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8-K - FORM 8-K - VERISIGN INC/CAform8-k12413.htm

Exhibit 99.1
        


Verisign Reports 13 Percent Year-Over-Year Revenue Growth in 2012

RESTON, VA - Jan. 24, 2013 - VeriSign, Inc. (NASDAQ: VRSN), the trusted provider of Internet infrastructure services for the networked world, announced financial results for the fourth quarter of 2012 and year ended Dec. 31, 2012.

Fourth Quarter GAAP Financial Results
VeriSign, Inc. and subsidiaries (“Verisign”) reported revenue of $230 million for the fourth quarter of 2012, up 13 percent from the same quarter in 2011. Verisign reported net income of $106 million and diluted earnings per share (EPS) of $0.65 for the fourth quarter of 2012, compared to net income of $54 million and diluted EPS of $0.34 for the same quarter in 2011. The operating margin was 58.8 percent for the fourth quarter of 2012 compared to 45.6 percent for the same quarter in 2011. Results for the fourth quarter of 2012 included non-recurring pre-tax benefits of $13.6 million, split $5.8 million and $7.8 million between continuing operations and discontinued operations, respectively, primarily related to reimbursements of previously incurred litigation and defense costs, received upon settlement with the selling shareholders of a previously acquired business. Additionally, results for the fourth quarter of 2012 include pre-tax benefits of $5.5 million related to a change in the estimated bonus payout. Together these items increased the operating margin by 4.9 percent and diluted EPS by $0.07. Results for the fourth quarter of 2011 included a pre-tax, $4 million non-operating accrued expense, which was non-recurring in nature and which reduced diluted EPS by $0.02.

Fourth Quarter Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $96 million and diluted EPS of $0.59 for the fourth quarter of 2012, compared to net income of $64 million and diluted EPS of $0.40 for the same quarter in 2011. The non-GAAP operating margin was 62.0 percent for the fourth quarter of 2012 compared to 50.9 percent for the same quarter in 2011. Non-GAAP results for the fourth quarter of 2012 included non-recurring pre-tax benefits of $5.8 million recorded in continuing operations, primarily related to reimbursements of previously incurred litigation and defense costs, received upon settlement with the selling shareholders of a previously acquired business. Additionally, the non-GAAP results for the fourth quarter of 2012 include pre-tax benefits of $5.5 million related to a change in the estimated bonus payout. Together these items increased the operating margin by 4.9 percent and diluted EPS by $0.05. Results for the fourth quarter of 2011 included a pre-tax, $4 million non-operating accrued expense, which was non-recurring in nature and which reduced diluted EPS by $0.02. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

“In 2012, Verisign marked 15 years of uninterrupted availability for .com and .net and we renewed the .com Registry Agreement for an additional six years. Our performance continues to demonstrate discipline and operational focus.  In 2013, we will continue to seek quality growth, while protecting and managing our business,” said Jim Bidzos, chairman and chief executive officer of Verisign.

2012 GAAP Financial Results
For the year ended Dec. 31, 2012, Verisign reported revenue of $874 million, up 13 percent from $772 million in 2011. Verisign reported net income of $320 million and diluted EPS of $1.95 in 2012, compared to net income of $143 million and diluted EPS of $0.86 in 2011. The operating margin for 2012 was 52.4 percent compared to 42.7 percent in 2011.

2012 Non-GAAP Financial Results
Verisign reported, on a non-GAAP basis, net income of $322 million and diluted EPS of $1.97 for 2012, compared to net income of $249 million and diluted EPS of $1.49 in 2011. The non-GAAP operating margin for 2012 was 56.2 percent compared to 49.7 percent in 2011. A table reconciling the GAAP to the non-GAAP results (which excludes items described below) is appended to this release.

Financial Highlights

Verisign ended the fourth quarter of 2012 with Cash, Cash Equivalents, Marketable Securities and Restricted Cash of $1.56 billion, an increase of $211 million from year-end 2011.




