What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-02-14 · 232 added, 162 removed, 613 unchanged (39% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statement Description

Financial Statement Description Page

Reports of Independent Registered Public Accounting Firm

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 19, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

Effective January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and several related amendments, issued by the Financial Accounting Standards Board (FASB).

This change was adopted using the modified retrospective method.

Basis for Opinion

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the Company’s uncertain tax positions.

As discussed in Notes 1 and 10 of the consolidated financial statements, as of December 31, 2019, the Company had $231.3 million of gross unrecognized tax benefits.

We identified the evaluation of the Company’s uncertain tax positions as a critical audit matter because complex auditor judgment was required in evaluating the Company’s interpretation of tax law and its estimate of the ultimate resolution of the tax positions.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s uncertain tax positions process to assess that new and existing tax positions and

adjustments giving rise to additional uncertain tax positions were considered in accordance with applicable guidance over accounting for uncertain tax positions.

Since tax law is complex and often subject to interpretations, we involved tax professionals with specialized skills and knowledge, who assisted in:

Evaluating the Company’s tax positions and its interpretation of tax laws,

Identifying any changes or developments in tax law, court cases, tax regulations or any pertinent tax rulings that would impact the positions taken by the Company,

Performing a web based search of key terms relating to the Company’s uncertain tax positions to identify public company filings that disclose similar positions with alternative treatments,

Examining the Company’s filed tax returns and the detailed tax provision to assess the sustainability of the Company’s uncertain tax positions, and

Reading the Company’s board minutes and inquiring of various members of the tax, legal and finance teams regarding their knowledge of conditions that would give rise to a change in the uncertain tax positions.

Additionally, we involved tax and valuation professionals with specialized skills and knowledge, who assisted in:

Reading correspondence from the Internal Revenue Service (IRS) in relation to the Company’s income tax returns to assess any changes or developments relevant to the sustainability of the Company’s positions.

Evaluation of accounting for income taxes

As discussed in Notes 1 and 10 to the consolidated financial statements, the Company recognized $67.8 million of deferred tax assets, net as of December 31, 2020.

The Company’s income tax benefit was $64.6 million for the year ended December 31, 2020.

The Company conducts business globally and consequently is subject to U.S.

federal, state, as well as foreign income taxes in the jurisdictions it operates.

The Company exercises judgment in the application of complex tax regulations in multiple jurisdictions.

We identified the evaluation of the accounting for income taxes as a critical audit matter.

Evaluating the Company’s application of complex tax regulations in the domestic and foreign jurisdictions it operates and the impact of those regulations on U.S.

federal, state, and foreign income tax provisions required complex auditor judgment, and the use of tax professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process, including

controls related to the application of complex tax regulations in the Company’s various tax jurisdictions and the impact on the Company’s U.S.

federal, state, and foreign income tax provision.

We involved domestic and international tax professionals with specialized skills and knowledge in various tax jurisdictions who assisted in evaluating the Company’s analyses over the application of complex tax regulations in those jurisdictions.

We have served as the Company’s auditor since 1995.

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(In thousands, except par value)

2020 December 31,

Current assets:

4 unchanged sentences

Property and equipment, net 245,571 250,283

Goodwill 52,527 52,527

Deferred tax assets 67,914 87,798

2 unchanged sentences

Total long-term assets 548,970 575,420

Total assets $ 1,766,910 $ 1,854,009

LIABILITIES AND STOCKHOLDERS’ DEFICIT

4 unchanged sentences

Long-term deferred revenues 282,838 278,702

Senior notes 1,790,083 1,787,565

Long-term tax and other liabilities 95,494 312,676

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Issued and outstanding shares:

Common stock—par value $.001 per share;

Common stock and additional paid-in capital—par value $ 0.001 per share;

Authorized shares:

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113,470 at December 31, 2020 and 116,715 at December 31, 2019

Additional paid-in capital

14,275,160 14,990,011

Accumulated deficit ( 15,662,602 ) ( 16,477,490 )

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Year Ended December 31,

2020 2019 2018

Revenues $ 1,265,052 $ 1,231,661 $ 1,214,969

Costs and expenses:

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Income before income taxes 750,244 758,776 729,516

Income tax expense

Other comprehensive income

Income tax benefit (expense) 64,644 ( 146,477 ) ( 147,027 )

Net income 814,888 612,299 582,489

Other comprehensive (loss) income ( 135 ) 190 130

Comprehensive income $ 814,753 $ 612,489 $ 582,619

Earnings per share:

Basic $ 7.08 $ 5.17 $ 5.13

Diluted $ 7.07 $ 5.15 $ 4.75

Shares used to compute earnings per share

Basic 115,058 118,513 113,452

Diluted 115,298 118,968 122,661

See accompanying Notes to Consolidated Financial Statements.

