|
|
|
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
|
94-3221585
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
12061 Bluemont Way, Reston, Virginia
|
|
20190
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Large accelerated filer
|
x
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
o
|
Class
|
|
Shares Outstanding April 19, 2013
|
Common stock, $.001 par value
|
|
150,744,698
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
Financial Statement Description
|
Page
|
|
March 31,
2013 |
|
December 31,
2012 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
78,620
|
|
|
$
|
130,736
|
|
Marketable securities
|
1,483,827
|
|
|
1,425,700
|
|
||
Accounts receivable, net
|
13,617
|
|
|
11,477
|
|
||
Deferred tax assets
|
286
|
|
|
44,756
|
|
||
Prepaid expenses and other current assets
|
38,849
|
|
|
30,795
|
|
||
Total current assets
|
1,615,199
|
|
|
1,643,464
|
|
||
Property and equipment, net
|
333,183
|
|
|
333,861
|
|
||
Goodwill
|
52,527
|
|
|
52,527
|
|
||
Long-term deferred tax assets
|
52,793
|
|
|
7,299
|
|
||
Other long-term assets
|
17,411
|
|
|
25,325
|
|
||
Total long-term assets
|
455,914
|
|
|
419,012
|
|
||
Total assets
|
$
|
2,071,113
|
|
|
$
|
2,062,476
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable and accrued liabilities
|
$
|
119,986
|
|
|
$
|
130,391
|
|
Deferred revenues
|
591,356
|
|
|
564,627
|
|
||
Subordinated convertible debentures, including contingent interest derivative
|
606,142
|
|
|
—
|
|
||
Deferred tax liabilities
|
388,923
|
|
|
—
|
|
||
Total current liabilities
|
1,706,407
|
|
|
695,018
|
|
||
Long-term deferred revenues
|
255,438
|
|
|
247,955
|
|
||
Subordinated convertible debentures, including contingent interest derivative
|
—
|
|
|
597,614
|
|
||
Long-term debt
|
100,000
|
|
|
100,000
|
|
||
Long-term deferred tax liabilities
|
3,657
|
|
|
386,914
|
|
||
Other long-term tax liabilities
|
44,747
|
|
|
44,298
|
|
||
Total long-term liabilities
|
403,842
|
|
|
1,376,781
|
|
||
Total liabilities
|
2,110,249
|
|
|
2,071,799
|
|
||
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: 319,745 at March 31, 2013 and 318,722 at December 31, 2012; Outstanding shares: 151,185 at March 31, 2013 and 153,392 at December 31, 2012
|
320
|
|
|
319
|
|
||
Additional paid-in capital
|
19,777,251
|
|
|
19,891,291
|
|
||
Accumulated deficit
|
(19,816,032
|
)
|
|
(19,900,545
|
)
|
||
Accumulated other comprehensive loss
|
(675
|
)
|
|
(388
|
)
|
||
Total stockholders’ deficit
|
(39,136
|
)
|
|
(9,323
|
)
|
||
Total liabilities and stockholders’ deficit
|
$
|
2,071,113
|
|
|
$
|
2,062,476
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
Revenues
|
$
|
236,447
|
|
|
$
|
205,726
|
|
Costs and expenses:
|
|
|
|
||||
Cost of revenues
|
47,254
|
|
|
41,256
|
|
||
Sales and marketing
|
18,104
|
|
|
27,815
|
|
||
Research and development
|
18,176
|
|
|
14,765
|
|
||
General and administrative
|
19,649
|
|
|
23,508
|
|
||
Restructuring charges
|
—
|
|
|
(548
|
)
|
||
Total costs and expenses
|
103,183
|
|
|
106,796
|
|
||
Operating income
|
133,264
|
|
|
98,930
|
|
||
Interest expense
|
(12,596
|
)
|
|
(12,340
|
)
|
||
Non-operating (loss) income, net
|
(5,777
|
)
|
|
807
|
|
||
Income from continuing operations before income taxes
|
114,891
|
|
|
87,397
|
|
||
Income tax expense
|
(30,378
|
)
|
|
(21,292
|
)
|
||
Income from continuing operations, net of tax
|
84,513
|
|
|
66,105
|
|
||
Income from discontinued operations, net of tax
|
—
|
|
|
1,904
|
|
||
Net income
|
84,513
|
|
|
68,009
|
|
||
Unrealized loss on investments, net of tax
|
(267
|
)
|
|
(5
|
)
|
||
Realized gain on investments, net of tax, included in net income
|
(20
|
)
|
|
(5
|
)
|
||
Other comprehensive loss
|
(287
|
)
|
|
(10
|
)
|
||
Comprehensive income
|
$
|
84,226
|
|
|
$
|
67,999
|
|
|
|
|
|
||||
Basic income per share:
|
|
|
|
||||
Continuing operations
|
$
|
0.55
|
|
|
$
|
0.41
|
|
Discontinued operations
|
—
|
|
|
0.02
|
|
||
Net income
|
$
|
0.55
|
|
|
$
|
0.43
|
|
Diluted income per share:
|
|
|
|
||||
Continuing operations
|
$
|
0.52
|
|
|
$
|
0.41
|
|
Discontinued operations
|
—
|
|
|
0.01
|
|
||
Net income
|
$
|
0.52
|
|
|
$
|
0.42
|
|
Shares used to compute net income per share
|
|
|
|
||||
Basic
|
152,543
|
|
|
159,344
|
|
||
Diluted
|
161,346
|
|
|
162,881
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
84,513
|
|
|
$
|
68,009
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation of property and equipment and amortization of other intangible assets
|
15,118