Cash flow from operations was $171 million for the fourth quarter of 2012 and $538 million for the full year 2012, compared with $124 million for the same quarter in 2011 and $336 million for the full year 2011.
Deferred revenues ended the fourth quarter of 2012 totaling $813 million, an increase of $84 million from year-end 2011.
Capital expenditures were $13 million in the fourth quarter and $53 million for the full year.
During the fourth quarter, Verisign repurchased approximately 2.3 million shares of its common stock for a cost of $94 million. During the full year 2012, Verisign repurchased approximately 7.7 million shares of its common stock for a cost of $315 million. On Dec. 5, 2012, the Board of Directors authorized the repurchase of up to approximately $458.8 million of our common stock, in addition to the approximately $541.2 million of our common stock remaining available for repurchase under the previous 2010 Share Buyback Program, for a total repurchase of up to $1.0 billion of Verisign common stock. At Dec. 31, 2012, approximately $976 million remained available and authorized for share repurchases.
For purposes of calculating diluted EPS, the fourth quarter diluted share count included 6.4 million shares related to the convertible debentures. These represent dilutive shares and not shares that have been issued. There was no dilution from the convertible debentures in the same quarter of 2011.
Due to the stock price not exceeding the convertible debentures trigger during the fourth quarter of 2012, the debentures are no longer convertible starting Jan. 1, 2013. Consequently, the debt component of the convertible debentures, the related embedded derivative, and deferred tax liability were reclassified from current liabilities to long-term liabilities, while the associated unamortized debt issuance costs were reclassified from current assets to long-term assets, as of Dec. 31, 2012.

Business and Corporate Highlights
 
Verisign Registry Services added 1.25 million net new names and ended the fourth quarter with 121.1 million active domain names in the zone for .com and .net, representing a 6.4 percent increase year over year.
Verisign processed 8.0 million and 33.1 million new domain name registrations for .com and .net, representing 0.9 percent and 3.0 percent increase year over year, in the fourth quarter and full year 2012 periods, respectively.
On Nov. 30, 2012, Verisign announced that the U.S. Department of Commerce approved the renewal of Verisign's revised agreement, on the terms described in that announcement, with the Internet Corporation for Assigned Names and Numbers (ICANN), to serve as the authoritative registry operator for the .com registry for the term commencing on Dec. 1, 2012 through Nov. 30, 2018.
On Dec. 19, 2012, Verisign announced that as of July 1, 2013, the registry fee for .net domain names will increase from $5.11 to $5.62.

Non-GAAP Items
Non-GAAP financial results exclude the following items that are included under GAAP: Discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012, and 30 percent for the other periods presented herein, both of which differ from the GAAP tax rate. A table reconciling the GAAP to non-GAAP operating income and net income is appended to this release.

Today's Conference Call
Verisign will host a live conference call today at 4:30 p.m. (EST) to review the fourth quarter and full year 2012 results. The call will be accessible by direct dial at (888) 676-VRSN (U.S.) or (913) 312-0637 (international). A listen-only live web cast and accompanying slide presentation of the fourth quarter and full year 2012 earnings conference call will also be available at http://investor.verisign.com. A replay of this call will be available at (888) 203-1112 or (719) 457-0820 (passcode: 1285042) beginning at 8:00 p.m. (EST) on Jan. 24, 2012, and will run through Feb. 1, 2012, at 7:00 p.m. (EST). An audio archive of the call will be available at https://investor.verisign.com/events.cfm. This news release and the financial information discussed on today's conference call are available at http://investor.verisign.com.

About Verisign  
VeriSign, Inc. (NASDAQ: VRSN) is the trusted provider of Internet infrastructure services for the networked world. Billions of times each day, Verisign helps companies and consumers all over the world connect between the dots. Additional news and information about the company is available at www.verisigninc.com.







VRSNF
###

Statements in this announcement other than historical data and information constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These statements involve risks and uncertainties that could cause Verisign's actual results to differ materially from those stated or implied by such forward-looking statements. The potential risks and uncertainties include, among others, the uncertainty of whether the Department of Commerce will approve any exercise by the Company of its right to increase the price per .com domain name, under certain circumstances, and whether the Company will be able to demonstrate to the Department of Commerce that market conditions warrant removal of the pricing restrictions on .com domain names; the uncertainty of future revenue and profitability and potential fluctuations in quarterly operating results due to such factors as restrictions on increasing prices under the 2012 .com Registry Agreement, increasing competition, pricing pressure from competing services offered at prices below our prices and changes in marketing and advertising practices, including those of third-party registrars; changes in search engine algorithms and advertising payment practices; challenging global economic conditions; challenges to ongoing privatization of Internet administration; the outcome of legal or other challenges resulting from our activities or the activities of registrars or registrants, or litigation generally; new or existing governmental laws and regulations; changes in customer behavior, Internet platforms and web-browsing patterns; the uncertainty of whether Verisign will successfully develop and market new services; the uncertainty of whether our new services will achieve market acceptance or result in any revenues; system interruptions; security breaches; attacks on the Internet by hackers, viruses, or intentional acts of vandalism; whether Verisign will be able to continue to expand its infrastructure to meet demand; the uncertainty of the expense and timing of requests for indemnification, if any, relating to completed divestitures; and the impact of the introduction of new gTLDs, any delays in their introduction and whether our gTLD applications or the applicants' gTLD applications for which we have contracted to provide back-end registry services will be successful. More information about potential factors that could affect the Company's business and financial results is included in Verisign's filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Verisign undertakes no obligation to update any of the forward-looking statements after the date of this announcement.

