VERITAS SOFTWARE CORP /DE/ - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to .

Commission file number: 000-26247

VERITAS Software Corporation

(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		77-0507675 (I.R.S. Employer Identification No.)

350 Ellis Street

Mountain View, California 94043

(650) 527-8000

(Address, including Zip Code, of Registrant’s Principal Executive Offices and

Registrant’s Telephone Number, including Area Code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

The number of shares of the registrant’s common stock outstanding as of April 30, 2003 was 414,790,342 shares.

TABLE OF CONTENTS


PART I: FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II: OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CHIEF EXECUTIVE OFFICER CERTIFICATION
CHIEF FINANCIAL OFFICER CERTIFICATION
EXHIBIT INDEX
EXHIBIT 10.01
EXHIBIT 99.01

VERITAS SOFTWARE CORPORATION

INDEX


		Page

PART I: FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002		2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002		3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		49
Item 4.	Controls and Procedures		51
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings		53
Item 4.	Submission of Matters to a Vote of Security Holders		54
Item 6.	Exhibits and Reports on Form 8-K		54
Signature			56
Certifications			57

PART I: FINANCIAL INFORMATION


Item 1.	*Condensed Consolidated Financial Statements*

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


			March 31,			December 31,
			2003			2002

			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	1,031,404		$	764,062
	Short-term investments			1,362,703			1,477,259
	Accounts receivable, net of allowance for doubtful accounts of $9,573 at March 31, 2003 and $11,308 at December 31, 2002			78,277			170,204
	Other current assets			75,230			74,178
	Deferred income taxes			60,070			59,995

		Total current assets		2,607,684			2,545,698
Property and equipment, net				222,844			230,261
Other intangibles, net				49,766			72,594
Goodwill, net				1,239,909			1,196,593
Other non-current assets				14,311			26,624
Deferred income taxes				136,891			127,863

			$	4,271,405		$	4,199,633


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	32,738		$	33,823
	Accrued compensation and benefits			66,957			97,233
	Accrued acquisition and restructuring costs			38,843			37,742
	Other accrued liabilities			79,856			92,431
	Income taxes payable			155,285			123,569
	Deferred revenue			298,117			280,314

		Total current liabilities		671,796			665,112
Convertible subordinated notes				464,497			460,252
Accrued acquisition and restructuring costs				74,433			77,402
Deferred and other income taxes				113,100			113,100

		Total liabilities		1,323,826			1,315,866
Stockholders’ equity:
	Common stock			432			431
	Additional paid-in capital			6,357,619			6,334,581
	Accumulated deficit			(1,703,186	)		(1,745,712	)
	Deferred stock-based compensation			(4,939	)		—
	Accumulated other comprehensive loss			(283	)		(3,469	)
	Treasury stock, at cost; 18,675 shares at March 31, 2003 and December 31, 2002			(1,702,064	)		(1,702,064	)

		Total stockholders’ equity		2,947,579			2,883,767

			$	4,271,405		$	4,199,633

See accompanying notes to condensed consolidated financial statements.

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



					Three Months Ended
					March 31,

					2003			2002


					(Unaudited)
Net revenue:
	User license fees				$	254,564		$	259,711
	Services					139,822			110,738

		Total net revenue				394,386			370,449
Cost of revenue:
	User license fees					11,418			9,194
	Services					47,789			41,155
	Amortization of developed technology					14,782			16,903

		Total cost of revenue				73,989			67,252

			Gross profit			320,397			303,197
Operating expenses:
	Selling and marketing					122,047			126,963
	Research and development					71,383			65,184
	General and administrative					38,153			33,113
	Amortization of other intangibles					18,191			18,016
	In-process research and development					4,100			—

		Total operating expenses				253,874			243,276

			Income from operations			66,523			59,921
Interest and other income, net						8,395			13,153
Interest expense						(7,738	)		(7,921	)
Loss on strategic investments						(3,518	)		—

			Income before income taxes			63,662			65,153
Provision for income taxes						21,136			20,687

				Net income	$	42,526		$	44,466

Net income per share — basic					$	0.10		$	0.11

Number of shares used in computing per share amounts — basic						412,916			406,086

Net income per share — diluted					$	0.10		$	0.11

Number of shares used in computing per share amounts — diluted						419,380			421,709

See accompanying notes to condensed consolidated financial statements.