|
|
|
12,741
|
|
||
Stock-based compensation
|
7,594
|
|
|
8,130
|
|
||
Excess tax benefit associated with stock-based compensation
|
(11,808
|
)
|
|
(3,567
|
)
|
||
Deferred income taxes
|
4,787
|
|
|
10,560
|
|
||
Other, net
|
10,742
|
|
|
1,006
|
|
||
Changes in operating assets and liabilities
|
|
|
|
||||
Accounts receivable
|
(2,280
|
)
|
|
1,392
|
|
||
Prepaid expenses and other assets
|
3,210
|
|
|
9,822
|
|
||
Accounts payable and accrued liabilities
|
4,549
|
|
|
(52,534
|
)
|
||
Deferred revenues
|
34,212
|
|
|
54,719
|
|
||
Net cash provided by operating activities
|
150,637
|
|
|
110,278
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from maturities and sales of marketable securities
|
706,244
|
|
|
5,060
|
|
||
Purchases of marketable securities
|
(764,268
|
)
|
|
(5,082
|
)
|
||
Purchases of property and equipment
|
(17,115
|
)
|
|
(12,917
|
)
|
||
Other investing activities
|
(3,426
|
)
|
|
—
|
|
||
Net cash used in investing activities
|
(78,565
|
)
|
|
(12,939
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock from option exercises and employee stock purchase plans
|
8,733
|
|
|
11,390
|
|
||
Repurchases of common stock
|
(142,892
|
)
|
|
(75,149
|
)
|
||
Excess tax benefit associated with stock-based compensation
|
11,808
|
|
|
3,567
|
|
||
Other financing activities
|
—
|
|
|
189
|
|
||
Net cash used in financing activities
|
(122,351
|
)
|
|
(60,003
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(1,837
|
)
|
|
2,355
|
|
||
Net (decrease) increase in cash and cash equivalents
|
(52,116
|
)
|
|
39,691
|
|
||
Cash and cash equivalents at beginning of period
|
130,736
|
|
|
1,313,349
|
|
||
Cash and cash equivalents at end of period
|
$
|
78,620
|
|
|
$
|
1,353,040
|
|
Supplemental cash flow disclosures:
|
|
|
|
||||
Cash paid for interest, net of capitalized interest
|
$
|
20,393
|
|
|
$
|
20,036
|
|
Cash paid for income taxes, net of refunds received
|
$
|
729
|
|
|
$
|
13,186
|
|
|
March 31,
|
|
December 31,
|
||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Cash
|
$
|
48,964
|
|
|
$
|
63,578
|
|
Money market funds
|
14,219
|
|
|
38,054
|
|
||
Time deposits
|
4,372
|
|
|
3,614
|
|
||
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies
|
1,499,722
|
|
|
1,452,358
|
|
||
Equity securities of a public company
|
3,105
|
|
|
3,341
|
|
||
Total
|
$
|
1,570,382
|
|
|
$
|
1,560,945
|
|
|
|
|
|
||||
Included in Cash and cash equivalents
|
$
|
78,620
|
|
|
$
|
130,736
|
|
Included in Marketable securities
|
$
|
1,483,827
|
|
|
$
|
1,425,700
|
|
Included in Other long-term assets (Restricted cash)
|
$
|
7,935
|
|
|
$
|
4,509
|
|
|
March 31, 2013
|
||||||||||
|
Amortized Cost
|
|
Unrealized Gains
|
|
Fair Value
|
||||||
|
(In thousands)
|
||||||||||
Due within one year
|
$
|
1,471,062
|
|
|
$
|
170
|
|
|
$
|
1,471,232
|
|
Due after one year through three years
|
28,419
|
|
|
71
|
|
|
28,490
|
|
|||
Total
|
$
|
1,499,481
|
|
|
$
|
241
|
|
|
$
|
1,499,722
|
|
|
|
|
Fair Value Measurement Using
|
||||||||||||
|
Total Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
||||||||
|
(In thousands)
|
||||||||||||||
As of March 31, 2013:
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Investments in money market funds
|
$
|
14,219
|
|
|
$
|
14,219
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies
|
1,499,722
|
|
|
1,466,583
|
|
|
33,139
|
|
|
—
|
|
||||
Equity securities of public company
|
3,105
|
|
|
3,105
|
|
|
—
|
|
|
—
|
|
||||
Foreign currency forward contracts (1)
|
367
|
|
|
—
|
|
|
367
|
|
|
—
|
|
||||
Total
|
$
|
1,517,413
|
|
|
$
|
1,483,907
|
|
|
$
|
33,506
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Contingent interest derivative on the Subordinated Convertible Debentures
|
$
|
17,636
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,636
|
|
Foreign currency forward contracts (2)
|
166
|
|
|
—
|
|
|
166
|
|
|
—
|
|
||||
Total
|
$
|
17,802
|
|
|
$
|
—
|
|
|
$
|
166
|
|
|
$
|
17,636
|
|
As of December 31, 2012:
|
|
|
|
|
|
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Investments in money market funds
|
$
|
38,054
|
|
|
$
|
38,054
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies
|
1,452,358
|
|
|
1,419,280
|
|
|
33,078
|
|
|
—
|
|
||||
Equity securities of public company
|
3,341
|
|
|
—
|
|
|
3,341
|
|
|
—
|
|
||||
Foreign currency forward contracts (1)
|
71
|
|
|
—
|
|
|
71
|
|
|
—
|
|
||||
Total
|
$
|
1,493,824
|
|
|
$
|
1,457,334
|
|
|
$
|
36,490
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Contingent interest derivative on the Subordinated Convertible Debentures