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Year Ended December 31,

2020 2019 2018

Total stockholders’ deficit, beginning of period $ ( 1,490,100 ) $ ( 1,385,474 ) $ ( 1,260,271 )

Beginning balance

Issuance of common stock under stock plans

Conversion of subordinated convertible debentures

Balance, end of period:

Additional paid-in capital

Common stock and additional paid-in capital

Beginning balance 14,990,011 15,707,126 16,437,460

3 unchanged sentences

Conversion of subordinated convertible debentures — — ( 159,592 )

Cumulative effects of changes in accounting principle

Balance, end of period 14,275,160 14,990,011 15,707,126

1 unchanged sentence

Beginning balance ( 16,477,490 ) ( 17,089,789 ) ( 17,694,790 )

Net income 814,888 612,299 582,489

Cumulative effects of changes in accounting principles — — 22,512

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Beginning balance ( 2,621 ) ( 2,811 ) ( 2,941 )

Other comprehensive income

Other comprehensive (loss) income ( 135 ) 190 130

Balance, end of period ( 2,756 ) ( 2,621 ) ( 2,811 )

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Year Ended December 31,

2020 2019 2018

Cash flows from operating activities:

Net income $ 814,888 $ 612,299 $ 582,489

Adjustments to reconcile net income to net cash provided by operating activities:

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Gain on sale of business ( 6,402 ) ( 817 ) ( 54,840 )

Other, net 3,425 3,668 14,646

Changes in operating assets and liabilities

Other assets ( 9,214 ) ( 3,279 ) 1,041

Accounts payable and accrued liabilities 2,227 ( 24 ) ( 2,130 )

6 unchanged sentences

Purchases of property and equipment ( 43,395 ) ( 40,316 ) ( 37,007 )

(Payments) Proceeds from sale of business

Proceeds (payments) from sale of business 20,810 ( 9,872 ) 52,240

Other investing activities — — ( 160 )

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities ( 72,258 ) 167,195 1,070,130

Cash flows from financing activities:

2 unchanged sentences

Repayment of principal on subordinated convertible debentures — — ( 1,250,009 )

Proceeds from senior notes, net of issuance costs

Other financing activities — ( 872 ) —

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Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 48 ) 64 ( 958 )

Net increase (decrease) in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash ( 107,000 ) 150,848 ( 108,386 )

Cash, cash equivalents, and restricted cash at beginning of period 517,601 366,753 475,139

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Such reclassifications have no effect on net income as previously reported.

Adoption of New Accounting Standards

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases , and several related amendments, issued by the Financial Accounting Standards Board (“FASB”), collectively codified under Accounting Standards Codification (“ASC”) 842, Leases .

ASC 842 requires most operating leases to be reported on the balance sheet as a lease liability and a right-of-use asset.

This standard was applied as of the effective date of January 1, 2019, and therefore prior period amounts were not adjusted.

The adoption of ASC 842 did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers , and several related amendments, issued by the FASB.

The adoption of ASU 2014-09 did not have any impact on our revenue recognition, but did result in a change in the accounting for costs incurred to obtain a contract.

This change was adopted using the modified retrospective method and did not have a material impact on the Company’s consolidated financial statements.

Significant Accounting Policies

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The Company classifies its marketable securities as current based on their nature and availability for use in current operations.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Property and Equipment

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The Company capitalized $ 12.8 million and $ 11.9 million of costs related to internally developed software during 2020 and 2019, respectively.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

Goodwill and Other Long-lived Assets

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Most customers either maintain a deposit with Verisign or provide an irrevocable letter of credit in excess of the amounts owed.

New customers are subjected to a credit review process that evaluates the customer’s financial condition and, ultimately, their ability to pay.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Verisign also offers promotional marketing programs to its registrars based upon market conditions and the business environment in which the registrars operate.

Amounts payable to these registrars for such promotional marketing programs are usually recorded as a reduction of revenue.

If Verisign obtains an identifiable benefit separate from the services it provides to the registrars, then amounts payable up to the fair value of the benefit received are recorded as advertising expenses and the excess, if any, is recorded as a reduction of revenue.

Verisign also offers promotional incentive-based discount programs to its registrars based upon market conditions and the business environment in which the registrars operate.

Amounts payable for these programs are recorded as a reduction of revenue.

Performance Obligations

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A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Each domain name registration or renewal is considered a separate optional purchase and represents a single performance obligation, which is to allow its registration and maintain that registration (by allowing updates, Domain Name System (“DNS”) resolution and Whois services) through the registration term.

These services are provided continuously throughout each registration term, and as such, revenues from the initial registration or renewal of domain names are deferred and recognized ratably over the registration term.

Fees for renewals and advance extensions to the existing term are deferred until the new incremental period commences.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

renewals and advance extensions to the existing term are deferred until the new incremental period commences.

