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SYMANTEC CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) Forward-looking statements and factors that may affect future results
The discussion below contains forward-looking statements, which are subject to
safe harbors under the Securities Act of 1933, as amended, or the Securities
Act, and the Exchange Act. Forward-looking statements include references to our
ability to utilize our deferred tax assets, as well as statements including
words such as "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "projects," and similar expressions. In addition, statements that
refer to projections of our future financial performance, anticipated growth and
trends in our businesses and in our industries, the anticipated impacts of
acquisitions, our intent to pay quarterly cash dividends in the future, the
actions we intend to take as part of our new strategy, the expected impact of
our new strategy and other characterizations of future events or circumstances
are forward-looking statements. These statements are only predictions, based on
our current expectations about future events and may not prove to be accurate.
We do not undertake any obligation to update these forward-looking statements to
reflect events occurring or circumstances arising after the date of this report.
These forward-looking statements involve risks and uncertainties, and our actual
results, performance, or achievements could differ materially from those
expressed or implied by the forward-looking statements on the basis of several
factors, including those that we discuss in Risk Factors, set forth in Part I,
Item 1A, of our annual report on Form 10-K for the fiscal year ended March 30,
2012 and in our Current Report on Form 8-K filed on June 11, 2012. We encourage
you to read that section carefully.
Fiscal calendar
We have a 52/53-week fiscal accounting year ending on the Friday closest to
March 31. The three months ended December 28, 2012 and December 30, 2011 both
consisted of 13 weeks. The nine months ended December 28, 2012 and December 30,
2011 both consisted of 26 weeks.
OVERVIEWOur business
Symantec is a global provider of security, storage, and systems management
solutions that help organizations and consumers secure and manage their
information-driven world. Our software and services protect against advanced
threats enabling confidence wherever information is used or stored.
On July 24, 2012, Enrique Salem, our former President and Chief Executive
Officer ("CEO"), resigned from the Company. Our Board of Directors (the "Board")
appointed Stephen M. Bennett as our new President and CEO in addition to his
role as our Chairman of the Board, effective July 25, 2012. On January 21, 2013,
the Board appointed Daniel H. Schulman, a current independent member of the
Board, as our non-executive Chairman of the Board. Mr. Schulman replaces
Mr. Bennett, who remains our President, CEO and member of the Board.
New strategy announcement
On January 23, 2013, we announced our new strategy, with a particular focus on
future offerings and improving our operations and organizational structure. The
new strategy has financial as well as other implications for us.
Future Offerings
Symantec's goal is to continue to improve its existing products and services,
and at the same time develop new, innovative products and services that solve
important unmet or underserved needs.
These future offerings are intended to align with meeting three key customer
needs: Making it simple to be productive and protected at home and work; keeping
businesses safe and compliant; and keeping business information and applications
up and running. As such, Symantec is focusing on and considering the development
of offerings in the following core areas: Mobile Workforce Productivity, Norton
Protection, Norton Cloud, Information Security Services, Identity/Content-Aware
Security Gateway, Data Center Security, Business Continuity Platform, Integrated
Backup, Cloud-Based Information Management, and Object Storage Platform.
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We will increase our investment in research and development and home-grown
innovation to better meet next generation needs. Symantec will also establish
strategic partnerships where it can integrate what it does with others to add
even more value for customers.
Operations and Organization
Our sales process will continue to rely on the channel to address smaller to
mid-sized enterprises, which will free up Symantec's sales force to focus on the
largest opportunities to generate new business. Symantec will also broaden the
scope of its dedicated renewals team and enhance the marketing organization with
more strategic resources and capability to accelerate organic revenue growth.
In order to make the company more flexible and able to adapt quicker to the
needs of customers, more emphasis will be placed on giving front-line employees
greater empowerment, input and discretion in addressing customer's needs on a
day to day basis. As such, there will be fewer executive and middle management
positions, resulting in a reduction of the workforce. This process of
right-sizing is expected to be largely completed by the end of June 2013.
Financial Implications of New Strategy
The coming year will include significant transitions as we begin to improve our
growth capabilities, develop our dedicated renewals team, refocus our direct
field sales representatives on new business, eliminate duplicative organization
and operating structures and right size the company. Our income and cash flow
from operations may be impacted by severance charges and capital expenditures as
we invest in our people, processes and technology to execute on our organic
growth strategy in the coming year.
