UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2002 | ||
| or | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to . | ||
Commission file number: 000-26247
VERITAS Software Corporation
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Delaware
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77-0507675 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
350 Ellis Street
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
The number of shares of the Registrant’s common stock outstanding as of October 31, 2002 was 411.6 million shares.
VERITAS SOFTWARE CORPORATION
INDEX
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| PART I: FINANCIAL INFORMATION | ||||||
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Item 1.
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Condensed Consolidated Financial Statements | |||||
| Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | 2 | |||||
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 42 | ||||
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Item 4.
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Controls and Procedures | 45 | ||||
| PART II: OTHER INFORMATION | ||||||
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Item 1.
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Legal Proceedings | 45 | ||||
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Item 5.
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Other Information | 46 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 48 | ||||
| Signature | 50 | |||||
| Certifications | 51 | |||||
1
PART I: FINANCIAL INFORMATION
| Item 1. | Condensed Consolidated Financial Statements |
VERITAS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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||||||||||
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Cash and cash equivalents
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$ | 831,571 | $ | 538,419 | ||||||
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Short-term investments
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1,291,467 | 1,156,441 | ||||||||
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Accounts receivable, net of allowance for
doubtful accounts of $13,438 at September 30, 2002 and $12,616
at December 31, 2001.
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115,128 | 176,635 | ||||||||
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Deferred income taxes
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122,834 | 124,527 | ||||||||
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Other current assets
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67,457 | 66,466 | ||||||||
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Total current assets
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2,428,457 | 2,062,488 | ||||||||
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Property and equipment, net
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230,799 | 225,763 | ||||||||
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Other intangibles, net
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102,159 | 209,722 | ||||||||
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Goodwill, net
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1,202,814 | 1,202,814 | ||||||||
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Other non-current assets
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28,383 | 52,451 | ||||||||
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Deferred income taxes
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84,840 | 45,375 | ||||||||
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Total assets
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$ | 4,077,452 | $ | 3,798,613 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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Accounts payable
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$ | 30,016 | $ | 32,244 | ||||||
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Accrued compensation and benefits
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81,562 | 89,637 | ||||||||
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Accrued acquisition and restructuring costs
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10,786 | 12,093 | ||||||||
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Other accrued liabilities
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78,099 | 80,833 | ||||||||
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Income taxes payable
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124,305 | 63,735 | ||||||||
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Deferred revenue
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256,773 | 239,110 | ||||||||
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Total current liabilities
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581,541 | 517,652 | ||||||||
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Convertible subordinated notes
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456,007 | 444,408 | ||||||||
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Deferred and other income taxes
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113,100 | 113,100 | ||||||||
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Total liabilities
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1,150,648 | 1,075,160 | ||||||||
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Stockholders’ equity:
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Common stock
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431 | 423 | ||||||||
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Additional paid-in capital
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6,329,420 | 6,228,914 | ||||||||
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Accumulated deficit
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(1,696,791 | ) | (1,803,528 | ) | ||||||
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Accumulated other comprehensive loss
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(4,192 | ) | (292 | ) | ||||||
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Treasury stock, at cost; 18,675 shares at
September 30, 2002 and at December 31, 2001
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(1,702,064 | ) | (1,702,064 | ) | ||||||
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Total stockholders’ equity
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2,926,804 | 2,723,453 | ||||||||
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Total liabilities and stockholders’ equity
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$ | 4,077,452 | $ | 3,798,613 | ||||||
See accompanying notes to the condensed consolidated financial statements.
2
VERITAS SOFTWARE CORPORATION
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||
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Net revenue:
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User license fees
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$ | 240,699 | $ | 240,014 | $ | 742,286 | $ | 842,711 | ||||||||||
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Services
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124,985 | 100,217 | 358,537 | 275,184 | ||||||||||||||
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Total net revenue
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365,684 | 340,231 | 1,100,823 | 1,117,895 | ||||||||||||||
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Cost of revenue:
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User license fees
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8,250 | 7,919 | 26,222 | 28,298 | ||||||||||||||
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Services
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46,686 | 33,952 | 132,693 | 99,983 | ||||||||||||||
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Amortization of developed technology
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16,457 | 15,791 | 50,264 | 47,295 | ||||||||||||||
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Total cost of revenue
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71,393 | 57,662 | 209,179 | 175,576 | ||||||||||||||
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Gross profit
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294,291 | 282,569 | 891,644 | 942,319 | ||||||||||||||
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Operating expenses:
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Selling and marketing
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122,042 | 138,659 | 375,736 | 427,180 | ||||||||||||||
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Research and development
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69,182 | 61,636 | 202,067 | 177,742 | ||||||||||||||
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General and administrative
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35,179 | 29,687 | 102,905 | 84,077 | ||||||||||||||
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Amortization of other intangibles
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18,016 | 18,076 | 54,048 | 54,304 | ||||||||||||||
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Amortization of goodwill
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— | 203,725 | — | 610,466 | ||||||||||||||
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Acquisition and restructuring costs (reversals)
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— | (5,000 | ) | — | (5,000 | ) | ||||||||||||
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Total operating expenses
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244,419 | 446,783 | 734,756 | 1,348,769 | ||||||||||||||
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Income (loss) from operations
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49,872 | (164,214 | ) | 156,888 | (406,450 | ) | ||||||||||||
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Interest and other income, net
