliance with certain provisions of Symantec’s GSA contract, including pricing and disclosure matters. The company was cooperating and could not predict the outcome; potential False Claims Act exposure could include damages and civil penalties.
- Tax examinations remain uncertain. Symantec said gross unrecognized tax benefits related to audits could decrease by $135–$250 over the next 12 months; at least $15 could affect the income tax provision. The filing also notes $184 on deposit with the IRS for specified audit periods.
Important facts for investors to verify
- Confirm the issuer and period: the source filing is Symantec Corporation’s fiscal Q3 2013 10-Q, not a filing naming Gen Digital Inc.
- Assess whether recurring-revenue growth can offset flat or declining performance in Consumer and license revenue, and whether reported segment improvements persist.
- Track operating cash flow, receivables, deferred-revenue trends, capital spending, and the June 2013 convertible-note repayment.
- Evaluate execution costs and results of the announced restructuring and strategy, including workforce reductions and any subsequent segment-reporting changes.
- Monitor the GSA investigation, tax-audit resolutions, and the board’s actual dividend declarations and repurchase activity.