Our operating segments
Our operating segments are significant strategic business units that offer
different products and services, distinguished by customer needs. Since the
fourth quarter of fiscal 2008, we have operated in five operating segments:
Consumer, Security and Compliance, Storage and Server Management, Services, and
Other. Our reportable segments are the same as our operating segments. As a
result of the new strategy, we will analyze our operations and organization
structure and modify our segment reporting structure as necessary.
Financial results and trends
Revenue increased by $76 million and $109 million for the three and nine months
ended December 28, 2012, respectively, as compared to the same periods last
year. Fluctuations in the U.S. dollar compared to foreign currencies adversely
impacted our revenue by $16 million and $127 million for the three and nine
months ended December 28, 2012, respectively, as compared to the same periods
last year.
Cost of revenue increased by $28 million and $72 million for the three and nine
months ended December 28, 2012, respectively, as compared to the same periods
last year. Operating expenses increased by $50 million and $52 million for the
three and nine months ended December 28, 2012, as compared to the same periods
last year. We experienced favorable foreign currency effects of approximately
$14 million and $82 million on our operating expenses for the three and nine
months ended December 28, 2012, respectively, as compared to the same periods
last year.
Critical accounting estimates
There have been no material changes in the matters for which we make critical
accounting estimates in the preparation of our Condensed Consolidated Financial
Statements during the nine months ended December 28, 2012 as compared to those
disclosed in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in our Annual Report on Form 10-K for the fiscal
year ended March 30, 2012.
Recently issued authoritative guidance
Information with respect to recently issued authoritative guidance is in Note 1
of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q,
which information is incorporated herein by reference.
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-------------------------------------------------------------------------------- RESULTS OF OPERATIONS
Total net revenue
Three Months Ended Nine Months Ended
Change
December 28, December 30, Change in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)Content, subscription, and maintenance revenue $ 1,521 $ 1,462 $ 59 4 % $ 4,494 $ 4,353 $ 141
3 %
Percentage of total net revenue 85 % 85 % 87 % 86 %
License revenue $ 270 $ 253 $ 17 7 % $ 664 $ 696 $ (32 ) (5 )%
Percentage of total net revenue
15 % 15 % 13 % 14 %
Total net revenue $ 1,791 $ 1,715 $ 76 4 % $ 5,158 $ 5,049 $ 109 2 %
Content, subscription, and maintenance revenue increased for the three and nine
months ended December 28, 2012, as compared to the same periods last year,
primarily due to increases in revenue from our Storage and Server Management
segment of $31 million and $68 million, respectively, and our Security and
Compliance segment of $19 million and $73 million, respectively.
License revenue includes revenue from software licenses, appliances, and certain
revenue-sharing arrangements. License revenue increased for the three months
ended December 28, 2012, as compared to the same period last year, primarily due
to an increase in revenue from our Storage and Server Management segment of $17
million. License revenue decreased for the nine months ended December 28, 2012,
as compared to the same period last year, primarily due to a decline in revenue
from our Storage and Server Management segment of $44 million, partially offset
by an increase in revenue from our Security and Compliance segment of $7
million.
Net revenue and operating income by segment
Consumer segment
Three Months Ended Nine Months Ended
Change Change
December 28, December 30, in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Consumer revenue $ 530 $ 525 $ 5 1 % $ 1,579 $ 1,581 $ (2 ) 0 %
Percentage of total net revenue
30 % 31 % 31 % 31 %
Consumer operating income $ 227 $ 251 $ (24 ) (10 )% $ 748 $ 763 $ (15 ) (2 )%
Percentage of Consumer revenue
43 % 48 % 47 % 48 %
Consumer revenue remained consistent for the three and nine months ended
December 28, 2012 as compared to the same periods last year. Of the total
consumer revenue recognized in the three and nine months ended December 28,
2012, 89% and 88%, respectively, was generated from our electronic channel
sales, which were derived from online sales (including new subscriptions,
renewals and upgrades).
Consumer operating income decreased for the three months ended December 28,
2012, as compared to the same period last year, primarily due to increased
salaries and wages of $10 million, which was attributable to higher headcount,
higher cost of revenue of $8 million, which was attributable to higher OEM
royalty fees, and increased advertising expense of $7 million for search engine
advertising. For the nine months ended December 28, 2012, as compared to the
same period last year, Consumer operating income decreased primarily due to
higher salaries and wages of $24 million, which was attributable to higher
headcount, higher cost of revenue of $17 million, which was attributable to
higher OEM royalty fees, and increased outside service fees of $6 million,
partially offset by lower advertising promotion expense of $36 million, which
was primarily from lower OEM placement fees.