These fees are then recognized ratably over the renewal term.

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If the income tax benefit at the exercise or vesting date differs from the income tax benefit recorded based on the grant date fair value of the RSUs, the excess or shortfall of the tax benefit is recognized within income tax expense.

Verisign’s global operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions.

The final taxes payable are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from U.S.

federal, state, and international tax audits.

Verisign operates in multiple tax jurisdictions in the United States and internationally.

Tax laws and regulations in these jurisdictions are complex, interrelated, and periodically changing.

Significant judgment or interpretation of these laws and regulations is often required in determining the Company’s worldwide provision for income taxes, including, for example, the calculations of taxable income in each jurisdiction, deferred taxes, and the availability and amount of deductions and tax credits.

The final taxes payable are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from various tax examinations.

The Company only recognizes tax positions taken or expected to be taken on its tax returns that are more likely than not to be sustained upon examination, and records a tax benefit amount that is more likely than not to be realized upon ultimate settlement with the taxing authority.

The Company adjusts its estimate of unrecorded tax benefits in light of changing facts and circumstances;

however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a liability that is materially different from its estimate.

The Company adjusts its estimate of unrecognized tax benefits in light of changing facts and circumstances;

however, due to the complexity of some of these uncertainties, the ultimate resolution may result in an outcome that is materially different from the estimate.

See Note 10, “Income Taxes,” for a discussion of significant changes in unrecognized tax benefits during 2020.

The Company’s assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and character of future taxable income, such as income from operations or capital gains income.

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Any of the assumptions, judgments and estimates mentioned above could cause the Company’s actual income tax obligations to differ from its estimates, thus materially impacting its financial condition and results of operations.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Stock-based Compensation

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The Company uses the Black-Scholes option pricing model to determine the fair value of its ESPP offerings.

The determination of the fair value of stock-based payment awards using the Monte Carlo simulation model or the Black-Scholes option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables.

The determination of the fair value of stock-based payment awards using the Monte Carlo simulation model or the Black-Scholes option-pricing

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables.

Earnings per Share

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(In thousands)

Cash $ 28,832 $ 33,238

Time deposits 4,176 3,924

2 unchanged sentences

Treasury (Level 1) 1,013,679 1,040,678

Total $ 1,176,314 $ 1,227,464

Cash and cash equivalents $ 401,194 $ 508,196

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Marketable securities 765,713 709,863

Total $ 1,176,314 $ 1,227,464

The fair value of the debt securities held as of December 31, 2020 was $ 1.01 billion, including less than $ 0.1 million of gross and net unrealized gains.

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The fair values of these debt instruments are based on available market information from public data sources and are classified as Level 2.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Other Balance Sheet Items

Selected Balance Sheet Items

Other Current Assets

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Prepaid expenses 17,920 19,818

Contingent consideration receivable

Accounts receivable, net 4,642 1,524

Income taxes receivable

Taxes receivable 3,572 1,111

Contingent consideration receivable — 14,721

Other 2,245 1,639

Total other current assets $ 51,033 $ 60,530

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

Property and Equipment, Net

4 unchanged sentences

Buildings and building improvements 250,431 248,885

Capital work in progress

Land 31,141 31,141

Office equipment and furniture 9,179 8,437

Capital work in progress 4,330 6,779

Leasehold improvements 1,458 1,458

Total cost 711,625 766,937

accumulated depreciation ( 466,054 ) ( 516,654 )

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Upon assignment of the contractual rights, the Company will record the total investment as an indefinite-lived intangible asset.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Other Long-Term Assets

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(In thousands)

Operating lease right-of-use asset $ 11,277 $ 9,133

Restricted cash 9,407 9,405

1 unchanged sentence

Other tax receivable 969 6,927

Operating lease right-of-use asset

Contingent consideration receivable

Long-term prepaid expenses and other assets 8,308 6,594

Total other long-term assets $ 37,958 $ 39,812

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

The prepaid registry fees in the tables above relate to the fees the Company pays to ICANN for each annual term of .

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The amount of prepaid registry fees as of December 31, 2020 reflects amortization of $ 36.2 million during 2020 which was recorded in Cost of Revenues.

The operating lease right-of-use asset as of December 31, 2019 in the table above reflects amounts recognized in 2019 pursuant to the adoption of ASC 842, Leases .

The contingent consideration receivable in the tables above relate to the estimated amount due from Neustar in the first quarter of 2020.

The receivable was reclassified from Other long-term assets as of December 31, 2018 to Other current assets as of December 31, 2019.

Other tax receivables as of December 31, 2019 included indirect benefits related to the previously unrecognized tax benefits that were remeasured during 2020, as discussed in Note 10.

“Income Taxes.”