Contacts
Investor Relations: David Atchley, datchley@verisign.com, 703-948-4643
Media Relations: Deana Alvy, dalvy@verisign.com, 703-948-4179

©2013 VeriSign, Inc. All rights reserved. VERISIGN, the VERISIGN logo, and other trademarks, service marks, and designs are registered or unregistered trademarks of VeriSign, Inc. and its subsidiaries in the United States and in foreign countries. All other trademarks are property of their respective owners.






VERISIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
December 31,
2012
 
December 31,
2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
130,736

 
$
1,313,349

Marketable securities
1,425,700

 
32,860

Accounts receivable, net
11,477

 
14,974

Deferred tax assets
82,812

 
64,751

Prepaid expenses and other current assets
30,795

 
21,847

Total current assets
1,681,520

 
1,447,781

Property and equipment, net
333,861

 
327,136

Goodwill and other intangible assets, net
52,527

 
53,848

Long-term deferred tax assets
7,299

 
2,758

Other long-term assets
25,325

 
24,656

Total long-term assets
419,012

 
408,398

Total assets
$
2,100,532

 
$
1,856,179

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
130,391

 
$
156,385

Deferred revenues
564,627

 
502,538

Total current liabilities
695,018

 
658,923

Long-term deferred revenues
247,955

 
226,033

Convertible debentures, including contingent interest derivative
597,614

 
590,086

Long-term debt
100,000

 
100,000

Long-term deferred tax liabilities
424,970

 
325,527

Other long-term tax liabilities
44,298

 
43,717

Total long-term liabilities
1,414,837

 
1,285,363

Total liabilities
2,109,855

 
1,944,286

Commitments and contingencies
 
 
 
Stockholders’ deficit:
 
 
 
Preferred stock—par value $.001 per share; Authorized shares: 5,000; Issued and outstanding shares: none

 

Common stock—par value $.001 per share; Authorized shares: 1,000,000; Issued shares: 318,722 at December 31, 2012 and 316,781 at December 31, 2011; Outstanding shares: 153,392 at December 31, 2012 and 159,422 at December 31, 2011
319

 
317

Additional paid-in capital
19,891,291

 
20,135,237

Accumulated deficit
(19,900,545
)
 
(20,220,577
)
Accumulated other comprehensive loss
(388
)
 
(3,084
)
Total stockholders’ deficit
(9,323
)
 
(88,107
)
Total liabilities and stockholders’ deficit
$
2,100,532

 
$
1,856,179












VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2012
 
2011
 
2012
 
2011
Revenues
$
230,196

 
$
203,646

 
$
873,592

 
$
771,978

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
42,040

 
42,016

 
167,600

 
165,246

Sales and marketing
20,753

 
27,772

 
97,809

 
97,432

Research and development
16,059

 
13,121

 
61,694

 
53,277

General and administrative
16,024

 
24,512

 
89,927

 
111,122

Restructuring charges
(35
)
 
3,352

 
(765
)
 
15,512

Total costs and expenses
94,841

 
110,773

 
416,265

 
442,589

Operating income
135,355

 
92,873

 
457,327

 
329,389

Interest expense
(12,657
)
 
(11,859
)
 
(50,196
)
 
(147,332
)
Non-operating income, net
8,596

 
(3,688
)
 
5,564

 
11,530

Income from continuing operations before income taxes
131,294

 
77,326

 
412,695

 
193,587

Income tax expense
(30,205
)
 
(31,997
)
 
(100,210
)
 
(55,031
)
Income from continuing operations, net of tax
101,089

 
45,329

 
312,485

 
138,556

Income from discontinued operations, net of tax
4,552

 
8,485

 
7,547

 
4,335

Net income
105,641

 
53,814

 
320,032

 
142,891

Foreign currency translation adjustments

 
112

 

 
110

Increase (decrease) in unrealized gain on investments, net of tax
221

 
(15
)
 