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Security and Compliance segment
Three Months Ended Nine Months Ended
Change
December 28, December 30, Change in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Security and Compliance revenue $ 527 $ 510 $ 17 3 % $ 1,540 $ 1,459 $ 81 6 %
Percentage of total net revenue 29 % 30 % 30 % 29 %Security and Compliance operating income $ 174 $
138 $ 36 26 % $ 463 $ 330 $ 133 40 %
Percentage of Security and Compliance revenue 33 % 27 % 30 % 23 %
Security and Compliance revenue increased for the three and nine months ended
December 28, 2012, as compared to the same periods last year, primarily due to
increases in our trust services offerings of $11 million and $51 million,
respectively, and our managed security services of $7 million and $18 million,
respectively. Additionally, for the nine months ended December 28, 2012, our
data loss prevention products increased by $8 million, as compared to the same
period last year. The revenue from our trust services offerings for the three
and nine months ended December 30, 2011 was lower than would have otherwise been
the case due to purchase accounting fair value adjustments to deferred revenue.
Security and Compliance operating income increased for the three and nine months
ended December 28, 2012, as compared to the same periods last year, primarily
due to increased revenue and lower overall operating expenses of $22 million and
$72 million, respectively. The decreased operating expenses were mainly due to
lower salaries and wages.
Storage and Server Management segment
Three Months Ended Nine Months Ended
Change
December 28, December 30, Change in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Storage and Server Management revenue $ 666 $ 618 $ 48 8 % $ 1,845 $ 1,821 $ 24 1 %
Percentage of total net revenue 37 % 36 % 36 % 36 %
Storage and Server Management operating income $ 263 $ 241 $ 22 9 % $ 734 $ 775 $ (41 ) (5 )%
Percentage of Storage and Server Management revenue 39 % 39 % 40 % 43 %
Storage and Server Management revenue increased for the three months ended
December 28, 2012, as compared to the same period last year, due to the overall
growth within our information management portfolio of $48 million. For the nine
months ended December 28, 2012, as compared to the prior period, the increase in
Storage and Server Management revenue was attributable to overall growth within
our information management portfolio of $52 million, partially offset by a $27
million decrease in our storage management portfolio. The growth within the
comparative periods of our information management portfolio was mainly driven by
our NetBackup offerings, which increased by $52 million and $81 million,
respectively, and our Enterprise Vault products, which increased by $14 million
and $31 million, respectively, partially offset by declines in our Backup Exec
offerings of $21 million and $68 million, respectively, as compared to the same
periods last year.
Storage and Server Management operating income increased for the three months
ended December 28, 2012, as compared to the same period last year, due to higher
revenue, partially offset by higher cost of revenue of $18 million, which was
attributable to growth in the appliances business coupled with increased
services costs. For the nine months ended December 28, 2012, as compared to the
same period last year, operating income decreased primarily from higher cost of
revenue of $45 million and higher salaries and wages of $21 million. The
increased cost of revenue was due to growth in the appliances business coupled
with higher services costs. The increased salaries and wages expense was due to
increased headcount, which was mainly attributable to our LiveOffice LLC
acquisition.
Services segment
Three Months Ended Nine Months Ended
December 28, December 30, Change in December 28, December 30, Change in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Services revenue $ 68 $ 62 $ 6 10 % $ 194 $ 188 $ 6 3 %
Percentage of total net revenue 4 % 3 % 3 % 4 %
Services operating income $ 12 $ 11 $ 1 9 % $ 33 $ 29 $ 4 14 %
Percentage of Services revenue 18 % 18 % 17 % 15 %
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Services revenue increased from our business critical services offerings for the
three and nine months ended December 28, 2012, respectively, as compared to the
same periods last year. Services operating income remained consistent for the
three and nine months ended December 28, 2012, as compared to the same periods
last year.
Other segment
Three Months Ended Nine Months Ended
Change Change
December 28, December 30, in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Other revenue $ - $ - $ - * $ - $ - $ - *
Percentage of total net revenue 0 % 0 % 0 % 0 %
Other operating loss $ (378 ) $ (341 ) $ (37 ) (11 )% $ (1,106 ) $ (1,010 ) $ (96 ) (10 )%
Percentage of Other revenue * * * *
* Percentage not meaningful
Our Other segment consists primarily of sunset products and products nearing the
end of their life cycle. The operating loss of our Other segment includes
certain general and administrative expenses, amortization of intangible and
other assets, charges such as stock-based compensation, restructuring and
transition expenses, and certain indirect costs that are not charged to the
other operating segments.