|
$
|
11,203
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,203
|
|
Foreign currency forward contracts (2)
|
765
|
|
|
—
|
|
|
765
|
|
|
—
|
|
||||
Total
|
$
|
11,968
|
|
|
$
|
—
|
|
|
$
|
765
|
|
|
$
|
11,203
|
|
(1)
|
Included in Prepaid expenses and other current assets
|
(2)
|
Included in Accounts payable and accrued liabilities
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Beginning balance
|
$
|
11,203
|
|
|
$
|
11,625
|
|
Unrealized loss on contingent interest derivative on the Subordinated Convertible Debentures
|
6,433
|
|
|
813
|
|
||
Ending balance
|
$
|
17,636
|
|
|
$
|
12,438
|
|
|
March 31,
|
|
December 31,
|
||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Prepaid expenses
|
$
|
12,272
|
|
|
$
|
15,413
|
|
Non-trade receivables
|
15,231
|
|
|
15,056
|
|
||
Debt issuance costs
|
10,799
|
|
|
—
|
|
||
Other
|
547
|
|
|
326
|
|
||
Total prepaid expenses and other current assets
|
$
|
38,849
|
|
|
$
|
30,795
|
|
|
March 31,
|
|
December 31,
|
||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Other tax receivable
|
$
|
5,811
|
|
|
$
|
5,811
|
|
Long-term investments
|
413
|
|
|
413
|
|
||
Debt issuance costs
|
644
|
|
|
11,516
|
|
||
Long-term restricted cash
|
7,935
|
|
|
4,509
|
|
||
Security deposit and other
|
2,608
|
|
|
3,076
|
|
||
Total other long-term assets
|
$
|
17,411
|
|
|
$
|
25,325
|
|
|
March 31,
|
|
December 31,
|
||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Accounts payable
|
$
|
23,410
|
|
|
$
|
23,519
|
|
Accrued employee compensation
|
28,875
|
|
|
38,778
|
|
||
Customer deposits, net
|
17,643
|
|
|
19,321
|
|
||
Taxes payable and other tax liabilities
|
32,275
|
|
|
21,918
|
|
||
Other accrued liabilities
|
17,783
|
|
|
26,855
|
|
||
Total accounts payable and accrued liabilities
|
$
|
119,986
|
|
|
$
|
130,391
|
|
|
Three Months Ended March 31,
|
|||
|
2013
|
|
2012
|
|
|
(In thousands)
|
|||
Weighted-average number of common shares outstanding
|
152,543
|
|
159,344
|
|
Weighted-average potential shares of common stock outstanding:
|
|
|
|
|
Conversion spread related to the Subordinated Convertible Debentures
|
7,904
|
|
2,541
|
|
Unvested RSUs
|
787
|
|
767
|
|
Stock options
|
104
|
|
201
|
|
Employee stock purchase plan
|
8
|
|
28
|
|
Shares used to compute diluted net income per share
|
161,346
|
|
162,881
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(In thousands,
except per share data)
|
||||||
Weighted-average stock options outstanding
|
—
|
|
|
60
|
|
||
Weighted-average exercise price
|
$
|
—
|
|
|
$
|
40.81
|
|
Weighted-average RSUs outstanding
|
301
|
|
|
2
|
|
||
Employee stock purchase plan
|
86
|
|
|
120
|
|
|
Three Months Ended March 31,
|
||||||
2013
|
|
2012
|
|||||
|
(In thousands)
|
||||||
Cost of revenues
|
$
|
1,540
|
|
|
$
|
1,537
|
|
Sales and marketing
|
1,487
|
|
|
1,516
|
|
||
Research and development
|
1,895
|
|
|
1,242
|
|
||
General and administrative
|
2,672
|
|
|
3,835
|
|
||
Total stock-based compensation expense
|
$
|
7,594
|
|
|
$
|
8,130
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
RSUs
|
$
|
6,521
|
|
|
$
|
7,413
|
|
Employee stock purchase plan
|
1,707
|
|
|
1,010
|
|
||
Stock options
|
83
|
|
|
355
|
|
||
Capitalization (Included in Property and equipment, net)
|
(717
|
)
|
|
(648
|
)
|
||
Total stock-based compensation expense
|
$
|
7,594
|
|
|
$
|
8,130
|
|
•
|
during any fiscal quarter beginning after December 31, 2007, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130%
of the applicable conversion price in effect on the last trading day of such preceding fiscal quarter (the “Conversion Price Threshold Trigger”);
|
•
|
during the five business-day period after any 10 consecutive trading-day period in which the trading price per
$1,000
principal amount of Subordinated Convertible Debentures for each day of that 10 consecutive trading-day period was less than
98%
of the product of the last reported sale price of the Company’s common stock and the conversion rate on such day;
|
•
|
if the Company calls any or all of the Subordinated Convertible Debentures for redemption pursuant to the terms of the Indenture, at any time prior to the close of business on the trading day immediately preceding the redemption date;
|
•
|
upon the occurrence of any of several specified corporate transactions as specified in the Indenture governing the Subordinated Convertible Debentures; or
|
•
|
at any time on or after
May 15, 2037
, and prior to the maturity date.
