Business context and reporting period
The filing is Symantec Corporation’s unaudited Form 10-Q for the 13 weeks ended July 2, 2010 (fiscal Q1 2011), compared with the 13 weeks ended July 3, 2009. Symantec reported security, storage, systems-management and related services across Consumer, Security and Compliance, Storage and Server Management, Services, and Other segments. The request metadata names Gen Digital, but the filing registrant is Symantec Corporation.
Financial results and liquidity
| Metric | Q1 FY2011 | Q1 FY2010 |
|---|---|---|
| Revenue | $1.433 billion | $1.432 billion |
| Gross profit / margin | $1.168 billion / 82% | $1.120 billion / 78% |
| Operating income | $194 million | $152 million |
| Net income | $161 million | $74 million |
| Diluted EPS | $0.20 | $0.09 |
| Operating cash flow | $335 million | $371 million |
- Content, subscription and maintenance revenue rose 3% to $1.248 billion; license revenue fell 17% to $185 million.
- Cash and cash equivalents were $2.726 billion at July 2, 2010, down from $3.029 billion at April 2. Short-term investments were $13 million. Management described net liquidity of approximately $3.7 billion, including unused credit-facility availability.
- Total carrying value of convertible senior notes was $1.897 billion ($1.044 billion current and $853 million long-term), versus $1.871 billion long-term at April 2. No credit-facility borrowings were outstanding; the $1 billion facility expires July 2011 and covenants were met.
- Cash used in investing was $418 million, chiefly $362 million net cash paid for acquisitions and $52 million of capital expenditures. Financing used $207 million, including $200 million of share repurchases.
Changes versus the prior comparable period
- Revenue was essentially flat. Consumer revenue increased 6% to $473 million, while Storage and Server Management revenue fell 5% to $524 million; management cited lengthening enterprise procurement cycles and cautious IT buyers. Security and Compliance revenue rose 1% to $340 million; Services revenue was flat at $96 million.
- Operating income improved by $42 million. Gross margin rose to 82%, primarily because acquired Veritas product rights became fully amortized, reducing related amortization by $53 million year over year.
- Net income included a $4 million income tax benefit versus a $42 million tax provision in the prior-year quarter. The current-quarter tax result included $38.5 million from the Veritas tax-case agreement and $10.5 million from discrete tax items; therefore, the earnings comparison was significantly affected by tax benefits and lower amortization.
- Operating cash flow decreased $36 million despite higher net income, with working-capital movements including a $177 million reduction in deferred revenue and declines in accrued compensation and other liabilities.
Outlook, commentary, risks and unusual items
- Management said existing cash and investments, borrowing capacity, and operating cash generation should meet working-capital and capital-expenditure needs for at least 12 months. The filing provides no specific revenue or earnings guidance.
- Management cited cautious IT procurement, foreign-exchange exposure (a $23 million unfavorable impact on international revenue year over year), higher OEM placement fees, and costs of transitioning Norton products to Symantec’s own eCommerce platform.
- Symantec acquired encryption providers PGP for $306 million and GuardianEdge for $73 million, excluding cash acquired. It also agreed to acquire VeriSign’s authentication business and a 54% interest in VeriSign Japan for approximately $1.28 billion cash, subject to approvals and other conditions; closing was expected in fiscal Q2 2011.
- Restructuring and transformation charges were $40 million for the quarter. Estimated remaining costs included $85–$125 million of severance, $25–$35 million of facilities costs, and $10–$15 million of transition and transformation costs.
- Tax contingencies remain material: Symantec is contesting $80 million of additional tax assessed for Veritas tax years 2002–2005, plus penalties; it agreed with $30 million of the assessment. The earlier 2000–2001 dispute was substantially reduced following a favorable Tax Court decision and subsequent IRS agreement. Other proceedings were not expected by management to materially adversely affect results, though losses in individual cases could not be estimated.
- Management reported effective disclosure controls and no material changes in internal control or material changes to the risk factors described in its latest Form 10-K.
Important facts for investors to verify
- Confirm the issuer and period: this is Symantec Corporation’s Q1 FY2011 filing, not a filing under the Gen Digital name.
- Assess how much reported earnings improvement reflects recurring operations versus the $49 million of identified tax benefits and the $53 million year-over-year reduction in acquired-product-rights amortization.
- Monitor enterprise storage demand, license revenue, currency effects, and the costs and revenue presentation associated with the new eCommerce platform.
- Review cash use and funding plans for the proposed $1.28 billion VeriSign acquisition alongside convertible-note maturities and the remaining share-repurchase authorization.
- Track resolution of the contested tax assessment, restructuring cash costs, and whether operating cash flow recovers as deferred revenue and other working-capital balances change.