Net revenue by geographic region
Three Months Ended Nine Months Ended
Change Change
December 28, December 30, in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Americas (U.S., Canada and Latin America)
Consumer Segment $ 311 $ 302 $ 9 3 % $ 920 $ 904 $ 16
2 %
Security and Compliance Segment 279 275 4 1 % 819 774 45 6 %
Storage and Server Management Segment 331 321 10 3 % 946 940 6 1 %
Services Segment 35 34 1 3 % 102 104 (2 ) (2 )%
Total Americas $ 956 $ 932 $ 24 3 % $ 2,787 $ 2,722 $ 65 2 %
Percentage of total net revenue 53 % 55 % 54 % 54 %
EMEA (Europe, Middle East, Africa)
Consumer Segment $ 131 $ 133 $ (2 ) (2 )% $ 388 $ 415 $ (27 )
(7 )%
Security and Compliance Segment 134 131 3 2 % 389 393 (4 ) (1 )%
Storage and Server Management Segment 215 188 27 14 % 549 544 5 1 %
Services Segment 18 16 2 13 % 49 49 - 0 %
Total EMEA $ 498 $ 468 $ 30 6 % $ 1,375 $ 1,401 $ (26 ) (2 )%
Percentage of total net revenue 28 % 27 % 27 % 28 %
Asia Pacific/Japan
Consumer Segment $ 88 $ 90 $ (2 ) (2 )% $ 271 $ 262 $ 9 3 %
Security and Compliance Segment 114 104 10 10 % 332 292 40 14 %
Storage and Server Management Segment 120 109 11 10 % 350 337 13 4 %
Services Segment 15 12 3 25 % 43 35 8 23 %
Total Asia Pacific/Japan $ 337 $ 315 $ 22 7 % $ 996 $ 926 $ 70 8 %
Percentage of total net revenue 19 % 18 % 19 % 18 %
Total net revenue $ 1,791 $ 1,715 $ 76 4 % $ 5,158 $ 5,049 $ 109 2 %
Fluctuations in the U.S. dollar compared to foreign currencies adversely
impacted our international revenue by $16 million and $127 million for the three
and nine months ended December 28, 2012, respectively, as compared to the same
periods last year. Our international sales are and will continue to be a
significant portion of our revenue. As such, revenue will continue to be
affected by foreign currency exchange rates as compared to the U.S. dollar. We
are unable to predict the extent to which revenue in future periods will be
impacted by changes in foreign currency exchange rates. If international sales
continue to become a greater portion of our total sales in the future, changes
in foreign currency exchange rates may have a potentially greater impact on our
revenue and operating results.
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Cost of revenue
Three Months Ended Nine Months Ended
Change
December 28, December 30, in December 28, December 30, Change in
2012 2011 $ % 2012 2011 $ %
($ in millions)Cost of content, subscription, and maintenance $ 256 $
233 $ 23 10 % $ 752 $ 695 $ 57 8 %
As a percentage of related revenue 17 % 16 % 17 % 16 %
Cost of license $ 27 $ 16 $ 11 69 % $ 62 $ 33 $ 29 88 %
As a percentage of related revenue 10 % 6 % 9 % 5 %
Amortization of intangible assets $ 16 $ 22 $ (6 ) (27 )% $ 53 $ 67 $ (14 ) (21 )%
As a percentage of total net revenue 1 % 1 % 1 % 1 %
Cost of revenue $ 299 $ 271 $ 28 10 % $ 867 $ 795 $ 72 9 %
Gross margin 83 % 84 % 83 % 84 %
Cost of content, subscription, and maintenance consists primarily of technical
support costs, costs of billable services, and fees to OEMs under
revenue-sharing agreements. Cost of content, subscription, and maintenance
increased for the three and nine months ended December 28, 2012, as compared to
the same periods of last year, primarily due to higher technical support,
services, and OEM royalty costs. The increased costs were due to growth in our
business and higher payments to major OEM partners as part of revenue-sharing
arrangements.