|
|
Three Months Ended March 31,
|
||||||
2013
|
|
2012
|
|||||
|
(In thousands)
|
||||||
Contractual interest on the Subordinated Convertible Debentures
|
$
|
10,156
|
|
|
$
|
10,156
|
|
Amortization of debt discount on the Subordinated Convertible Debentures
|
2,101
|
|
|
1,935
|
|
||
Interest capitalized to Property and equipment, net
|
(268
|
)
|
|
(388
|
)
|
||
Credit facility and other interest expense
|
607
|
|
|
637
|
|
||
Total interest expense
|
$
|
12,596
|
|
|
$
|
12,340
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Interest and dividend income
|
$
|
643
|
|
|
$
|
300
|
|
Unrealized loss on contingent interest derivative on Subordinated Convertible Debentures
|
(6,433
|
)
|
|
(813
|
)
|
||
Income from transition services agreements
|
—
|
|
|
1,093
|
|
||
Other, net
|
13
|
|
|
227
|
|
||
Total non-operating (loss) income, net
|
$
|
(5,777
|
)
|
|
$
|
807
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(Dollars in thousands)
|
||||||
Income tax expense from continuing operations
|
$
|
30,378
|
|
|
$
|
21,292
|
|
Effective tax rate
|
26
|
%
|
|
24
|
%
|
•
|
We recorded revenues of
$236.4 million
during the
three
months ended
March 31, 2013
which represents an increase of
15%
as compared to the same period in 2012.
|
•
|
We recorded operating income of
$133.3 million
during the three months ended
March 31, 2013
, an increase of
35%
, as compared to the same period of the prior year.
|
•
|
We repurchased approximately
3.0 million
shares of our common stock under the 2012 Share Buyback Program for an aggregate cost of
$132.0 million
during the three months ended
March 31, 2013
. Through April 25, 2013, we repurchased an additional 0.6 million shares of our common stock under the 2012 Share Buyback Program for an aggregate cost of $26.9 million.
|
•
|
We generated cash flows from operating activities of
$150.6 million
during the
three
months ended
March 31, 2013
, an increase of
37%
as compared to the same period last year.
|
•
|
The price of our common stock exceeded the Conversion Price Threshold Trigger during the first quarter of 2013, and therefore, the Subordinated Convertible Debentures are convertible into common stock during the second quarter of 2013 at the option of each holder. The debt component of the Subordinated Convertible Debentures, the related embedded contingent interest derivative, and deferred tax liability were reclassified from long-term liabilities to current liabilities, while the associated unamortized debt issuance costs were reclassified from long-term assets to current assets, as of March 31, 2013.
|
•
|
On April 16, 2013, we issued $750.0 million aggregate principal amount of 4.625% Senior Notes due 2023. We used $100.0 million of the proceeds to repay the outstanding indebtedness under our existing revolving credit facility and we intend to use the remaining proceeds for general corporate purposes including, but not limited to, the repurchase of shares under the 2012 Share Buyback Program.
