What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-18 compared with 2021-02-19 · 97 added, 173 removed, 672 unchanged (29% of the section changed)

41 unchanged sentences

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.

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.

87 unchanged sentences

Interest expense ( 83,255 ) ( 90,144 ) ( 90,611 )

Non-operating income, net 16,187 43,260 76,969

Non-operating (loss) income, net ( 1,329 ) 16,187 43,260

Income before income taxes 782,219 750,244 758,776

19 unchanged sentences

Repurchase of common stock ( 722,587 ) ( 777,454 ) ( 782,583 )

Stock-based compensation expense 50,026 52,316 54,574

Stock-based compensation 55,061 50,026 52,316

Issuance of common stock under stock plans 12,404 12,577 13,152

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

Balance, end of period 13,620,038 14,275,160 14,990,011

2 unchanged sentences

Net income 784,830 814,888 612,299

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

Balance, end of period ( 14,877,772 ) ( 15,662,602 ) ( 16,477,490 )

14 unchanged sentences

Depreciation of property and equipment 47,940 46,352 46,330

Stock-based compensation 48,243 50,626 52,504

Amortization of discount on investments in debt securities ( 6,131 ) ( 14,777 ) ( 18,259 )

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

Stock-based compensation expense 53,439 48,243 50,626

Other, net 6,027 ( 9,108 ) ( 11,926 )

10 unchanged sentences

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

Other investing activities — — ( 160 )

Net cash (used in) provided by investing activities ( 269,246 ) ( 72,258 ) 167,195

Cash flows from financing activities:

Repayment of borrowings ( 750,000 ) — —

Proceeds from borrowings, net of issuance costs 741,053 — —

Repurchases of common stock ( 722,587 ) ( 777,454 ) ( 782,583 )

Proceeds from employee stock purchase plan 12,404 12,577 13,152

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

Other financing activities — — ( 872 )

63 unchanged sentences

The Company’s subsidiaries’ financial statements are remeasured into U.S.

dollars using a combination of current and historical exchange rates and any remeasurement gains and losses are included in Non-operating income, net.

dollars using a combination of current and historical exchange rates and any remeasurement gains and losses are included in Non-operating (loss) income, net.

Remeasurement gains and losses were not significant in each of the last three years.

4 unchanged sentences

These foreign currency forward contracts are derivatives and are recorded at fair market value.

The Company records gains and losses on foreign currency forward contracts in Non-operating income, net.

The Company records gains and losses on foreign currency forward contracts in Non-operating (loss) income, net.

Gains and losses related to foreign currency forward contracts were not significant in each of the last three years.

23 unchanged sentences

Advertising costs are expensed as incurred and are included in Sales and marketing expenses.

Advertising expenses, including costs for advertising campaigns conducted jointly with our registrars were $ 7.5 million, $ 12.8 million, and $ 15.2 million in 2020, 2019, and 2018, respectively.

Advertising expenses were $ 6.0 million, $ 7.5 million, and $ 12.8 million in 2021, 2020, and 2019, respectively.

Verisign uses the asset and liability method to account for income taxes.

6 unchanged sentences

The Company’s income taxes payable is reduced by the tax benefits from restricted stock unit (“RSU”) vestings equal to the fair market value of the stock at the vesting date.

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.

If the income tax benefit at the 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 operates in multiple tax jurisdictions in the United States and internationally.

5 unchanged sentences

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.

Actual operating results and the underlying amount and character of income in future years could render the Company’s current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate.

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.

See Note 10, “Income Taxes,” for details of the changes to the Company’s unrecognized tax benefits for the periods presented.

Stock-based Compensation

2 unchanged sentences

Forfeitures of stock-based awards are recognized as they occur.

As substantially all of the RSUs granted by the Company are routine annual grants, none of the awards are designed to be spring-loaded, and as such, the Company does not adjust the market price of its common stock when estimating the grant-date fair value of these awards.

