01—Abstract
Summary
Summary of the 10-K filed March 16, 2005. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. reported 2004 revenues of $1,166,455 thousanda ($1.17 billion), up from $1,054,780 thousand in 2003, and net income of $186,225 thousand, or $0.72 per diluted share, compared with a net loss of $259,879 thousand in 2003.
Operating income was $131,728 thousandb, compared with an operating loss of $228,250 thousand in 2003. The improvement was driven by growth in both the Internet Services Group, where revenues rose to $564,148 thousand, and the Communications Services Group, where revenues rose to $602,307 thousand. The Communications growth was largely due to the June 2004 acquisition of Jamba!, which contributed approximately $180.8 million of revenue.
The 2003 results were affected by the sale of the Network Solutions registrar business in November 2003, and the company's amortization and impairment charges fell to $79,440 thousandc in 2004 from $335,505 thousand in 2003. The balance sheet ended the year with cash, cash equivalents and short-term investments of $737.4 million and total stockholders' equity of $1,691,997 thousand. Operating cash flow was $365,338 thousand.
During 2004 the company repurchased approximately 4.4 million shares for about $113 milliond, and about $167 million remained under its repurchase authorization at year end. Management expects revenue growth in both segments in 2005, and it anticipates that adopting SFAS No. 123R in the third quarter of 2005 will have a significant adverse impact on its statements of operations and net income per share.
The filing also flags material risks. These include a pending bid for the .net registry, which ICANN was scheduled to select in late March 2005; ongoing litigation with ICANN over SiteFinder and the RFP process; and a $270 million stock-based acquisition of LightSurf Technologies, expected to close by the end of the first quarter of 2005.
02—Key points
Key Highlights
- Revenues of $1,166,455 thousand in 2004, up from $1,054,780 thousand in 2003, with Communications Services Group revenues of $602,307 thousand and Internet Services Group revenues of $564,148 thousand.
- Net income of $186,225 thousand ($0.72 diluted EPS) versus a net loss of $259,879 thousand in 2003; operating income of $131,728 thousand versus an operating loss of $228,250 thousand.
- Jamba! acquisition in June 2004 for approximately $266 million contributed about $180.8 million of 2004 revenue, and the filing expects continued mobile content growth.
- Cash, cash equivalents and short-term investments totaled $737.4 million at December 31, 2004; net cash from operating activities was $365,338 thousand.
- Amortization and impairment of goodwill and other intangibles fell to $79,440 thousand from $335,505 thousand, reflecting prior impairments and assets becoming fully amortized.
- Pending .net registry re-bid (ICANN selection scheduled for late March 2005) and ongoing litigation with ICANN, including the SiteFinder dispute, are key risks cited in the filing.
- Agreed to acquire LightSurf Technologies for approximately $270 million in common stock, expected to close by the end of Q1 2005; SFAS 123R adoption in Q3 2005 is expected to significantly hurt reported earnings.
03—Questions
Frequently Asked Questions
How did VeriSign's profitability change in 2004?
VeriSign reported net income of $186,225 thousand, or $0.72 per diluted share, in 2004, compared with a net loss of $259,879 thousand in 2003. Operating income rose to $131,728 thousand from an operating loss of $228,250 thousand. Lower amortization and impairment charges, which fell to $79,440 thousand from $335,505 thousand, contributed to the improvement, along with higher revenue.
What drove revenue growth in 2004?
Total revenues rose to $1,166,455 thousand from $1,054,780 thousand. The Communications Services Group grew to $602,307 thousand, primarily due to the Jamba! acquisition, which contributed approximately $180.8 million. The Internet Services Group grew to $564,148 thousand, driven by Naming and Directory Services and Security Services. The filing also notes that the November 2003 sale of Network Solutions reduced comparability with prior periods.
What are the main risks flagged for the .net registry business?
The .net registry agreement expires on or about June 30, 2005, and ICANN is running a competitive bidding process, with selection scheduled for late March 2005. VeriSign has filed an arbitration request with the ICC alleging the RFP process is improper, and ICANN has filed its own claims alleging that VeriSign breached its .net agreement through the SiteFinder service. The filing states that it cannot predict the outcome of these matters.
What did VeriSign do with its capital in 2004?
VeriSign repurchased approximately 4.4 million shares for about $113 million during 2004, and about $167 million remained available under its $350 million repurchase authorization at year end. It acquired Jamba! for approximately $266 million, of which about $178 million was cash. It also sold about 7% of VeriSign Japan for approximately $78 million. Year-end cash, cash equivalents and short-term investments were $737.4 million.
What accounting change could affect future earnings?
The company must adopt SFAS No. 123R in the third quarter of 2005, which requires expensing employee stock options. The filing states that it expects the adoption to have a significant adverse impact on its consolidated statements of operations and net income per share. For reference, the filing says that recording option charges under SFAS 123 would have increased after-tax charges by approximately $136.8 million in 2004.
04—Continue