|
|
Three Months Ended March 31,
|
||||
|
2013
|
|
2012
|
||
Revenues
|
100
|
%
|
|
100
|
%
|
Costs and expenses:
|
|
|
|
||
Cost of revenues
|
20
|
|
|
20
|
|
Sales and marketing
|
8
|
|
|
14
|
|
Research and development
|
8
|
|
|
7
|
|
General and administrative
|
8
|
|
|
11
|
|
Restructuring charges
|
—
|
|
|
—
|
|
Total costs and expenses
|
44
|
|
|
52
|
|
Operating income
|
56
|
|
|
48
|
|
Interest expense
|
(5
|
)
|
|
(6
|
)
|
Non-operating (loss) income, net
|
(2
|
)
|
|
—
|
|
Income from continuing operations before income taxes
|
49
|
|
|
42
|
|
Income tax expense
|
(13
|
)
|
|
(10
|
)
|
Income from continuing operations, net of tax
|
36
|
|
|
32
|
|
Income from discontinued operations, net of tax
|
—
|
|
|
1
|
|
Net income
|
36
|
%
|
|
33
|
%
|
|
Three Months Ended March 31,
|
|||||||||
|
2013
|
|
% Change
|
|
2012
|
|||||
|
(Dollars in thousands)
|
|||||||||
Revenues
|
$
|
236,447
|
|
|
15
|
%
|
|
$
|
205,726
|
|
|
March 31, 2013
|
|
% Change
|
|
March 31, 2012
|
|
Active domain names ending in
.com
and
.net
|
123.1 million
|
|
5
|
%
|
|
116.7 million
|
|
Three Months Ended March 31,
|
|||||||||
|
2013
|
|
% Change
|
|
2012
|
|||||
|
(Dollars in thousands)
|
|||||||||
Cost of revenues
|
$
|
47,254
|
|
|
15
|
%
|
|
$
|
41,256
|
|
|
Three Months Ended March 31,
|
|||||||||
|
2013
|
|
% Change
|
|
2012
|
|||||
|
(Dollars in thousands)
|
|||||||||
Sales and marketing
|
$
|
18,104
|
|
|
(35
|
)%
|
|
$
|
27,815
|
|
|
Three Months Ended March 31,
|
|||||||||
|
2013
|
|
% Change
|
|
2012
|
|||||
|
(Dollars in thousands)
|
|||||||||
Research and development
|
$
|
18,176
|
|
|
23
|
%
|
|
$
|
14,765
|
|
|
Three Months Ended March 31,
|
|||||||||
|
2013
|
|
% Change
|
|
2012
|
|||||
|
(Dollars in thousands)
|
|||||||||
General and administrative
|
$
|
19,649
|
|
|
(16
|
)%
|
|
$
|
23,508
|
|
|
Three Months Ended March 31,
|
||||||
2013
|
|
2012
|
|||||
|
(In thousands)
|
||||||
Contractual interest on the Subordinated Convertible Debentures
|
$
|
10,156
|
|
|
$
|
10,156
|
|
Amortization of debt discount on the Subordinated Convertible Debentures
|
2,101
|
|
|
1,935
|
|
||
Interest capitalized to Property and equipment, net
|
(268
|
)
|
|
(388
|
)
|
||
Credit facility and other interest expense
|
607
|
|
|
637
|
|
||
Total interest expense
|
$
|
12,596
|
|
|
$
|
12,340
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Interest and dividend income
|
$
|
643
|
|
|
$
|
300
|
|
Unrealized loss on contingent interest derivative on Subordinated Convertible Debentures
|
(6,433
|
)
|
|
(813
|
)
|
||
Income from transition services agreements
|
—
|
|
|
1,093
|
|
||
Other, net
|
13
|
|
|
227
|
|
||
Total non-operating (loss) income, net
|
$
|
(5,777
|
)
|
|
$
|
807
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(Dollars in thousands)
|
||||||
Income tax expense from continuing operations
|
$
|
30,378
|
|
|
$
|
21,292
|
|
Effective tax rate
|
26
|
%
|
|
24
|
%
|
|
March 31,
|
|
December 31,
|
||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Cash and cash equivalents
|
$
|
78,620
|
|
|
$
|
130,736
|
|
Marketable securities
|
1,483,827
|
|
|
1,425,700
|
|
||
Total
|
$
|
1,562,447
|
|
|
$
|
1,556,436
|
|
|
Three Months Ended March 31,
|
||||||
|
2013
|
|
2012
|
||||
|
(In thousands)
|
||||||
Net cash provided by operating activities
|
$
|
150,637
|
|
|
$
|
110,278
|
|
Net cash used in investing activities
|
(78,565
|
)
|
|
(12,939
|
)
|
||
Net cash used in financing activities
|
(122,351
|
)
|
|
(60,003
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(1,837
|
)
|
|
2,355
|
|
||
Net (decrease) increase in cash and cash equivalents
|
$
|
(52,116
|
)
|
|
$
|
39,691
|
|
•
|
current global economic and financial conditions as well as their impact on e-commerce, financial services, and the communications and Internet industries;
|
•
|
volume of new domain name registrations and renewals;
|
•
|
the long sales and implementation cycles for, and potentially large order sizes of, some of our services and the timing and execution of individual customer contracts;
|
•
|
our success in direct marketing and promotional campaigns and the impact of such campaigns on new registrations and renewal rates;
|
•
|
in the case of our Registry Services business, any changes to the scope and success of marketing efforts by third-party registrars or their resellers;
|
•
|
market acceptance of our services by our existing customers and by new customers;
|
•
|
customer renewal rates and turnover of customers of our services, and in the case of our Registry Services business, the customers of the distributors of our services;
|
•
|
continued development of our distribution channels for our products and services, both in the U.S. and abroad;
|
•
|
the impact of price changes in our products and services or our competitors’ products and services;
|
•
|
the impact of decisions by distributors to offer competing or replacement products or modify or cease their marketing practices;
|
•
|
the availability of alternatives to our products;
|
•
|
seasonal fluctuations in business activity;
|
•
|
the introduction of new gTLDs, which could cause security, stability and resiliency problems that could harm our business;
|
•
|
changes in marketing expenses related to promoting and distributing our services or services provided by third-party registrars or their resellers;
|
•
|
potential attacks, including hacktivism, by nefarious actors, which could threaten the reliability or the perceived reliability of our products and services;
|
•
|
potential attacks on the service offerings of our distributors, such as DDoS attacks, which could limit the availability of their service offerings and their ability to offer our products and services;
|
•
|
changes in policies regarding Internet administration imposed by governments or governmental authorities inside or outside the U.S.;
|
•
|
potential disruptions in regional registration behaviors due to catastrophic natural events or armed conflict;
|
•
|
changes in the level of spending for information technology-related products and services by our customers; and
|
•
|
the uncertainties, costs and risks as a result of the sale of our Authentication Services business, including costs related to any retained liability related to existing and future claims.