Accounts Payable and Accrued Liabilities

3 unchanged sentences

Accounts payable and accrued expenses $ 12,340 $ 15,907

Customer deposits, net

Accrued employee compensation 54,596 49,869

Customer deposits 53,631 52,804

Taxes payable and other tax liabilities 27,194 30,308

Interest Payable 24,408 24,318

Customer incentives payable

Accrued registry fees 13,090 11,529

Payables to buyer

Customer incentives payable 12,556 13,547

Other accrued liabilities 10,827 11,706

Total accounts payable and accrued liabilities $ 208,642 $ 209,988

Payables to buyer in the table above relate to amounts due to Neustar for estimated collections from customers of the divested security services business of any billings after the closing date and until the customer contracts are assigned to Neustar.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Long-term Tax and Other Liabilities

Long-term tax and other liabilities consist of the following:

As of December 31,

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income taxes payable on the Company’s accumulated foreign earnings (“Transition Tax”) as discussed in Note 10.

“Income Taxes.” During 2020, the Company recognized an income tax benefit of $ 204.2 million, primarily as a result of the remeasurement of certain previously unrecognized income tax benefits as discussed in Note 10.

“Income Taxes.”

Long-term operating lease liabilities as of December 31, 2019 in the table above relate to the lease obligations recorded as a result of the adoption of ASC 842, Leases , during 2019.

Debt and Interest Expense

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Each of the senior notes issuances is redeemable, in whole or in part, at the Company’s option at times and redemption prices specified in the indentures.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

The following table summarizes information related to our Senior notes:

Issuance Date

Maturity Date

Interest Rate

Issuance Date Maturity Date Interest Rate Principal

As of December 31,

(in thousands except interest rates)

Senior notes due 2023

April 16, 2013

Senior notes due 2025

March 27, 2015

April 1, 2025

Senior notes due 2027

July 15, 2027

Senior notes due 2023 April 16, 2013 May 1, 2023 4.625 % $ 750,000 $ 750,000

Senior notes due 2025 March 27, 2015 April 1, 2025 5.250 % 500,000 500,000

Senior notes due 2027 July 5, 2017 July 15, 2027 4.750 % 550,000 550,000

Unamortized issuance costs ( 9,917 ) ( 12,435 )

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2019 Credit Facility

On December 12, 2019, the Company entered into a credit agreement for a $ 200.0 million committed unsecured revolving credit facility (the “2019 Credit Facility”) which takes the place of its prior unsecured revolving credit facility.

On December 12, 2019, the Company entered into a credit agreement for a $ 200.0 million committed unsecured revolving credit facility (the “2019 Credit Facility”).

The 2019 Credit Facility includes a financial covenant requiring that the Company’s leverage ratio not exceed 4.0 to 1.0.

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Verisign may from time to time request lenders to agree on a discretionary basis to increase the commitment amount by up to an aggregate of $ 150.0 million.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Subordinated Convertible Debentures

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Year Ended December 31,

2020 2019 2018

(In thousands)

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Treasury stock is accounted for under the cost method.

Treasury stock includes shares repurchased under stock repurchase programs and shares withheld in lieu of minimum tax withholdings due upon vesting of RSUs.

On February 7, 2019 , the Company’s Board of Directors (“Board”) authorized the repurchase of its common stock in the amount of approximately $ 602.9 million , in addition to the $ 397.1 million that remained available for repurchases under the share repurchase program, for a total repurchase authorization of up to $ 1.0 billion under the program.

Treasury stock includes shares repurchased under stock repurchase programs and shares withheld in lieu of the tax withholding due upon vesting of RSUs.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

Effective on February 6, 2020, the Company’s Board of Directors (“Board”) authorized the repurchase of its common stock in the amount of approximately $ 743.0 million, in addition to the $ 257.0 million that remained available for repurchases under the share repurchase program, for a total repurchase authorization of up to $ 1.0 billion under the program.

The program has no expiration date.

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The summary of the Company’s common stock repurchases for 2020, 2019 and 2018 are as follows:

Average Price

2020 2019 2018

Shares Average Price Shares Average Price Shares Average Price

(In thousands, except average price amounts)

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Total repurchases 3,878 $ 200.48 4,154 $ 188.39 4,661 $ 136.91

Total costs $ 777,454 $ 782,583 $ 638,152

Since inception, the Company has repurchased 240.3 million shares of its common stock for an aggregate cost of $ 10.98 billion, which is recorded as a reduction of Additional paid-in capital.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2019, 2018 AND 2017

Accumulated Other Comprehensive Loss

The following table summarizes the changes in the components of Accumulated other comprehensive loss for 2020 and 2019:

Foreign Currency Translation Adjustments Loss

Unrealized Gain (Loss) On Investments

Total Accumulated Other Comprehensive Loss

Foreign Currency Translation Adjustments Loss Unrealized Gain (Loss) On Investments Total Accumulated Other Comprehensive Loss

(In thousands)

Balance, December 31, 2018 $ ( 2,836 ) $ 25 $ ( 2,811 )

Changes — 190 190

Balance, December 31, 2019 ( 2,836 ) 215 ( 2,621 )

Changes — ( 135 ) ( 135 )

Balance, December 31, 2020 $ ( 2,836 ) $ 80 $ ( 2,756 )

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Year Ended December 31,

2020 2019 2018

(In thousands)

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The Company settled the subordinated convertible debentures in May 2018.