Cost of license consists primarily of royalties paid to third parties under
technology licensing agreements, appliances manufacturing costs, and other
direct material costs. Cost of license increased for the three and nine months
ended December 28, 2012, as compared to the same periods of last year, primarily
due to the higher direct costs associated with the appliances business.
Intangible assets are comprised of developed technologies and patents from
acquired companies. Amortization of intangible assets decreased for the three
and nine months ended December 28, 2012, as compared to the same periods of last
year, due to certain developed technologies becoming fully amortized, partially
offset by the incremental amortization associated with our fiscal 2012
acquisitions.
Operating expenses
Our operating expenses were largely in line as a percentage of total net revenue
for the three and nine months ended December 28, 2012, as compared to the same
periods of last year.
Three Months Ended Nine Months Ended
December 28, December 30, Change in December 28, December 30, Change in
2012 2011 $ % 2012 2011 $ %
Sales and marketing expense $ 730 $ 711 $ 19 3 % $ 2,038 $ 2,073 $ (35 ) (2 )%
Percentage of total net revenue 41 % 41 % 40 % 41 %
Research and development expense $ 249 $ 242 $ 7 3 % $ 745 $ 728 $ 17 2 %
Percentage of total net revenue 14 % 14 % 14 % 14 %
General and administrative expense $ 117 $ 113 $ 4 4 % $ 336 $ 324 $ 12 4 %
Percentage of total net revenue 7 % 7 % 7 % 6 %
Amortization of intangible assets $ 71 $ 73 $ (2 ) (3 )% $ 215 $ 217 $ (2 ) (1 )%
Percentage of total net revenue 4 % 4 % 4 % 4 %
Restructuring and transition $ 27 $ 5 $ 22 * $ 85 $ 25 $ 60 *
Percentage of total net revenue 2 % 0 % 2 % 0 %
* Percentage not meaningful
Sales and marketing expense increased for the three months ended December 28,
2012, as compared to the same period of last year, primarily due to higher
salaries and wages of $8 million, which was attributable to higher headcount to
support the growth of our business and higher search engine advertising expense
of $8 million. For the nine months ended December 28, 2012, as compared to the
same period last year, the decrease was primarily due to lower promotional
expenses of $49 million, which was attributable to lower OEM placement fees,
partially offset by higher salaries and wages of $26 million.
Research and development expense increased for the three and nine months ended
December 28, 2012, as compared to the same periods last year, from higher
salaries and wages expenses of $6 million and $18 million, respectively. The
higher salaries and wages are attributed to increased headcount to support our
continued investment in product development.
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General and administrative expense remained relatively consistent for the three
and nine months ended December 28, 2012, as compared to the same periods of last
year.
Intangible assets are comprised of customer relationships and tradenames.
Amortization of intangible assets was slightly lower for the three and nine
months ended December 28, 2012, as compared to the same periods of last year.
For the three and nine months ended December 28, 2012, we recognized transition
and other related costs of $28 million and $84 million, respectively. Transition
and other related costs include severance costs of $6 million and $46 million
and consulting costs of $22 million and $38 million for those respective
periods. These consulting costs are associated with the planning and design
phases of implementing a new enterprise resource planning system. For the three
and nine months ended December 30, 2011, we recognized transition and other
related costs of $5 million and $18 million, respectively. Also, for the nine
months ended December 30, 2011, we recognized facilities costs of $5 million and
severance costs of $2 million. For further information on restructuring and
transition costs, see Note 7 of the Notes to Condensed Consolidated Financial
Statements.
Non-operating income (expense), net
Three Months Ended Nine Months Ended
Change Change
December 28, December 30, in December 28, December 30, in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Interest income $ 4 $ 2 $ 9 $ 10
Interest expense (38 ) (27 ) (102 ) (87 )
Other income (expense), net 20 (2 ) 15 (4 )
Loss from joint venture - - - (27 )
Total $ (14 ) $ (27 ) $ 13 48 % $ (78 ) $ (108 ) $ 30 28 %
Percentage of total net revenue (1 )% (2 )% (2 )% (2 )%
Net non-operating expense decreased for the three and nine months ended
December 28, 2012, as compared to the same periods of last year, primarily due
to a tax incentive received from the China tax bureau in the form of value-added
tax refunds of $27 million, which were included in Other income (expense), net.
See Note 5 of the Notes to Condensed Consolidated Financial Statements for
additional information.