|
•
|
our customers’ continued growth and development of their businesses and our customers’ ability to continue as going concerns or maintain their businesses, which could affect demand for our products and services;
|
•
|
current and future demand for our services, including decreases as a result of reduced spending on information technology and communications by our customers;
|
•
|
price competition for our products and services;
|
•
|
the price of our common stock;
|
•
|
our liquidity;
|
•
|
our ability to service our debt, to obtain financing or assume new debt obligations;
|
•
|
our ability to obtain payment for outstanding debts owed to us by our customers or other parties with whom we do business; and
|
•
|
our ability to execute on any share repurchase plans.
|
•
|
the use of the Internet and other IP networks, and the extent to which domain names and the DNS are used for e-commerce and communications;
|
•
|
changes in Internet user behavior, Internet platforms, mobile devices and web-browsing patterns;
|
•
|
growth in demand for our services;
|
•
|
the competition for any of our services;
|
•
|
the perceived security of e-commerce and communications over the Internet;
|
•
|
the perceived security of our services, technology, infrastructure and practices;
|
•
|
the loss of customers through industry consolidation or customer decisions to deploy in-house or competitor technology and services;
|
•
|
our continued ability to maintain our current, and enter into additional, strategic relationships;
|
•
|
our ability to successfully market our services to new and existing distributors and customers;
|
•
|
our ability to develop new products, services or other offerings;
|
•
|
our success in attracting, integrating, training, retaining and motivating qualified personnel;
|
•
|
our response to competitive developments;
|
•
|
the successful introduction, and acceptance by our current or new customers, of new products and services, including our NIA Services;
|
•
|
potential disruptions in regional registration behaviors due to catastrophic natural events and armed conflict;
|
•
|
seasonal fluctuations in business activity;
|
•
|
our ability to implement remedial actions in response to any attacks by nefarious actors; and
|
•
|
the successful introduction of enhancements to our services to address new technologies and standards, alternatives to our products and services and changing market conditions.
|
•
|
ICANN could adopt or promote policies, including Consensus Policies, procedures or programs that are unfavorable to us as the registry operator of the
.com
,
.net
and
.name
gTLDs, that are inconsistent with our current or future plans, or that affect our competitive position;
|
•
|
under certain circumstances, ICANN could terminate one or more of our agreements to be the registry for the
.com
,
.net
or
.name
gTLDs and the DOC could refuse to grant its approval to the renewal of the
.com
Registry Agreement on similar terms, or at all, and if any of the foregoing events occur, in the case of the
.com
and
.net
Registry Agreements, it would have a material adverse impact on our business;
|
•
|
if we seek a price increase with respect to the .
com
domain name during the term of the .
com
Registry Agreement or at the time of the renewal of the .
com
Registry Agreement, the DOC could refuse to approve price increases with respect to the
.com
domain name;
|
•
|
the DOC’s or ICANN’s interpretation of provisions of our agreements with either of them could differ from ours;
|
•
|
under certain circumstances, the GSA could terminate our agreement to be the registry for the
.gov
gTLD, which could have a material adverse impact on how the Registry Services business is perceived; and
|
•
|
contracts within our Registry Services business face, and could continue to face challenges, including possible legal challenges resulting from our activities or the activities of ICANN, registrars, registrants and others, and any adverse outcome from such challenges could have a material adverse effect on our business.
|
•
|
legal, regulatory or other challenges could be brought, including challenges to the agreements governing our relationship with the DOC or ICANN, or to the legal authority underlying the roles and actions of the DOC, ICANN or us;
|
•
|
the U.S. Congress could take action that is unfavorable to us;
|
•
|
ICANN could fail to maintain its role, potentially resulting in instability in DNS administration; and
|
•
|
some governments and governmental authorities outside the U.S. have in the past disagreed, and may in the future disagree, with the actions, policies or programs of ICANN, the U.S. Government and us relating to the DNS. The Affirmation of Commitments established several multi-party review panels and contemplates a greater involvement by foreign governments and governmental authorities in the oversight and review of ICANN. These periodic review panels may take positions that are unfavorable to Verisign.
