01—Abstract
Summary
Summary of the 10-K filed February 24, 2011. Cited figures are marked; the original filing is the authoritative source.
VeriSign, Inc. reported 2010 results as a company now focused on a single reportable segment, Naming Services, which comprises Registry Services (operator of the authoritative directory for .com, .net, .cc, .tv and .name) and Network Intelligence and Availability (NIA) Services.
During 2010 the company completed the sale of its Authentication Services business to Symantec for cash consideration of approximately $1.14 billiona, net of cash held by transferred subsidiaries of $127.5 million and transaction costs of $10.8 million, and ceased operations of its Content Portal Services business. Both are presented as discontinued operations, which produced a gain on sale of $726.2 million, net of tax of $254.3 million, and drove consolidated net income attributable to Verisign stockholders of $830,967 thousand, compared with $245,553 thousand in 2009. Continuing operations showed revenues of $680,578 thousand in 2010, up from $615,947 thousand in 2009, and operating income of $232,283 thousand, up from $159,958 thousand.
The filing attributes the revenue increase primarily to a 9% year-over-year rise in active .com and .net domain names, to 105.2 million, and to registry fee increases in October 2008 and July 2010. Interest expense rose to $157,667 thousandb, including $109,113 thousand of contingent interest paid to convertible debenture holders following the December 2010 special dividend of $3.00 per share, totaling $518.2 million.
The filing highlights a material dependence on the .com and .net registry agreements, which expire in 2012 and 2011 respectively, and on pending litigation brought by CFIT under the Sherman Act, which the District Court dismissed on February 11, 2011 with partial leave to amend. Cash, cash equivalents and marketable securities totaled $2,060,866 thousandc at December 31, 2010, and the company repurchased 15.7 million shares in 2010 for $437.7 million, with approximately $650 million in stockholder returns planned for 2011.
02—Key points
Key Highlights
- Revenues from continuing operations were $680,578 thousand in 2010, versus $615,947 thousand in 2009, driven mainly by a 9% increase in active .com and .net domain names to 105.2 million.
- Operating income from continuing operations was $232,283 thousand in 2010, compared with $159,958 thousand in 2009.
- The Authentication Services business was sold to Symantec on August 9, 2010 for approximately $1.14 billion in net cash consideration, producing a $726.2 million gain net of tax, which is reported in discontinued operations.
- A $3.00 per share special dividend totaling $518.2 million was paid in December 2010, which also triggered $109.1 million of contingent interest payments to convertible debenture holders.
- Cash, cash equivalents and marketable securities totaled $2,060,866 thousand at December 31, 2010, and the 2010 Share Buyback Program had about $1.3 billion available as of February 23, 2011.
- The .net Registry Agreement expires June 30, 2011 and the .com Registry Agreement expires November 30, 2012; the filing states the company expects these to be renewed under the stated public-interest standard.
- The CFIT Sherman Act lawsuit was dismissed on February 11, 2011 in its entirety, with leave to amend certain claims, and the .net claims may be repleaded.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Verisign kept $1.22.
- Revenue$680.6M100.0%
- Cost of revenue−$156.7M23.0%
- Gross profit$523.9M77.0%
- Operating costs−$291.6M42.8%
- Operating income$232.3M34.1%
- Interest, other & tax$598.7M88.0%
- Net income$831.0M122.1%
Where FY2010 revenue went
$680.6M- Other operating costs: $238.0M, 35% of revenue
- Operating income: $232.3M, 34% of revenue
- Cost of revenue: $156.7M, 23% of revenue
- R&D: $53.7M, 7.9% of revenue
Kept 34% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 24, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $680.58M$615.95M | +10.5% |
| Cost of Revenue | $156.68M$166.71M | −6.0% |
| Gross Profit | $523.90M$449.24M | +16.6% |
| R&D Expenses | $53.66M$52.36M | +2.5% |
| Operating Expenses | $448.30M$455.99M | −1.7% |
| Operating Income | $232.28M$159.96M | +45.2% |
| Interest Expense | $157.67M$47.35M | +233.0% |
| Net Income | $830.97M$245.55M | +238.4% |
| EPS (Basic) | $4.68$1.28 | +265.6% |
| EPS (Diluted) | $4.64$1.28 | +262.5% |
| Shares Outstanding (Basic) | 177.53M191.82M | −7.4% |
| Shares Outstanding (Diluted) | 178.97M192.57M | −7.1% |
05—Questions
Frequently Asked Questions
What is driving the change in VeriSign's revenue and profitability?
Revenue from continuing operations rose to $680,578 thousand from $615,947 thousand, primarily reflecting a 9% increase in active .com and .net domain names and fee increases effective October 2008 and July 2010. Operating income increased to $232,283 thousand from $159,958 thousand, primarily due to the revenue growth.
How did the Authentication Services sale affect reported results?
The sale closed August 9, 2010 for approximately $1.14 billion net of $127.5 million in transferred cash and $10.8 million in transaction costs. The filing reports a gain on sale of $726.2 million, net of $254.3 million tax, within discontinued operations, and consolidated net income attributable to stockholders was $830,967 thousand.
What are the main risks tied to the company's registry agreements?
Registry Services generates substantially all of the company's revenue following the divestitures. The .net Registry Agreement runs through June 30, 2011 and the .com Registry Agreement through November 30, 2012. The filing states that a failure to renew these on the same or similar terms could have a material adverse effect on the business.
How much cash did VeriSign return to shareholders in 2010, and what is planned for 2011?
In 2010 the company paid a special dividend of $518.2 million ($3.00 per share) and repurchased about 15.7 million shares for $437.7 million. The filing says it continues to evaluate means to return approximately $650 million to common stockholders in 2011.
What is the status of the CFIT antitrust litigation?
On February 11, 2011, the District Court granted VeriSign's motion to dismiss the third amended complaint. The dismissal is in its entirety, with leave to amend the .net-related claims and standing allegations, and the claim for disgorgement of domain name registration fees was dismissed without leave to amend. The filing says the case is ongoing and the trial was scheduled for December 2011.
06—Continue