The calculation of diluted weighted average shares outstanding, excludes potentially dilutive securities, the effect of which would have been anti-dilutive, as well as performance-based RSUs granted by the Company for which the relevant performance criteria have not been achieved.

The calculation of diluted weighted average shares outstanding, excludes potentially dilutive securities, the effect of which would have been anti-dilutive, as well as

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

performance-based RSUs granted by the Company for which the relevant performance criteria have not been achieved.

The number of potential shares excluded from the calculation was not significant in any period presented.

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Year Ended December 31,

2020 2019 2018

(In thousands)

U.S $ 804,647 $ 772,586 $ 756,907

EMEA 214,204 206,975 212,699

China 113,048 119,291 106,841

Other 133,153 132,809 138,522

Total revenues $ 1,265,052 $ 1,231,661 $ 1,214,969

Revenues in the table above are attributed to the country of domicile and the respective regions in which registrars are located, however, this may differ from the regions where the registrars operate or where registrants are located.

Revenues in the table above are attributed to the country of domicile and the respective regions in which registrars are located;

however, this may differ from the regions where the registrars operate or where registrants are located.

Revenues for each region may be impacted by registrars reincorporating, relocating, or from acquisitions or changes in affiliations of resellers.

1 unchanged sentence

Major Customers

Our largest customer accounted for approximately 33 % , 32 % , and 31 % of revenues in 2019 , 2018, and 2017 , respectively and another customer accounted for 10 % of revenues during 2018.

The Company does not believe that the loss of either of these customers would have a material adverse effect on the Company’s business because, in that event, end-users of these customers would transfer to the Company’s other existing customers.

Our largest customer accounted for approximately 34 %, 33 %, and 32 % of revenues in 2020, 2019, and 2018, respectively.

Another customer accounted for 10 % of revenues during 2018.

The Company does not believe that the loss of these customers would have a material adverse effect on the Company’s business because, in that event, end-users of these customers would transfer to the Company’s other existing customers.

Deferred Revenues

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The 2006 Plan authorizes the award of incentive stock options to employees and non-qualified stock options, restricted stock awards, RSUs, stock bonus awards, stock appreciation rights and performance shares to eligible employees, officers, directors, consultants, independent contractors and advisers.

The 2006 Plan is administered by the Compensation Committee which may delegate to a committee of one or more members of the Board or Verisign’s officers the ability to grant certain awards and take certain other actions with respect to participants who are not executive officers or non-employee directors.

The 2006 Plan

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

is administered by the Compensation Committee which may delegate to a committee of one or more members of the Board or Verisign’s officers the ability to grant certain awards and take certain other actions with respect to participants who are not executive officers or non-employee directors.

RSUs are awards covering a specified number of shares of Verisign common stock that may be settled by issuance of those shares (which may be restricted shares).

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Eligible employees of the Company may purchase common stock under the 2007 Employee Stock Purchase Plan through payroll deductions by electing to have between 2 % and 25 % of their compensation withheld to cover the purchase price.

Each participant is granted an option to purchase common stock on the first day of each 24-month offering period and this option is automatically exercised on the last day of each six-month purchase period during the offering period.

Each participant is granted an option to purchase common stock.

This option is automatically exercised on the last day of each six-month purchase period during the offering period.

The purchase price for the common stock under the ESPP is 85 % of the lesser of the fair market value of the common stock on the first day of the applicable offering period or the last day of the applicable purchase period.

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In thousands)

6 unchanged sentences

Year Ended December 31,

2020 2019 2018

(In thousands)

RSUs $ 38,217 $ 36,930 $ 38,005

PSUs 7,380 10,522 12,403

ESPP 4,429 4,864 4,166

Capitalization (Included in Property and equipment, net) ( 1,783 ) ( 1,690 ) ( 2,070 )

1 unchanged sentence

The income tax benefit that was included within Income tax expense related to these stock-based compensation expenses for 2020, 2019, and 2018 was $ 11.0 million, $ 11.7 million, and $ 12.3 million, respectively.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

RSUs Information

The following table summarizes unvested RSUs activity for the year ended December 31, 2020:

Weighted-Average Grant-Date Fair Value

Shares Weighted-Average Grant-Date Fair Value

(Shares in thousands)

Unvested at beginning of period 876 $ 121.21

Granted 279 $ 205.61

PSU achievement adjustment 79 $ 20.41

Vested and settled ( 551 ) $ 95.70

Forfeited ( 22 ) $ 155.98

The RSUs in the table above include PSUs.