|
•
|
competition with foreign companies or other domestic companies entering the foreign markets in which we operate;
|
•
|
differing and uncertain regulatory requirements;
|
•
|
legal uncertainty regarding liability, enforcing our contracts and compliance with foreign laws;
|
•
|
tariffs and other trade barriers and restrictions;
|
•
|
difficulties in staffing and managing foreign operations;
|
•
|
longer sales and payment cycles;
|
•
|
problems in collecting accounts receivable;
|
•
|
currency fluctuations, as a small portion of our international revenues are not always denominated in U.S. dollars and some of our costs are denominated in foreign currencies;
|
•
|
high costs associated with repatriating profits to the U.S., which could impact us due to the large percentage of our cash currently held by us outside the U.S. (see “Management’s discussion and analysis of financial condition-Liquidity and capital resources”);
|
•
|
potential problems associated with adapting our services to technical conditions existing in different countries;
|
•
|
difficulty of verifying customer information;
|
•
|
political instability;
|
•
|
failure of foreign laws to protect our U.S. proprietary rights adequately;
|
•
|
more stringent privacy policies in some foreign countries;
|
•
|
additional vulnerability from terrorist groups targeting U.S. interests abroad;
|
•
|
seasonal reductions in business activity;
|
•
|
potentially conflicting or adverse tax consequences; and
|
•
|
reliance on third parties in foreign markets in which we only recently started doing business.
|
•
|
power loss, transmission cable cuts and other telecommunications failures;
|
•
|
damage or interruption caused by fire, earthquake, and other natural disasters;
|
•
|
attacks, including hacktivism, by hackers or nefarious actors;
|
•
|
computer viruses or software defects;
|
•
|
physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control;
|
•
|
State suppression of Internet operations; and
|
•
|
any failure to implement effective and timely remedial actions in response to any damage or interruption.
|
•
|
market acceptance of products and services based upon technologies other than those we use;
|
•
|
public perception of the security of our technologies and of IP and other networks;
|
•
|
the introduction and consumer acceptance of new generations of mobile devices;
|
•
|
the ability of the Internet infrastructure to accommodate increased levels of usage; and
|
•
|
government regulations affecting Internet access and availability, e-commerce and telecommunications over the Internet.
|
•
|
our stockholders may take action only at a duly called meeting and not by written consent;
|
•
|
special meetings of our stockholders may be called only by the chief executive officer, the president or our Board, and cannot be called by our stockholders;
|
•
|
our Board must be given advance notice regarding stockholder-sponsored proposals for consideration at annual meetings and for stockholder nominations for the election of directors;
|
•
|
vacancies on our Board can be filled until the next annual meeting of stockholders by majority vote of the members of the Corporate Governance and Nominating Committee, or a majority of directors then in office if no such committee exists, or a sole remaining director; and
|
•
|
our Board has the ability to designate the terms of and issue new series of preferred stock without stockholder approval.
|
•
|
adverse changes in the value of the properties, due to interest rate changes, changes in the commercial property markets, or other factors;
|
•
|
ongoing maintenance expenses and costs of improvements;
|
•
|
the possible need for structural improvements in order to comply with zoning, seismic, disability law, or other requirements;
|
•
|
the possibility of environmental contamination and the costs associated with fixing any environmental problems; and
|
•
|
possible disputes with neighboring owners, service providers or others.
|
•
|
making it more difficult for us to satisfy our debt obligations;
|
•
|
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements, or requiring us to make non-strategic divestitures, particularly when the availability of financing in the capital markets is limited;
|
•
|
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
|
•
|
having to repatriate cash held by foreign subsidiaries which would require us to accrue and pay additional U.S. taxes;
|
•
|
increasing our vulnerability to general adverse economic and industry conditions;
|
•
|
exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;
|
•
|
limiting our flexibility in planning for and reacting to changes in our businesses and the markets in which we compete;
|
•
|
placing us at a possible competitive disadvantage compared to other, less leveraged competitors and competitors that may have better access to capital resources; and
|
•
|
increasing our cost of borrowing.
|
•
|
permit our subsidiaries to incur or guarantee indebtedness;
|
•
|
pay dividends or other distributions or repurchase or redeem our capital stock unless we meet specified leverage and interest expense coverage ratios;
|
•
|
prepay, redeem or repurchase certain debt;
|
•
|
issue certain preferred stock or similar equity securities;
|
•
|
make loans and investments;
|
•
|
sell assets;
|
•
|
incur liens;
|
•
|
enter into transactions with affiliates;
|
•
|
alter the businesses we conduct;
|
•
|
enter into agreements restricting our subsidiaries' ability to pay dividends; and
|
•
|
consolidate, merge or sell all or substantially all of our assets.
|
•
|
limited in how we conduct our business;
|
•
|
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
|
•
|
unable to compete effectively or to take advantage of new business opportunities.