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10,619 | 15,697 | 37,480 | 51,537 | ||||||||||||||
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Interest expense
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(7,606 | ) | (7,552 | ) | (22,988 | ) | (21,847 | ) | ||||||||||
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Loss on strategic investments
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— | (16,074 | ) | (14,802 | ) | (16,074 | ) | |||||||||||
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Income (loss) before income taxes
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52,885 | (172,143 | ) | 156,578 | (392,834 | ) | ||||||||||||
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Provision (benefit) for income taxes
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16,659 | (10,157 | ) | 49,841 | 54,227 | |||||||||||||
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Net income (loss)
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$ | 36,226 | $ | (161,986 | ) | $ | 106,737 | $ | (447,061 | ) | ||||||||
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Net income (loss) per share — basic
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$ | 0.09 | $ | (0.40 | ) | $ | 0.26 | $ | (1.12 | ) | ||||||||
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Number of shares used in computing per share
amounts — basic
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410,898 | 400,455 | 408,827 | 397,783 | ||||||||||||||
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Net income (loss) per share —
diluted
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$ | 0.09 | $ | (0.40 | ) | $ | 0.25 | $ | (1.12 | ) | ||||||||
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Number of shares used in computing per share
amounts — diluted
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416,587 | 400,455 | 418,823 | 397,783 | ||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
3
VERITAS SOFTWARE CORPORATION
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | |||||||||||
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Cash flows from operating activities:
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Net income (loss)
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$ | 106,737 | $ | (447,061 | ) | ||||||
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Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
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Depreciation and amortization
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80,087 | 69,500 | |||||||||
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Amortization of other intangibles
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54,048 | 54,304 | |||||||||
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Amortization of goodwill
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— | 610,466 | |||||||||
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Amortization of developed technology
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50,264 | 47,295 | |||||||||
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Amortization of original issue discount on
convertible notes
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12,099 | 11,343 | |||||||||
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Provision for doubtful accounts
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4,017 | 4,374 | |||||||||
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Acquisition and restructuring costs (reversals)
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— | (5,000 | ) | ||||||||
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Tax benefits from stock plans
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19,593 | 83,005 | |||||||||
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Loss on strategic investments
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14,802 | 16,074 | |||||||||
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Gain on sale of assets
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(62 | ) | — | ||||||||
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Deferred income taxes
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(39,437 | ) | (45,687 | ) | |||||||
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Changes in operating assets and liabilities, net
of effects of business acquisitions:
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Accounts receivable
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57,490 | 21,151 | |||||||||
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Other assets
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9,980 | 7,629 | |||||||||
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Accounts payable
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(2,228 | ) | (12,348 | ) | |||||||
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Accrued compensation and benefits
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(8,075 | ) | 2,936 | ||||||||
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Accrued acquisition and restructuring costs
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(1,414 | ) | (27,528 | ) | |||||||
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Other accrued liabilities
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4,533 | (12,711 | ) | ||||||||
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Income taxes payable
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60,570 | 7,383 | |||||||||
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Deferred revenue
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17,663 | 24,572 | |||||||||
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Net cash provided by operating activities
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440,667 | 409,697 | |||||||||
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Cash flows from investing activities:
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Purchases of investments
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(1,258,682 | ) | (1,195,468 | ) | |||||||
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Sales and maturities of investments
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1,122,807 | 579,156 | |||||||||
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Purchases of property and equipment
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(83,704 | ) | (124,318 | ) | |||||||
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Business acquisitions
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— | (24,000 | ) | ||||||||
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Strategic investments in businesses
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— | (17,110 | ) | ||||||||
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Payments made for 2001 business acquisitions
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(7,267 | ) | — | ||||||||
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Net cash used for investing activities
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(226,846 | ) | (781,740 | ) | |||||||
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Cash flows from financing activities:
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Proceeds from issuance of common stock
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80,422 | 85,114 | |||||||||
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Net cash provided by financing activities
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80,422 | 85,114 | |||||||||
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Effect of exchange rate changes
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(1,091 | ) | 3,727 | ||||||||
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Net increase (decrease) in cash and cash
equivalents
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293,152 | (283,202 | ) | ||||||||
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Cash and cash equivalents at beginning of period
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538,419 | 886,558 | |||||||||
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Cash and cash equivalents at end of period
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$ | 831,571 | $ | 603,356 | |||||||
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Supplemental disclosures:
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Cash paid for interest
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$ | 10,304 | $ | 10,318 | |||||||
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Cash paid for income taxes
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$ | 14,000 | $ | 8,461 | |||||||
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Supplemental schedule of non-cash financing
transactions:
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Issuance of common stock for conversion of notes
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$ | 500 | $ | 82 | |||||||
See accompanying notes to condensed consolidated financial statements.
4
VERITAS SOFTWARE CORPORATION
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results for the interim periods presented are not necessarily indicative of the results that may be expected for any future period. The following information should be read in conjunction with the consolidated financial statements and accompanying notes included in VERITAS Software Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001.
2. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
3. Comparative Information
The Company has reclassified certain comparative information to conform with current period financial presentation.
4. Change in Accounting Principles
On January 1, 2002, the Company adopted Statement of Financial Accounting Standard (“SFAS”) 142, Goodwill and Other Intangible Assets, SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and the Financial Accounting Standards Board (“FASB”) staff issued Topic No. D-103, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred (“Topic D-103”).
SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and