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Year Ended December 31,

2020 2019 2018

(In thousands)

Interest income $ 7,815 $ 26,596 $ 26,490

Transition services income

Gain on sale of business 6,402 817 54,840

Transition services income 2,100 15,600 1,132

Loss on extinguishment of subordinated convertible debentures — — ( 6,554 )

Other, net ( 130 ) 247 1,061

Total non-operating income, net $ 16,187 $ 43,260 $ 76,969

Interest income is earned principally from the Company’s surplus cash balances and marketable securities.

Transition services income and gain on sale of business in 2019 and 2018 relate to the divested security services business.

Gain on sale of business in 2017 relates to the divested iDefense business.

The lower interest income in 2020 reflects a decline in interest rates on our investments in debt securities.

Transition services income and gain on sale of business relate to the sale of our security services customer contracts.

The transition services agreement ended in February 2020.

The gain on sale of business in 2020 primarily represents the excess of the contingent consideration received related to the sale of our security services customer contracts compared to the estimated receivable.

Income before income taxes is categorized geographically as follows:

Year Ended December 31,

2020 2019 2018

(In thousands)

United States $ 457,830 $ 452,793 $ 420,597

Foreign 292,414 305,983 308,919

Total income before income taxes $ 750,244 $ 758,776 $ 729,516

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

The provision for income taxes consisted of the following:

Year Ended December 31,

2020 2019 2018

(In thousands)

Current expense:

Current (benefit) expense:

Federal $ ( 123,933 ) $ 74,283 $ 99,127

State 10,522 2,069 1,088

Foreign, including withholding tax 29,152 31,385 76,199

( 84,259 ) 107,737 176,414

Deferred expense (benefit):

Total income tax expense

Federal 4,348 30,462 ( 16,448 )

State 17,388 22,899 42,624

Foreign ( 2,121 ) ( 14,621 ) ( 55,563 )

19,615 38,740 ( 29,387 )

Total income tax (benefit) expense $ ( 64,644 ) $ 146,477 $ 147,027

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and most of its provisions became effective in 2018.

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Federal current expense and federal deferred benefit for 2018 includes $ 96.4 million related to the Transition Tax, net of $ 106.7 million of carried forward and newly-generated foreign tax credits, payable as a result of the Tax Act.

This amount is

being paid in installments over an eight-year period which began in 2018, as allowed by the Tax Act.

The Transition Tax was recorded as a provisional deferred tax liability in 2017.

This amount is being paid in installments over an eight-year period which began in 2018, as allowed by the Tax Act.

State tax expense for 2018 was increased by $ 10.0 million remeasurement of deferred tax assets because of changes in certain state apportionment rates, and $ 5.6 million change in estimate related to the 2017 state income tax returns.

Foreign current expense and foreign deferred benefit for 2019 and 2018 includes $ 13.1 million and $ 60.7 million, respectively, of withholding taxes paid upon the repatriation of cash held by foreign subsidiaries.

The difference between income tax expense and the amount resulting from applying the federal statutory rate of 21 % in 2019 and 2018, and 35 % in 2017, to Income before income taxes is attributable to the following:

The difference between income tax (benefit) expense and the amount resulting from applying the federal statutory rate of 21 % to Income before income taxes is attributable to the following:

Year Ended December 31,

2020 2019 2018

(In thousands)

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Effect of non-U.S.

operations ( 27,691 ) ( 25,178 ) ( 26,271 )

Stock-based compensation ( 8,643 ) ( 9,204 ) ( 7,032 )

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Accrual for uncertain tax positions ( 204,673 ) 7,365 2,637

federal tax rate change

Transition tax, net of foreign tax credits

Total income tax expense

Other ( 3,368 ) ( 2,867 ) ( 7,327 )

Total income tax (benefit) expense $ ( 64,644 ) $ 146,477 $ 147,027

During 2020, the Company recognized an income tax benefit as a result of the remeasurement of certain previously unrecognized income tax benefits.

The majority of these income tax benefits, related to the worthless stock deduction taken in 2013.

These remeasurements were based on written confirmations from IRS, indicating no examination adjustments would be proposed related to the worthless stock deduction or certain other matters reviewed as part of the audit of the Company’s federal income tax returns for 2010 through 2014, and the lapse of statutes of limitations related to other unrecognized income tax benefits.

Notwithstanding these written confirmations, the Company’s U.S.

federal income tax returns for those years

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

remain under examination by the IRS.

Tax years 2015 and 2016 are closed to IRS audit as the statutes of limitations have lapsed.