|
|
Total Number
of Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)
|
|
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans or
Programs (1)
|
||||
|
(Shares in thousands)
|
||||||||||
January 1 – 31, 2013
|
737
|
|
|
$
|
39.53
|
|
|
737
|
|
|
$946.4 million
|
February 1 – 28, 2013
|
854
|
|
|
$
|
45.09
|
|
|
854
|
|
|
$907.9 million
|
March 1 – 31, 2013
|
1,397
|
|
|
$
|
46.03
|
|
|
1,397
|
|
|
$843.6 million
|
|
2,988
|
|
|
|
|
2,988
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
|
4.1
|
|
Indenture dated as of April 16, 2013, between VeriSign, Inc., each of the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to exhibit 4.1 to Current Report on Form 8-K filed on April 17, 2013).
|
|
|
|
4.2
|
|
Form of Note (included in Exhibit 4.1).
|
|
|
|
10.01
|
|
Registration Rights Agreement dated April 16, 2013, by and among VeriSign, Inc., Verisign Information Services, Inc. and J.P. Morgan Securities LLC, as representative of the several initial purchasers (incorporated by reference to exhibit 10.1 to Current Report on Form 8-K filed on April 17, 2013).
|
|
|
|
10.02
|
|
VeriSign, Inc. 2006 Equity Incentive Plan Form of Employee Restricted Stock Unit Agreement +
|
|
|
|
10.03
|
|
VeriSign, Inc. 2006 Equity Incentive Plan Form of Performance-Based Restricted Stock Unit Agreement +
|
|
|
|
10.04
|
|
VeriSign, Inc. 2006 Equity Incentive Plan Form of Performance-Based Restricted Stock Unit Agreement +
|
|
|
|
31.01
|
|
Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a).
|
|
|
|
31.02
|
|
Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a).
|
|
|
|
32.01
|
|
Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350). *
|
|
|
|
32.02
|
|
Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350). *
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
+
|
Indicates a management contract or compensatory plan or arrangement
|
*
|
As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed with the SEC and are not incorporated by reference in any filing of VeriSign, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.
|
Date: April 25, 2013
|
By:
|
/
S
/ D. J
AMES
B
IDZOS
|
|
|
D. James Bidzos
|
|
|
Chief Executive Officer
|
Date: April 25, 2013
|
By:
|
/
S
/ G
EORGE
E. K
ILGUSS
, III
|
|
|
George E. Kilguss, III
|
|
|
Chief Financial Officer
|
|
|
|
|
|
Participant:
|
|
|
|
|
|
|
|
||
Number of RSUs:
|
|
|
|
|
|
|
|
||
Date of Grant:
|
|
|
|
|
|
|
|||
Expiration Date:
|
|
The date on which settlement of all RSUs granted hereunder occurs, with earlier expiration upon the Termination Date.
|
||
|
|
|
||
Vesting Schedule:
|
|
The RSUs will vest as follows:
|
|
|
|
|
|
|
2
|
|
|
3
|
|
|
|
|
|
|
|
|
|||||
VERISIGN, INC.
|
|
|
|
PARTICIPANT
|
|||||||
|
|
|
|
||||||||
By:
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
(Signature)
|
|||||
|
|
|
|||||||||
|
|
|
|
|
|||||||
|
|
(Please print name)
|
|
|
|
|
|
|
(Please print name)
|
||
|
|
|
|||||||||
|
|
|
|
|
|||||||
|
|
(Please print title)
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
Participant:
|
|
_____________________________________
|
|
|
|
|
|
||
Number of RSUs:
|
|
_____________________________________
|
|
|
|
|
|
||
Date of Grant:
|
|
_____________________________________
|
|
|
|
VERISIGN, INC.
|
|
PARTICIPANT
|
|
|
|
|
By:
|
|
|
|
|
(Signature)
|
|
(Signature)
|
|
|
|
|
|
|
|
|
|
(Please print name)
|
|
(Please print name)
|
|
|
|
|
|
(Please print title)
|
|
|
|
|
|
|
|
Participant:
|
|
_____________________________________
|
|
|
|
|
|
||
Number of RSUs:
|
|
_____________________________________
|
|
|
|
|
|
||
Date of Grant:
|
|
_____________________________________
|
|
|
|
VERISIGN, INC.
|
|
PARTICIPANT
|
|
|
|
|
By:
|
|
|
|
|
(Signature)
|
|
(Signature)
|
|
|
|
|
|
|
|
|
|
(Please print name)
|
|
(Please print name)
|
|
|
|
|
|
(Please print title)
|
|
|
Date: April 25, 2013
|
By:
|
/S/ D. J
AMES
B
IDZOS
|
|
|
D. James Bidzos
|
|
|
Chief Executive Officer
|
Date: April 25, 2013
|
By:
|
/S/ G
EORGE
E. K
ILGUSS
, III
|
|
|
George E. Kilguss, III
|
|
|
Chief Financial Officer
|
Date: April 25, 2013
|
/S/ D. J
AMES
B
IDZOS
|
|
D. James Bidzos
|
|
Chief Executive Officer
|
Date: April 25, 2013
|
/S/ G
EORGE
E. K
ILGUSS
, III
|
|
George E. Kilguss, III
|
|
Chief Financial Officer
|