2,757

 
688

Realized (gain) loss on investments, net of tax, included in net income
(6
)
 
3

 
(61
)
 
(2,548
)
Other comprehensive income (loss)
215

 
100

 
2,696

 
(1,750
)
Comprehensive income
$
105,856

 
$
53,714

 
$
322,728

 
$
141,141

 
 
 
 
 
 
 
 
Basic income per share:
 
 
 
 
 
 
 
Continuing operations
$
0.65

 
$
0.28

 
$
1.99

 
$
0.84

Discontinued operations
0.03

 
0.06

 
0.05

 
0.03

Net income
$
0.68

 
$
0.34

 
$
2.04

 
$
0.87

Diluted income per share:
 
 
 
 
 
 
 
Continuing operations
$
0.62

 
$
0.28

 
$
1.91

 
$
0.83

Discontinued operations
0.03

 
0.06

 
0.04

 
0.03

Net income
$
0.65

 
$
0.34

 
$
1.95

 
$
0.86

Shares used to compute net income per share
 
 
 
 
 
 
 
Basic
154,642

 
159,226

 
156,953

 
165,408

Diluted
162,034

 
160,087

 
163,909

 
166,887















VERISIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Year Ended December 31,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
320,032

 
$
142,891

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation of property and equipment and amortization of other intangible assets
54,819

 
55,706

Stock-based compensation
33,362

 
43,272

Excess tax benefit associated with stock-based compensation
(18,436
)
 
(13,420
)
Other, net
10,981

 
12,965

Changes in operating assets and liabilities
 
 
 
Accounts receivable
3,327

 
(251
)
Prepaid expenses and other assets
(31,946
)
 
11,043

Accounts payable and accrued liabilities
81,480

 
18,162

Deferred revenues
84,011

 
65,533

Net cash provided by operating activities
537,630

 
335,901

Cash flows from investing activities:
 
 
 
Proceeds from maturities and sales of marketable securities
1,234,156

 
546,006

Purchases of marketable securities
(2,622,898
)
 
(78,975
)
Purchases of property and equipment
(53,023
)
 
(192,660
)
Other investing activities
(588
)
 
(1,129
)
Net cash (used in) provided by investing activities
(1,442,353
)
 
273,242

Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock from option exercises and employee stock purchase plans
29,303

 
49,983

Repurchases of common stock
(325,680
)
 
(550,097
)
Payment of dividends to stockholders

 
(463,498
)
Excess tax benefit associated with stock-based compensation
18,436

 
13,420

Proceeds received from borrowings

 
100,000

Repayment of borrowings

 
(1,067
)
Other financing activities
189

 
(939
)
Net cash used in financing activities
(277,752
)
 
(852,198
)
Effect of exchange rate changes on cash and cash equivalents
(138
)
 
(3,224
)
Net decrease in cash and cash equivalents
(1,182,613
)
 
(246,279
)
Cash and cash equivalents at beginning of period
1,313,349

 
1,559,628

Cash and cash equivalents at end of period
$
130,736

 
$
1,313,349

Supplemental cash flow disclosures:
 
 
 
Cash paid for interest, net of capitalized interest
$
41,276

 
$
140,193

Cash paid for income taxes, net of refunds received
$
19,436

 
$
6,567













VERISIGN, INC.
STATEMENTS OF OPERATIONS RECONCILIATION
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Three Months Ended
 
December 31, 2012
 
December 31, 2011
 
Operating Income
 
Net Income
 
Operating Income
 
Net Income
GAAP as reported
$
135,355

 
$
105,641

 
$
92,873

 
$
53,814

Discontinued operations

 
(4,552
)
 
 
 
(8,485
)
Adjustments:

 

 
 
 
 
Stock-based compensation
6,971

 
6,971

 
7,165

 
7,165

Amortization of other intangible assets
533

 
533

 
325

 
325

Restructuring charges
(35
)
 
(35
)
 
3,352

 
3,352

Unrealized (gain)loss on contingent interest derivative on Convertible Debentures

 
(7,549
)
 
 
 
1,625

Non-cash interest expense

 
1,961

 
 
 
1,555

Tax adjustment

 
(7,085
)
 
 
 
4,593

Non-GAAP as adjusted
$
142,824

 
$
95,885

 
$
103,715

 
$
63,944

 
 
 
 
 
 
 
 
Revenues
$
230,196

 


 
$
203,646

 


Non-GAAP operating margin
62.0
%
 


 
50.9
%
 


Diluted shares

 
162,034

 