The Company also grants RSUs which include performance conditions, and in some cases market conditions, to certain executives.

2 unchanged sentences

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

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.

VERISIGN, INC.

1 unchanged sentence

DECEMBER 31, 2021, 2020 AND 2019

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

Earnings per Share

The Company computes basic earnings per share by dividing net income by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share gives effect to dilutive potential common shares, including unvested RSUs, ESPP offerings and the conversion spread related to the subordinated convertible debentures, prior to conversion on May 1, 2018, using the treasury stock method.

Diluted earnings per share gives effect to dilutive potential common shares, including unvested RSUs and ESPP offerings, using the treasury stock method.

Fair Value of Financial Instruments

35 unchanged sentences

Total $ 1,211,134 $ 1,176,314

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.

The gross and net unrealized gains and losses included in the fair value of the debt securities were not significant for the periods presented.

All of the debt securities held as of December 31, 2021 have contractual maturities of less than one year.

4 unchanged sentences

Treasury bills is based on their quoted market prices and are classified as Level 1.

Debt securities purchased with original maturities in excess of three months are included in Marketable securities.

Debt securities purchased with original maturities less than three months are included in Cash and cash equivalents.

As of December 31, 2021, the Company’s other financial instruments include cash, accounts receivable, restricted cash, and accounts payable whose carrying values approximated their fair values.

6 unchanged sentences

(In thousands)

Prepaid registry fees $ 22,654 $ 21,717

Prepaid expenses $ 24,756 $ 17,920

Accounts receivable, net 4,642 1,524

Prepaid registry fees 24,240 22,654

Taxes receivable 7,669 3,572

Contingent consideration receivable — 14,721

Accounts receivable, net 5,284 4,642

Other 981 2,245

32 unchanged sentences

(In thousands)

Long-term prepaid expenses $ 10,976 $ 7,105

Long-term prepaid registry fees 8,693 7,997

Operating lease right-of-use asset 8,418 11,277

Restricted cash 5,329 9,407

Long-term prepaid registry fees 7,997 7,753

Other tax receivable 969 6,927

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

Other 2,144 2,172

Total other long-term assets $ 35,560 $ 37,958

5 unchanged sentences

The amount of prepaid registry fees as of December 31, 2021 reflects amortization of $ 38.3 million during 2021 which was recorded in Cost of Revenues.

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 $ 8,997 $ 12,340

Accrued employee compensation 54,596 49,869

Customer deposits 77,329 53,631

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

Accrued employee compensation 58,499 54,596

Taxes payable 26,793 27,194

Interest payable 19,500 24,408

Accrued registry fees 13,090 11,529

Customer incentives payable 13,297 12,556

Accrued registry fees 12,844 13,090

Other accrued liabilities 9,321 10,827

8 unchanged sentences

Long-term tax liabilities include accruals for unrecognized tax benefits and the long-term portion of the U.S.

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.”

Debt and Interest Expense

As of December 31, 2020, the Company had senior notes outstanding of $ 1.79 billion, net of unamortized issuance costs.

All of the outstanding senior notes were issued at par and are senior unsecured obligations of the Company.

Interest is payable on each of the senior notes semi-annually.

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

income taxes payable on the Company’s accumulated foreign earnings (“Transition Tax”) resulting from the 2017 Tax Cuts and Jobs Act.

The following table summarizes information related to our Senior notes:

5 unchanged sentences

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

Senior notes due 2031 June 8, 2021 June 15, 2031 2.700 % 750,000 —

Principal amount of senior notes 1,800,000 1,800,000

unamortized issuance costs ( 14,291 ) ( 9,917 )

Total senior notes $ 1,785,709 $ 1,790,083

The indenture governing the 2023 Senior Notes contains covenants that limit the ability of the Company and/or its restricted subsidiaries, under certain circumstances, to, among other things:

(i) pay dividends or make distributions on, or redeem or repurchase, its capital stock;

(ii) make certain investments;

(iii) create liens on assets;

(iv) enter into sale/leaseback transactions and (v) merge or consolidate or sell all or substantially all of its assets.

