01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. (filed under the name VeriSign, Inc.; now trading on NASDAQ Global Select Market as VRSN) reported 2007 revenues of $1.50 billiona, down from $1.56 billion in 2006, and a net loss of $139.5 million, compared with net income of $379.0 million in 2006.
The loss was driven by a $182.2 millionb goodwill impairment and $110.1 million in restructuring, impairments and other charges, both tied to the company's decision to divest non-core businesses. Operating loss was $221.5 million. Revenue from the Internet Services Group rose to $916.98 million, while Communications Services Group revenue fell to $579.31 million, largely reflecting the January 2007 divestiture of majority ownership in Jamba.
The company plans to divest communications, billing and commerce, content delivery, messaging and enterprise security businesses, keeping Naming Services, SSL Certificate Services and Identity and Authentication services. Management reported a material weakness in internal control over financial reporting related to stock administration practices, and KPMG issued an adverse opinion on internal control. Cash and cash equivalents were $1.38 billionc at year-end 2007, against $1.25 billion of 3.25% junior subordinated convertible debentures due 2037.
In early 2008 the company repurchased shares under a $600 milliond accelerated share repurchase agreement and additional programs. For investors, the filing highlights a transition year: a shrinking revenue base as non-core operations are sold, significant impairment and restructuring charges, a material weakness requiring remediation, and capital returned to shareholders through substantial buybacks funded in part by the convertible debt.
02—Key points
Key Highlights
- Revenues of $1,496.3 million in 2007, down from $1,563.0 million in 2006; Internet Services Group revenues rose to $917.0 million while Communications Services Group revenues fell to $579.3 million.
- Net loss of $139.5 million in 2007, versus net income of $379.0 million in 2006, including a $182.2 million goodwill impairment for the Content Services reporting unit.
- Restructuring, impairments and other charges of $110.1 million in 2007, including a $29.6 million 2007 restructuring plan charge.
- Plan to divest non-core businesses (communications, billing and commerce, content delivery, messaging and enterprise security), retaining Naming Services, SSL Certificate Services and Identity and Authentication services.
- Issued $1.25 billion of 3.25% junior subordinated convertible debentures due 2037 in August 2007, with net proceeds of $1.22 billion, used largely to repurchase about 38.0 million shares for approximately $1.15 billion.
- Management identified a material weakness in internal control over financial reporting related to stock administration; KPMG issued an adverse opinion on internal control as of December 31, 2007.
- Cash and cash equivalents of $1,376.7 million at December 31, 2007; subsequent to year-end, repurchased 13.3 million shares for $451.9 million and entered a $600 million accelerated share repurchase agreement.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2007, Verisign lost $0.18.
- Revenue$850.5M100.0%
- Cost of revenue−$240.1M28.2%
- Gross profit$610.4M71.8%
- Operating costs−$841.9M99.0%
- Operating income−$231.5M27.2%
- Interest, other & tax$81.2M9.5%
- Net income−$150.3M17.7%
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 2008Financial Statements
| Revenue | $850.51M |
| Cost of Revenue | $240.12M |
| Gross Profit | $610.39M |
| R&D Expenses | $94.43M |
| Operating Expenses | $1.08B |
| Operating Income | -$231.52M |
| Net Income | -$150.35M |
| EPS (Basic) | $-0.63 |
| EPS (Diluted) | $-0.63 |
| Shares Outstanding (Basic) | 237.71M |
| Shares Outstanding (Diluted) | 237.71M |
05—Questions
Frequently Asked Questions
Why did VeriSign report a net loss in 2007 after a profitable 2006?
The 2007 net loss of $139.5 million reflects a $182.2 million goodwill impairment on the Content Services reporting unit, $110.1 million of restructuring, impairments and other charges, and a $221.5 million operating loss. The company attributed the impairment to its decision to divest non-core businesses. 2006 net income had been boosted by a $349.8 million income tax benefit from releasing a valuation allowance and a non-recurring tax benefit.
What is the company's divestiture strategy and what risks does it create?
VeriSign plans to sell communications, billing and commerce, content delivery, messaging and enterprise security businesses to focus on Naming Services, SSL Certificate Services, and Identity and Authentication services. The filing notes risks including difficulty identifying buyers, possible charges to complete the plan, potential retained contingent liabilities, non-compete restrictions, and covenants in the bank credit facility limiting asset sales. Revenues, operating expenses and operating income from continuing operations are expected to decrease in 2008 as a result.
What is the material weakness and how is the company addressing it?
Management identified a material weakness arising from deficiencies in stock administration policies and practices, including lack of coordination among Human Resources, Accounting and Legal departments and lack of consistent, complete and timely reconciliation of equity grants to financial reporting systems. As a result, disclosure controls were concluded to be not effective. The 2008 remediation plan includes moving the stock administration team to the Accounting Department, improving cross-departmental coordination, and implementing reconciliations of stock administration data.
How much debt does VeriSign carry and what are the conversion terms?
The company had $1.25 billion principal amount of 3.25% junior subordinated convertible debentures due August 15, 2037, with a carrying value of $1,265.3 million at year-end 2007. The initial conversion price is approximately $34.37 per share. Upon conversion, the company must pay cash equal to the lesser of principal and conversion value. The fair value of the debentures was approximately $1.6 billion at December 31, 2007. The company also had a $500 million revolving credit facility with no outstanding borrowings at year-end.
What capital returns have shareholders received?
In 2007 the company repurchased 38.2 million shares for $1,156.5 million in total, including structured repurchases tied to the August 2007 share repurchase activity. In January and February 2008 it repurchased 13.3 million shares for $451.9 million under the 2006 program, and on January 31, 2008 the board authorized a new $600 million program. The company has never declared or paid cash dividends and does not expect to in the foreseeable future.
06—Continue