The Company qualified for a tax holiday in Switzerland until the end of 2019 which lowered tax rates on certain types of income and required certain thresholds of foreign source income.

The tax holiday reduced our foreign income tax expense by $ 17.3 million ( $ 0.15 per share), $ 16.9 million ( $ 0.14 per share), and $ 12.3 million ( $ 0.10 ) in 2019, 2018, and 2017, respectively.

The tax holiday reduced our foreign income tax expense by $ 17.3 million ($ 0.15 per share), and $ 16.9 million ($ 0.14 ) in 2019, and 2018, respectively.

The benefit from the tax holiday is calculated before consideration of any offsetting tax impact in the United States.

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Deferred tax assets:

Deferred revenues, accruals and reserves $ 66,926 $ 70,539

Net operating loss carryforwards 5,623 17,897

Tax credit carryforwards 5,078 5,516

Deferred revenues, accruals and reserves

Other 2,379 7,401

Total deferred tax assets 80,006 101,353

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Property and equipment ( 4,167 ) ( 3,466 )

Other ( 2,394 ) ( 3,608 )

Total deferred tax liabilities ( 6,561 ) ( 7,074 )

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As of December 31, 2020, the Company’s deferred tax assets included $ 86.8 million of state net operating loss carryforwards, before applying tax rates for the respective jurisdictions.

The tax credit carryforwards as of December 31, 2019 consisted primarily of state research tax credits, and foreign tax credit carryforwards.

The net operating loss and federal tax credit carryforwards expire in various years from 2020 through 2034 .

The tax credit carryforwards as of December 31, 2020 consisted primarily of foreign tax credit carryforwards.

The state net operating loss carryforwards expire in various years from 2021 through 2034 .

The foreign tax credits will expire in 2028 .

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Ending balance $ 23,728 $ 231,339

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

As of December 31, 2020, approximately $ 23.1 million of unrecognized tax benefits, including penalties and interest, could affect the Company’s tax provision and effective tax rate.

It is reasonably possible that during the next twelve months, the Company’s unrecognized tax benefits may change by a significant amount as a result of IRS audits.

However, the timing of completion and ultimate outcome of the audits remains uncertain.

Therefore, the Company cannot currently estimate the impact on the balance of unrecognized tax benefits.

The Company does not expect the balance of unrecognized tax benefits to change materially during the next twelve months.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.

These accruals were not material in any period presented.

The Company’s major taxing jurisdictions are the U.S., the state of Virginia, and Switzerland.

The Company’s major taxing jurisdictions are the U.S., the Commonwealth of Virginia, and Switzerland.

The Company’s U.S.

federal income tax returns are currently under examination by the IRS for 2010 through 2014.

federal statutes of limitations are closed for the 2015 and 2016 tax years.

The Company’s other material tax returns are not currently under examination by their respective taxing jurisdictions.

Because the Company has previously used net operating loss carryforwards and other tax attributes to offset its taxable income in income tax returns for the U.S.

and Virginia, such attributes can be adjusted by these taxing authorities until the statute closes on the year in which such attributes were utilized.

and Virginia, such attributes can be adjusted by these taxing authorities until the statute of limitations closes on the year in which such attributes were utilized.

The open years for examination in Switzerland are the 2012 tax year and forward.

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Purchase Obligations and Contractual Agreements

The following table represents the minimum payments required by Verisign under certain purchase obligations, leases, the .tv Agreement with the Government of Tuvalu, and the interest payments and principal on the Senior Notes:

Purchase Obligations

Transition Tax

Operating Leases

.tv Agreement

The following table represents the minimum payments required by Verisign under certain purchase obligations, certain U.S.

income tax obligations, leases, and the interest payments and principal on the Senior Notes:

Purchase Obligations Transition Tax Operating Leases Senior Notes Total

(In thousands)

The amounts in the table above exclude $ 229.2 million of income tax related uncertain tax positions, as the Company is unable to reasonably estimate the ultimate amount or time of settlement of those liabilities.

2021 $ 48,691 $ 7,772 $ 6,217 $ 87,063 $ 149,743

2022 10,462 7,772 3,401 87,063 108,698

2023 5,450 14,573 1,190 819,719 840,932

2024 4,095 19,430 353 52,375 76,253

2025 4,039 24,288 116 539,250 567,693

Thereafter — — — 602,250 602,250

Total $ 72,737 $ 73,835 $ 11,277 $ 2,187,720 $ 2,345,569

The amounts in the table above exclude $ 23.1 million of unrecognized tax benefits, as the Company is unable to reasonably estimate the ultimate amount or time of settlement of those liabilities.

Verisign enters into certain purchase obligations with various vendors.

The Company’s significant purchase obligations include firm commitments with telecommunication carriers and other service providers.

