Business Context and Reporting Period
This is Symantec Corporation’s Form 10-K for the fiscal year ended March 29, 2013, not a standalone 2012 Q4 filing. The fiscal year comprised 52 weeks. Symantec, now Gen Digital Inc., sells consumer and enterprise security, backup, storage, and information-management products and services.
The filing also reports the quarter ended March 29, 2013 (fiscal Q4). Results below are in U.S. dollars; financial statement amounts are generally in millions.
Key Financial Metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $6.906 billion | $6.730 billion |
| Gross profit / margin | $5.731 billion / 83% | $5.648 billion / 84% |
| Operating income / margin | $1.123 billion / about 16% | $1.079 billion / about 16% |
| Net income attributable to Symantec shareholders | $765 million | $1.172 billion |
| Diluted EPS | $1.08 | $1.57 |
| Cash from operations | $1.593 billion | $1.901 billion |
| Capital expenditures | $336 million | $286 million |
| Cash from operations less capital expenditures | $1.257 billion | $1.615 billion |
| Cash and cash equivalents at year-end | $4.685 billion | $3.162 billion |
| Debt at face value | $3.1 billion | $2.1 billion |
At year-end, the company reported $6.315 billion of current assets and $5.562 billion of current liabilities, including $3.496 billion of current deferred revenue and $997 million of current debt. It also had an unused $1 billion revolving credit facility and reported compliance with its covenants. Cash, cash equivalents, and marketable securities held by foreign subsidiaries totaled $2.6 billion.
In fiscal Q4 2013, revenue was $1.748 billion, operating income $251 million, and net income $188 million. In the comparable fiscal Q4 2012, revenue was $1.681 billion and net income $559 million; the prior-year quarter included a substantial gain on sale of a joint venture.
Material Changes Versus Prior Period
- Revenue grew 3% year over year. Content, subscription, and maintenance revenue rose 3% to $6.021 billion; license revenue fell 2% to $885 million.
- Security and Compliance revenue rose 5% to $2.053 billion, while Storage and Server Management revenue rose 3% to $2.479 billion. Consumer revenue was broadly flat at $2.109 billion.
- Operating income increased 4%, but net income fell 35%. Fiscal 2012 included a $526 million net gain from selling Symantec’s joint-venture interest; fiscal 2013 did not.
- Operating cash flow declined 16% to $1.593 billion. Cash increased by $1.523 billion, supported in part by issuing $1 billion of senior notes; the company also repurchased $826 million of shares.
- Gross margin declined one percentage point to 83%, with higher appliance costs and customer-support costs among the pressures. R&D spending increased 4% to $1.012 billion.
Outlook, Management Commentary, Risks, and Unusual Items
- Management described a strategic shift from device-focused protection toward broader security and management of digital information, including mobile, cloud, and data-center solutions. It planned to reorganize sales teams, build a dedicated renewals team, simplify management layers, and change segment reporting in fiscal 2014.
- Management expected R&D expense to increase through fiscal 2017. The announced restructuring was expected to be completed in fiscal 2014, with total severance and benefit costs of $220 million to $250 million; $10 million had been incurred by year-end. Transition and other costs also included ERP planning and acquisition-integration costs.
- The board approved a new $1 billion share-repurchase authorization. Including the prior authorization, $1.2 billion remained available at year-end. The company stated an intent to return approximately 50% of free cash flow over time through repurchases and dividends. A first quarterly dividend of $0.15 per share was approved on May 2, 2013, after year-end.
- $1 billion of 1.00% convertible notes was due in June 2013; management said it intended to use cash to repay the notes. Total contractual obligations were reported as $4.754 billion, including debt, interest, purchase obligations, leases, and uncertain tax positions.
- The Department of Justice was investigating compliance with provisions of Symantec’s GSA contract, including pricing, country of origin, accessibility, and commercial-sales disclosures. The company was cooperating and could not predict the outcome; potential False Claims Act exposure could include treble damages and civil penalties.
- The filing disclosed that source code for 2006-era versions of certain Norton and pcAnywhere products was disclosed without authorization; Symantec believed the theft occurred in 2006. Cybersecurity, product defects, service interruptions, competitive pressure, foreign exchange, and execution of the restructuring and sales changes were also identified as risks.
- Foreign-exchange movements reduced fiscal 2013 international revenue by approximately $141 million year over year. A China VAT refund incentive contributed $33 million to other income. The effective tax rate rose to 25% from 20%; tax-audit outcomes and unrecognized tax benefits remained uncertain.
Important Facts for Investors to Verify
- Confirm the status and cash funding of the June 2013 $1 billion convertible-note maturity, and review subsequent filings for repayment and any conversion or dilution effects.
- Track restructuring charges, cash payments, and realized savings against the $220 million to $250 million severance and benefit estimate, as well as the planned fiscal 2014 organizational and sales changes.
- Monitor the DOJ GSA-contract investigation, any claims or settlements, and updates to related contingency disclosures.
- Assess whether revenue growth and cash generation can be sustained as appliance, support, and R&D costs rise and legacy storage-management products face platform-related headwinds.
- Review the cash available for dividends and repurchases, including the location and accessibility of foreign-held funds, debt maturities, and the board’s ability to change or suspend the dividend policy.
- Distinguish recurring earnings from prior-period unusual gains and review tax benefits, foreign-exchange effects, and deferred-revenue recognition assumptions.