These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, accrued and unpaid interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.

The Company has remained in compliance with these covenants and no events of default have occurred over the term of the Notes.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

On June 8, 2021, the Company issued $ 750.0 million of 2.700 % senior unsecured notes due 2031.

The 2031 Notes were issued at 99.712 % of par value.

The total discount and issuance costs of $ 8.9 million are presented on the balance sheet as a reduction of the debt obligation and are being amortized to Interest expense over the 10-year term of the notes.

The 2025 and 2027 notes were issued at par and all outstanding senior notes are senior unsecured obligations of the Company.

Interest is payable on each of the senior notes semi-annually.

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.

On June 23, 2021, the Company used the net proceeds from the 2031 Notes and cash on hand, to redeem all of its $ 750.0 million aggregate principal amount of outstanding 4.625 % senior notes due 2023 (“2023 Notes”).

The redemption of the 2023 Notes resulted in a loss on debt extinguishment of $ 2.1 million related to the unamortized debt issuance costs on the notes.

The loss on extinguishment is included in Non-operating loss (income), net in 2021.

2019 Credit Facility

2 unchanged sentences

As of December 31, 2021, there were no borrowings outstanding under the facility and the Company was in compliance with the financial covenants.

The 2019 Credit Facility was amended in December 2021 to address the LIBOR transition.

The 2019 Credit Facility expires on December 12, 2024 at which time any outstanding borrowings are due.

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.

Subordinated Convertible Debentures

In 2018 the Company settled all of its outstanding subordinated convertible debentures, paying the $ 1.25 billion principal value in cash, and issuing 26.1 million shares of common stock for the excess of the conversion value over the principal amount.

The Company recognized a loss of $ 6.6 million upon extinguishment of the subordinated convertible debentures based on the amount of the total consideration allocated to the liability component of the debentures.

The following table presents the components of the Company’s interest expense:

Year Ended December 31,

2020 2019 2018

(In thousands)

Contractual interest on Senior Notes $ 87,063 $ 87,063 $ 87,063

Contractual interest on subordinated convertible debentures — — 20,015

Amortization of debt discount on the subordinated convertible debentures — — 4,236

Amortization of debt issuance costs and other interest expense 3,081 3,548 3,531

Total interest expense $ 90,144 $ 90,611 $ 114,845

Stockholders’ Deficit

2 unchanged sentences

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.

Effective February 11, 2021, the Company’s Board of Directors (“Board”) authorized the repurchase of its common stock in the amount of approximately $ 747.0 million, in addition to the $ 253.0 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.

11 unchanged sentences

Since inception, the Company has repurchased 243.7 million shares of its common stock for an aggregate cost of $ 11.70 billion, which is recorded as a reduction of Additional paid-in capital.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

Accumulated Other Comprehensive Loss

14 unchanged sentences

Weighted-average potential shares of common stock outstanding:

Conversion spread related to subordinated convertible debentures — — 8,589

Unvested RSUs and ESPP 151 240 455

Shares used to compute diluted earnings per share 112,166 115,298 118,968

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

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 calculation of diluted weighted average shares outstanding excludes 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.

15 unchanged sentences

Revenues for each region may also be impacted by registrars domiciled in one region, registering domain names in another region.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

Major Customers

Our largest customer accounted for approximately 33 %, 34 %, and 33 % of revenues in 2021, 2020, and 2019, 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.

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

Deferred Revenues

1 unchanged sentence

The increase in the deferred revenues balance in 2021 is primarily driven by amounts billed in 2021 for domain name registrations and renewals to be recognized as revenues in future periods, offset by refunds for domain name renewals deleted during the 45-day grace period, and $ 752.2 million of revenues recognized that were included in the deferred revenues balance at December 31, 2020.