The Company’s significant purchase obligations include firm commitments with telecommunication carriers, other service providers and the fixed portion of registry fees related to the operation of certain top-level domains.

Registry fees for top-level domains that we operate where the amounts are variable or passed-through to registrars have been excluded from the table above.

The Company does not have any significant purchase obligations beyond 2025.

The Transition Tax relates to the U.S.

income taxes payable on our accumulated foreign earnings pursuant to the Tax Act as discussed in Note 10.

Income Taxes .

As permitted in the Tax Act, the Company will continue to pay the Transition Tax in installments as shown in the table above.

The Company has an agreement with Internet Corporation for Assigned Names and Numbers (“ICANN”) to be the sole registry operator for domain names in the .com registry through November 30, 2024 .

Under this agreement, the Company pays ICANN on a quarterly basis, $ 0.25 for each annual term of a domain name registered or renewed during such quarter.

As of December 31, 2019 , there were 145.4 million domain names in the .

com registry.

However, the number of domain names registered and renewed each quarter may vary significantly.

The Company incurred registry fees for the .

com registry of $ 36.3 million in 2020, $ 34.7 million in 2019, and $ 33.0 million in 2018.

Registry fees for other top-level domains that we operate have been excluded from the table above because the amounts are variable or passed through to registrars.

The Company has an agreement with the Government of Tuvalu to be the sole registry operator for .tv domain names through December 31, 2021.

Registry fees were $ 5.0 million in each of the last three years.

In connection with the .

com Registry Agreement with ICANN, the Company is required to make annual payments of $ 4.0 million to ICANN from 2021 through 2025 to support efforts to maintain the security and stability of the DNS.

These payments are included in Purchase obligations in the table above.

The Transition Tax relates to the U.S.

income taxes payable on our accumulated foreign earnings pursuant to the Tax Act as discussed in Note 10 “Income Taxes.” As permitted by the Tax Act, the Company will continue to pay the Transition Tax in installments as shown in the table above.

Verisign leases a small portion of its office space and a portion of its data center facilities under operating leases, the longest of which extends into 2025.

Rental expenses under operating leases were not material in any period presented.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

Off-Balance Sheet Arrangements

7 unchanged sentences

In management’s opinion, the unaudited data has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the data for the periods presented.

Quarter Ended

Quarter Ended Year Ended

March 31 (1) June 30 September 30 (2) December 31 (3) December 31,

(In thousands, except per share data)

Revenues $ 312,524 $ 314,365 $ 317,879 $ 320,284 $ 1,265,052

Gross Profit $ 266,951 $ 270,757 $ 272,855 $ 274,312 $ 1,084,875

Operating Income $ 206,264 $ 206,780 $ 206,649 $ 204,508 $ 824,201

Net income $ 334,116 $ 152,479 $ 170,979 $ 157,314 $ 814,888

Earnings per share:

Quarter Ended

December 31 (2)

Basic (4) $ 2.87 $ 1.32 $ 1.49 $ 1.38 $ 7.08

Diluted (4) $ 2.86 $ 1.32 $ 1.49 $ 1.38 $ 7.07

Quarter Ended Year Ended

March 31 June 30 September 30 December 31 December 31,

(In thousands, except per share data)

Revenues $ 306,408 $ 306,289 $ 308,421 $ 310,543 $ 1,231,661

Gross Profit $ 260,904 $ 262,223 $ 263,978 $ 264,089 $ 1,051,194

Operating Income $ 200,252 $ 201,693 $ 205,616 $ 198,566 $ 806,127

Net income $ 162,527 $ 147,534 $ 153,913 $ 148,325 $ 612,299

Earnings per share:

Basic $ 1.36 $ 1.24 $ 1.30 $ 1.27 $ 5.17

Diluted $ 1.35 $ 1.24 $ 1.30 $ 1.26 $ 5.15

(1) Results for the quarter ended March 31, 2020 include the recognition of $167.8 million of previously unrecognized income tax benefits.

(2) Results for the quarter ended September 30, 2020 include the recognition of $24.0 million of previously unrecognized income tax benefits.

(3) Results for the quarter ended December 31, 2020 include the recognition of $12.4 million of previously unrecognized income tax benefits.

(4) Earnings per share for the year is computed independently and may not equal the sum of the quarterly earnings per share.

Results for the quarter ended December 31, 2018 include a $52.0 million after-tax gain recognized on the sale of the customer contracts of our security services business.

Our quarterly revenues and operating results are difficult to forecast.

Therefore, we believe that period-to-period comparisons of our operating results will not necessarily be meaningful, and should not be relied upon as an indication of future performance.

We believe that period-to-period comparisons of our operating results are not necessarily meaningful, and should not be relied upon as an indication of future performance.

Also, operating results may fall below our expectations and the expectations of securities analysts or investors in one or more future quarters.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data