Filing summary
Entity and period: The filing is Symantec Corporation’s Form 10-Q for the 13-week quarter ended December 30, 2011 (third quarter of fiscal 2012), with nine-month comparisons through that date. The request identifies Gen Digital Inc.; that does not match the registrant named in this filing. Symantec described its business as security, storage, and systems-management software and services.
Financial performance
| Metric | Three months ended Dec. 30, 2011 | Prior-year quarter | Nine months ended Dec. 30, 2011 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $1.715 billion | $1.604 billion | $5.049 billion | $4.517 billion |
| Operating income | $300 million | $229 million | $887 million | $641 million |
| Net income attributable to Symantec shareholders | $240 million | $132 million | $613 million | $429 million |
| Diluted EPS | $0.32 | $0.17 | $0.82 | $0.54 |
| Gross margin | 84% | 84% | 84% | 83% |
- Quarterly revenue rose 7%; nine-month revenue rose 12%. Content, subscription, and maintenance revenue grew 8% in the quarter and 13% year to date; license revenue was nearly flat quarterly and up 5% for nine months.
- Calculated operating margin increased to about 17.5% from 14.3% in the quarter, and to 17.6% from 14.2% for nine months. Calculated net margin attributable to shareholders was about 14.0% versus 8.2% in the quarter and 12.1% versus 9.5% for nine months.
- For the quarter, Security and Compliance revenue grew 17% and operating income increased to $139 million from $52 million. Storage and Server Management revenue grew 3%, but operating income fell 13% to $241 million. Services revenue declined 13% while operating income improved to $11 million from $2 million.
- Nine-month operating cash flow was $1.214 billion, versus $1.105 billion. Investing used $611 million and financing used $1.216 billion; cash declined $623 million to $2.327 billion. Capital expenditures were $199 million.
- At Dec. 30, cash and cash equivalents were $2.327 billion and short-term investments were $53 million. Long-term debt was $2.025 billion, with no current debt balance; the $1 billion revolving facility was undrawn. Management reported net liquidity of about $3.3 billion, including unused credit availability, and said resources should meet needs for at least 12 months.
Material changes and notable items
- Quarterly and nine-month earnings improved substantially year over year. Management attributed revenue growth to existing products, acquisitions, and favorable currency effects; foreign exchange added approximately $8 million to quarterly and $158 million to nine-month revenue.
- Operating expenses rose, notably from higher salaries and wages; restructuring and transition expense fell to $5 million for the quarter and $25 million for nine months. Management said ERP implementation-related transition costs would continue in future quarters.
- Symantec paid $600 million to settle the remaining 0.75% convertible notes at maturity in June 2011. Nine-month share repurchases totaled $693 million for 39 million shares; $184 million remained under the existing authorization at quarter-end. A new $1 billion repurchase program was announced in January 2012.
- The June 2011 Clearwell acquisition cost $392 million in total consideration, including $364 million cash net of acquired cash; it added $268 million of goodwill. A $19 million Services goodwill impairment was recorded as an opening-equity adjustment upon adoption of updated impairment guidance, not as a current-period operating charge.
- Symantec agreed to sell its 49% interest in the Huawei joint venture for $530 million, subject to regulatory approval. Its investment had been reduced to zero after its share of losses. The company also acquired LiveOffice for approximately $115 million in January 2012.
- A January 2012 disclosure reported that hackers claimed to possess source code for certain 2006-era products, including pcAnywhere. Symantec said pcAnywhere customers could face increased security risk, that known vulnerabilities had been resolved, and that it did not expect a material financial or business impact.
Outlook, risks, and contingencies
- No specific revenue, earnings, or margin guidance is provided in the supplied filing text. Management cautioned that interim results are not necessarily indicative of full-year results.
- Key stated exposures include foreign-currency movements, uncertain tax examinations and settlements, and pending regulatory approval for the Huawei transaction. Symantec contested $80 million of IRS assessments for Veritas tax years 2002–2005; negotiations produced a $52 million tax benefit in the quarter. The company said up to $30 million of unrecognized-tax-benefit reserves could be reduced within 12 months, though timing and outcome were uncertain.
- Other litigation was described as incidental, with losses not estimable; management did not expect the matters discussed to materially adversely affect financial condition or results. The filing reported no material change in previously disclosed risk factors and said disclosure controls were effective at the reasonable-assurance level.
Most important facts to verify
- Confirm the intended issuer: this is a Symantec Corporation filing, not a filing under the name Gen Digital Inc.
- Check the sustainability and drivers of earnings growth, including segment margin pressure in Storage and Server Management and growth in personnel costs.
- Confirm completion, proceeds, and regulatory status of the proposed $530 million Huawei joint-venture sale, and the integration and returns from Clearwell and LiveOffice.
- Assess the security-code exposure and any subsequent customer, legal, or financial consequences beyond management’s stated assessment.
- Review the timing and outcome of tax disputes, share repurchases, and debt obligations, and distinguish reported liquidity from cash freely available in the United States; $1.7 billion of cash, equivalents, and/or marketable securities was held by foreign subsidiaries.