In the first quarter of fiscal 2013, we issued $600 million in principal amount
of 2.75% interest-bearing senior notes due June 15, 2017 and $400 million in
principal amount of 3.95% interest-bearing senior notes due June 15, 2022, which
resulted in additional quarterly interest expense of $8 million starting in the
second quarter of fiscal 2013.
During prior year periods, we recorded our proportionate share of our joint
venture's net loss one quarter in arrears. In the fourth quarter of fiscal 2012,
we sold our ownership interest in the joint venture to Huawei Technologies Co.,
Limited.
Provision for income taxes
Three Months Ended Nine Months Ended
December 28, December 30, Change in December 28, December 30, Change in
2012 2011 $ % 2012 2011 $ %
($ in millions)
Provision for income taxes $ 72 $ 32 $ 40 125 % $ 217 $ 166 $ 51 31 %
Effective tax rate on earnings 25 % 12 % 27 % 21 %
The effective tax rate was approximately 25% and 27% for the three and nine
months ended December 28, 2012, and 12% and 21% for the three and nine months
ended December 30, 2011, respectively. For further information on our effective
tax rate, see Note 12 of the Notes to Condensed Consolidated Financial
Statements.
We are a U.S.-based multinational company subject to tax in the U.S. and
multiple international tax jurisdictions. Substantially all of our international
earnings were generated by subsidiaries in Ireland and Singapore. Our results of
operations would be adversely affected to the extent that our geographical mix
of income becomes more weighted toward jurisdictions with higher tax rates and
would be favorably affected to the extent the relative geographic mix shifts to
lower tax jurisdictions. Any change in our mix of earnings is dependent upon
many factors and is therefore difficult to predict.
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On December 2, 2009, we received a Revenue Agent's Report from the IRS for the
VERITAS 2002 through 2005 tax years assessing additional taxes due. We contested
$80 million of the tax assessed and all penalties. As a result of negotiations
with IRS Appeals in the three and nine months ended December 30, 2011, we
remeasured our liability for unrecognized tax benefits, resulting in a tax
benefit of $52 million. We executed the final closing agreement for the VERITAS
2002 through 2005 tax years on December 26, 2012. Accordingly, we recorded a
further tax benefit of $3 million during the three and nine months ended
December 28, 2012 based on the closing agreement.
The timing of the resolution of income tax examinations is highly uncertain, and
the amounts ultimately paid, if any, upon resolution of the issues raised by the
taxing authorities may differ materially from the amounts accrued for each year.
Although potential resolution of uncertain tax positions involve multiple tax
periods and jurisdictions, it is reasonably possible that the gross unrecognized
tax benefits related to these audits could decrease (whether by payment,
release, or a combination of both) in the next 12 months by between $135 million
and $250 million. Depending on the nature of the settlement or expiration of
statutes of limitations, we estimate at least $15 million could affect our
income tax provision and therefore benefit the resulting effective tax rate. As
of December 28, 2012, we have $184 million on deposit with the IRS pertaining to
U.S. tax matters in the VERITAS 2002 through 2005 audit cycle as well as the
Symantec 2005 through 2008 audit cycle.
We continue to monitor the progress of ongoing tax controversies and the impact,
if any, of the expiration of the statute of limitations in various taxing
jurisdictions.
Noncontrolling interest
In fiscal 2011, we completed the acquisition of the identity and authentication
business of VeriSign, Inc., including a controlling interest in its subsidiary
VeriSign Japan K.K. ("VeriSign Japan"), a publicly traded company on the Tokyo
Stock Exchange. Given our majority ownership interest of 54% in VeriSign Japan,
the accounts of VeriSign Japan have been consolidated with our accounts, and a
noncontrolling interest has been recorded for the noncontrolling investors'
interests in the equity and operations of VeriSign Japan. In July 2012, we
completed a tender offer and paid $92 million to acquire VeriSign Japan common
shares and stock rights, which increased our ownership percentage to 92%. In
November 2012, we acquired the remaining 8% interest for $19 million, which will
be paid in the fourth quarter of fiscal 2013. As of December 28, 2012, VeriSign
Japan is a wholly-owned subsidiary. See Note 14 of the Notes to Condensed
Consolidated Financial Statements for additional information.
LIQUIDITY AND CAPITAL RESOURCESSources of Cash
We have historically relied on cash flow from operations, borrowings under a
credit facility, and issuances of debt and equity securities for our liquidity
needs. As of December 28, 2012, we had cash and cash equivalents of $4.2 billion
and an unused credit facility of $1.0 billion resulting in a liquidity position
of $5.2 billion.