 
160,087

Per diluted share, non-GAAP as adjusted

 
$
0.59

 

 
$
0.40



Verisign provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). Along with this information, we typically disclose and discuss certain non-GAAP financial information in our quarterly earnings release, on investor conference calls and during investor conferences and related events. This non-GAAP financial information does not include the following types of financial measures that are included in GAAP: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012 and 30 percent for all other periods presented herein, both of which differ from the GAAP tax rate.
Management believes that this non-GAAP financial data supplements our GAAP financial data by providing investors with additional information that allows them to have a clearer picture of the Company's operations. The presentation of this additional information is not meant to be considered in isolation nor as a substitute for results prepared in accordance with GAAP. We believe that the non-GAAP information enhances the investors' overall understanding of our financial performance and the comparability of the company's operating results from period to period. Above, we have provided a reconciliation of the non-GAAP financial information that we provide each quarter with the comparable financial information reported in accordance with GAAP for the given period.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:
 
Three Months Ended December 31,
 
2012
 
2011
     Cost of revenues
$
1,275

 
$
1,376

     Sales and marketing
1,045

 
1,206

     Research and development
1,832

 
961

     General and administrative
2,819

 
3,622

Total stock-based compensation expense
$
6,971

 
$
7,165









VERISIGN, INC.
STATEMENTS OF OPERATIONS RECONCILIATION
(In thousands, except per share data)
(Unaudited)
 
Year Ended
 
Year Ended
 
December 31, 2012
 
December 31, 2011
 
Operating Income
 
Net Income
 
Operating Income
 
Net Income
 

 

 

 

GAAP as reported
$
457,327

 
$
320,032

 
$
329,389

 
$
142,891

Discontinued operations

 
(7,547
)
 

 
(4,335
)
Adjustments:

 

 

 

Stock-based compensation
33,362

 
33,362

 
37,571

 
37,571

Amortization of other intangible assets
1,321

 
1,321

 
1,293

 
1,293

Restructuring charges
(765
)
 
(765
)
 
15,512

 
15,512

Contingent interest payment to holders of Convertible Debentures

 

 

 
100,020

Unrealized (gain)loss on contingent interest derivative on Convertible Debentures

 
(422
)
 

 
1,125

Non-cash interest expense

 
7,370

 

 
6,540

Tax adjustment

 
(30,860
)
 

 
(51,663
)
Non-GAAP as adjusted
$
491,245

 
$
322,491

 
$
383,765

 
$
248,954

 
 
 
 
 
 
 
 
Revenues
$
873,592

 


 
$
771,978

 


Non-GAAP operating margin
56.2
%
 


 
49.7
%
 


Diluted shares
 
 
163,909

 
 
 
166,887

Per diluted share, non-GAAP as adjusted
 
 
$
1.97

 
 
 
$
1.49


Verisign provides quarterly and annual financial statements that are prepared in accordance with generally accepted accounting principles (GAAP). Along with this information, we typically disclose and discuss certain non-GAAP financial information in our quarterly earnings release, on investor conference calls and during investor conferences and related events. This non-GAAP financial information does not include the following types of financial measures that are included in GAAP: discontinued operations, stock-based compensation, amortization of other intangible assets, impairments of goodwill and other intangible assets, restructuring charges, contingent interest payments to holders of our Convertible Debentures, unrealized gain/loss on contingent interest derivative on Convertible Debentures, and non-cash interest expense. Non-GAAP financial information is also adjusted for a 28 percent tax rate starting from the third quarter of 2012 and 30 percent for all other periods presented herein, both of which differ from the GAAP tax rate.
Management believes that this non-GAAP financial data supplements our GAAP financial data by providing investors with additional information that allows them to have a clearer picture of the Company's operations. The presentation of this additional information is not meant to be considered in isolation nor as a substitute for results prepared in accordance with GAAP. We believe that the non-GAAP information enhances the investors' overall understanding of our financial performance and the comparability of the company's operating results from period to period. Above, we have provided a reconciliation of the non-GAAP financial information that we provide each quarter with the comparable financial information reported in accordance with GAAP for the given period.

SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the classification of stock-based compensation:
 
Year Ended December 31,
 
2012
 
2011
     Cost of revenues
$
5,754

 
$
6,655

     Sales and marketing
6,091

 
6,062

     Research and development
6,023

 
4,926

     General and administrative
15,494

 
19,928

     Restructuring charges

 
5,701

Total stock-based compensation expense
$
33,362

 
$
43,272