The higher deferred revenue balance as of December 31, 2021 also reflects an increase in the volume of early renewal transactions that occurred before the .

com price increase became effective on September 1, 2021.

The balance of deferred revenues as of December 31, 2021 represents our aggregate remaining performance obligations.

11 unchanged sentences

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

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.

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.

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).

RSUs generally vest over four years.

Certain RSUs with performance and market conditions (“PSUs”), granted to the Company’s executives, vest over either three-or four-year terms.

Certain RSUs with performance and market conditions (“PSUs”), granted to the Company’s executives, generally vest over a three year term.

Additionally, the Company has granted fully vested RSUs to members of its Board in each of the last three years.

7 unchanged sentences

As of December 31, 2021, 3.0 million shares of the Company’s common stock remain reserved for future issuance under this plan.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

Stock-based Compensation

8 unchanged sentences

General and administrative 34,319 31,332 33,762

Stock-based compensation expense 53,439 48,243 50,626

Capitalization (included in Property and equipment, net) 1,622 1,783 1,690

Total stock-based compensation $ 55,061 $ 50,026 $ 52,316

6 unchanged sentences

ESPP 4,275 4,429 4,864

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

Total stock-based compensation expenses $ 48,243 $ 50,626 $ 52,504

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

Total stock-based compensation $ 55,061 $ 50,026 $ 52,316

The income tax benefit that was included within Income tax benefit (expense) related to these stock-based compensation expenses for 2021, 2020, and 2019 was $ 12.4 million, $ 11.0 million, and $ 11.7 million, respectively.

RSUs Information

8 unchanged sentences

The RSUs in the table above include PSUs.

The unvested RSUs as of December 31, 2020 include approximately 0.2 million PSUs.

The unvested RSUs as of December 31, 2021 include less than 0.2 million PSUs.

The number of shares received upon vesting of these PSUs may range from zero to 0.3 million depending on the level of performance achieved and whether any market conditions are satisfied.

4 unchanged sentences

As of December 31, 2021, total unrecognized compensation cost related to unvested RSUs was $ 82.3 million which is expected to be recognized over a weighted-average period of 2.4 years.

Non-operating Income, Net

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

Non-operating (Loss) Income, Net

The following table presents the components of Non-operating income, net:

2 unchanged sentences

(In thousands)

Loss on extinguishment of debt $ ( 2,149 ) $ — $ —

Interest income 582 7,815 26,596

1 unchanged sentence

Transition services income — 2,100 15,600

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

Other, net 238 ( 130 ) 247

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

Total non-operating (loss) income, net $ ( 1,329 ) $ 16,187 $ 43,260

The redemption of the 2023 Notes resulted in a loss on debt extinguishment of $ 2.1 million related to the unamortized debt issuance costs on the notes.

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

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.

The lower interest income in 2021 and 2020 reflects a decline in interest rates on our investments in debt securities.

Gain on sale of business and transition services income in 2020 and 2019 relate to the sale of our security services customer contracts.

Income before income taxes is categorized geographically as follows:

5 unchanged sentences

Total income before income taxes $ 782,219 $ 750,244 $ 758,776

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

The provision for income taxes consisted of the following:

2 unchanged sentences

(In thousands)

Current (benefit) expense:

Current expense (benefit):

Federal $ 97,420 $ ( 123,933 ) $ 74,283

8 unchanged sentences

Total income tax (benefit) expense $ ( 2,611 ) $ ( 64,644 ) $ 146,477

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

The Tax Act made substantial changes to U.S.

taxation of corporations, including lowering the U.S.

federal corporate income tax rate from 35 % to 21 % and instituting a territorial tax system, along with a one-time Transition Tax.

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.