Senior Notes: In the first quarter of fiscal 2013, we issued $600 million in
principal amount of 2.75% senior notes due June 15, 2017 and $400 million in
principal amount of 3.95% senior notes due June 15, 2022, for an aggregate
principal amount of $1.0 billion. In the second quarter of fiscal 2011, we
issued $350 million in principal amount of 2.75% senior notes due September 15,
2015 and $750 million in principal amount of 4.20% senior notes due
September 15, 2020, for an aggregate principal amount of $1.1 billion.
Revolving Credit Facility: In the second quarter of fiscal 2011, we entered into
a $1.0 billion senior unsecured revolving credit facility ("credit facility"),
which was amended in the first quarter of 2013 to extend the term to June 7,
2017. Under the terms of this credit facility, we must comply with certain
financial and non-financial covenants, including a debt to EBITDA (earnings
before interest, taxes, depreciation and amortization) covenant. As of
December 28, 2012, we were in compliance with all required covenants, and there
was no outstanding balance on the credit facility.
We believe that our existing cash and investment balances, our borrowing
capacity, our ability to issue new debt instruments, and cash generated from
operations will be sufficient to meet our working capital and capital
expenditure requirements, as well as any cash dividends to be paid under the
capital allocation program announced in January 2013 and repurchases of our
stock, for at least the next 12 months.
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Uses of Cash
Our principal cash requirements include working capital, capital expenditures,
payments of principal and interest on our debt, and payments of taxes. Also, we
may, from time to time, engage in the open market purchase of our convertible
notes prior to their maturity. In January 2013, the Company announced a capital
allocation program, which includes plans to initiate a quarterly cash dividend.
In addition, we regularly evaluate our ability to repurchase stock, pay debts
and acquire other businesses. As of December 28, 2012, $2.4 billion in cash,
cash equivalents, and marketable securities were held by our foreign
subsidiaries. We have provided U.S. deferred taxes on a portion of our
undistributed foreign earnings sufficient to address the incremental U.S. tax
that would be due if we needed such portion of these funds to support our
operations in the U.S.
Acquisitions: During the nine months ended December 28, 2012, we acquired a
privately-held provider of mobile application management for an aggregate
payment of $28 million, net of cash acquired. During the nine months ended
December 30, 2011, we acquired Clearwell Systems Inc. for an aggregate payment
of $364 million, net of cash acquired.
Convertible Senior Notes: During the nine months ended December 30, 2011, the
remaining balance of our 0.75% convertible senior notes matured and we settled
with the holders with a cash payment of $600 million. We intend to use $1.0
billion of our cash and cash equivalents to repay our 1.00% Convertible Senior
Notes that mature in June 2013. Accordingly, we may use a substantial portion of
our cash and cash equivalents held in the U.S. to repay these notes upon
maturity.
Stock Repurchases: During the nine months ended December 28, 2012, we
repurchased 42 million shares, or $701 million, of our common stock. During the
nine months ended December 30, 2011, we repurchased 39 million shares, or $693
million, of our common stock. On January 23, 2013, we announced that our Board
of Directors authorized a new $1.0 billion stock repurchase program commencing
in the Company's fiscal year 2014, in addition to the remaining $283 million in
the current board authorized stock repurchase plan.
Noncontrolling Interest: In July 2012, we completed a tender offer and paid $92
million to acquire VeriSign Japan common shares and stock rights, which
increased our ownership percentage to 92%. In November 2012, we acquired the
remaining 8% interest for $19 million, which will be paid in the fourth quarter
of fiscal 2013. As of December 28, 2012, VeriSign Japan is a wholly-owned
subsidiary.
Dividend Program: On January 23, 2013, we announced a dividend program under
which we intend to pay a quarterly cash dividend beginning in the first quarter
of fiscal 2014. We expect the initial dividend rate to yield 2.5% based on
Symantec's closing stock price of $20.86 on January 22, 2013. The dividend
policy, future declarations of dividends, and payment dates will be subject to
the Board of Directors' continuing determination that the policy and the
declaration of dividends thereunder are in the best interest of our stockholders
and are in compliance with applicable law. The Board of Directors retains the
power to modify, suspend, or cancel our dividend policy in any manner and at any
time that it may deem necessary or appropriate in the future. As of the date of
this filing, the Board of Directors has not declared a dividend in connection
with the adoption of this policy.
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