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.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

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:

6 unchanged sentences

operations ( 23,255 ) ( 27,691 ) ( 25,178 )

Intercompany non-U.S.

intellectual property transfer ( 165,517 ) — —

Remeasurement of unrecognized tax benefits ( 5,095 ) ( 204,673 ) 7,365

Stock-based compensation 1,333 ( 8,643 ) ( 9,204 )

Capital loss carryforwards expiration — — 769,706

Change in valuation allowance ( 987 ) ( 3,555 ) ( 773,737 )

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

Other 130 ( 4,355 ) ( 6,422 )

Total income tax (benefit) expense $ ( 2,611 ) $ ( 64,644 ) $ 146,477

During the fourth quarter of 2021, as part of a legal entity reorganization, the Company completed an internal transfer of certain of its non-U.S.

intellectual property which had no book value.

This transfer created amortizable tax basis for the receiving entity based on the $ 1.20 billion fair value of the intellectual property, which resulted in the recognition of a $ 165.5 million deferred tax asset and a corresponding income tax benefit.

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.

These remeasurements were based on written confirmations from the 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.

federal income tax returns for those years 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), and $ 16.9 million ($ 0.14 ) in 2019, and 2018, respectively.

The tax holiday reduced our foreign income tax expense by $ 17.3 million ($ 0.15 per share) in 2019.

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

Effective January 1, 2020, due to Swiss tax law changes, the tax holiday was eliminated, which was partially offset by a lowered statutory tax rate.

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows:

2 unchanged sentences

Deferred tax assets:

Intellectual property $ 165,517 $ —

Deferred revenues, accruals and reserves 68,574 66,926

10 unchanged sentences

Total net deferred tax assets $ 230,668 $ 67,832

With the exception of deferred tax assets related to certain state net operating loss carryforwards, management believes it is more likely than not that the tax effects of the deferred tax liabilities together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets.

As of December 31, 2020, the Company’s Other long-term tax liabilities include the $ 66.1 million noncurrent liability for Transition Tax, net of applicable foreign tax credits, while the $ 7.8 million current portion of the liability is included in Accounts payable and accrued liabilities.

With the exception of deferred tax assets related to certain state net operating loss and foreign tax credit carryforwards, management believes it is more likely than not that the tax effects of the deferred tax liabilities together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets.

As of December 31, 2021, the Company’s deferred tax assets included $ 75.4 million of state net operating loss carryforwards, before applying tax rates for the respective jurisdictions.

2 unchanged sentences

The foreign tax credits will expire in 2028 .

The Company maintains liabilities for uncertain tax positions.

These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available including changes in tax regulations and other information.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

5 unchanged sentences

Increases in tax positions for current year 1,115 1,613

Decreases in tax positions due to settlement with taxing authorities ( 1,231 ) —

Lapse in statute of limitations ( 6,384 ) ( 17,255 )

Ending balance $ 15,995 $ 23,728

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020, 2019 AND 2018

As of December 31, 2021, approximately $ 16.2 million of unrecognized tax benefits, including penalties and interest, could affect the Company’s tax provision and effective tax rate.

5 unchanged sentences

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.

federal statutes of

VERISIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2021, 2020 AND 2019

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.

3 unchanged sentences

Commitments and Contingencies

Purchase Obligations and Contractual Agreements

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

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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.

The payments for 2022 through 2025 are included in Purchase obligations in the table above.

The Transition Tax in the table above is the remaining installments of U.S.

income taxes payable on our accumulated foreign earnings pursuant to the 2017 Tax Cuts and Jobs Act.

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

As of December 31, 2020 and 2019, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships.

It is not the Company’s business practice to enter into off-balance sheet arrangements.

However, in the normal course of business, the Company does enter into contracts in which it makes representations and warranties that guarantee the performance of the Company’s products and services.

Historically, there have been no significant losses related to such guarantees.

Supplementary Data (Unaudited)

The following tables set forth unaudited supplementary quarterly financial data for the two-year period ended December 31, 2020.

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 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:

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.

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.

If this were to occur, the market price of our common stock would likely decline.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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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