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



					Three Months Ended
					March 31,

					2003			2002


					(Unaudited)
Cash flows from operating activities:
	Net income				$	42,526		$	44,466
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				24,611			24,809
		Amortization of other intangibles				18,191			18,016
		Amortization of developed technology				14,782			16,903
		Amortization of original issue discount on convertible notes				4,245			3,970
		In-process research and development				4,100			—
		Provision for doubtful accounts				724			988
		Stock-based compensation				449			—
		Tax benefits from stock plans				1,642			15,920
		Loss on strategic investments				3,518			—
		Deferred income taxes				(13,397	)		(13,120	)
		Changes in operating assets and liabilities, net of effects of business acquisitions:
			Accounts receivable			91,203			50,673
			Other assets			8,373			3,510
			Accounts payable			(1,295	)		982
			Accrued compensation and benefits			(30,381	)		(27,632	)
			Accrued acquisition and restructuring costs			(4,945	)		(35	)
			Other accrued liabilities			(10,611	)		2,280
			Income taxes payable			31,716			17,146
			Deferred revenue			17,803			34,845

				Net cash provided by operating activities		203,254			193,721
Cash flows from investing activities:
	Purchases of investments					(414,876	)		(299,369	)
	Sales and maturities of investments					528,653			435,659
	Purchases of property and equipment					(16,336	)		(15,297	)
	Business acquisitions, net of cash acquired					(54,579	)		—
	Payments made for prior year business and technology acquisitions					(2,106	)		(7,267	)

				Net cash provided by investing activities		40,756			113,726
Cash flows from financing activities:
	Proceeds from issuance of common stock					19,950			51,299

				Net cash provided by financing activities		19,950			51,299
Effect of exchange rate changes						3,382			2,224

	Net increase in cash and cash equivalents					267,342			360,970
Cash and cash equivalents at beginning of period						764,062			538,419

	Cash and cash equivalents at end of period				$	1,031,404		$	899,389

Supplemental disclosures:
	Cash paid for interest				$	4,312		$	4,312

	Cash paid for income taxes				$	1,469		$	3,273

Supplemental schedule of non-cash financing transactions:
	Issuance of common stock for conversion of notes				$	—		$	500

See accompanying notes to condensed consolidated financial statements.

VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


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, 2002.


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.	Accounting for Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees and related interpretations. Since the exercise price of options granted under such plans is generally equal to the market value on the date of grant, no compensation cost has been recognized for grants under its stock option plans and stock purchase plans. In accordance with APB 25, the Company does not recognize compensation cost related to its employee stock purchase plan. If compensation cost for the Company’s stock-based compensation plans had been determined consistent with Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock Based Compensation, the Company’s net income and net income per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):



			Three Months Ended
			March 31,

			2003			2002

Net income (loss):
	As reported		$	42,526		$	44,466
	Add:
		Stock-based employee compensation expense included in net income, net of tax		301			—
	Less:
		Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax		74,997			71,918

	Pro forma		$	(32,170	)	$	(27,452	)

VERITAS SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



		Three Months Ended
		March 31,

		2003			2002

Basic income (loss) per share:
	As reported	$	0.10		$	0.11

	Pro forma	$	(0.08	)	$	(0.07	)

Diluted income (loss) per share:
	As reported	$	0.10		$	0.11

	Pro forma	$	(0.08	)	$	(0.07	)

For the pro forma amounts determined under SFAS No. 123, as set forth above, the fair value of each stock option grant under the stock option plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the three months ended March 31, 2003 and 2002: risk-free interest rates averaging 2.91% and 4.46% for the three months ended March 31, 2003 and 2002, respectively; a dividend yield of 0.0% for all periods; a weighted-average expected life of 5 years for all periods; and a volatility factor of the expected market price of the Company’s common stock of 0.90 for the three months ended March 31, 2003 and 2002.

The fair value of the employees’ purchase rights under the employee purchase plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for these rights granted during the three months ended March 31, 2003 and 2002: a dividend yield of 0.0% for all periods; an expected life ranging from 6 to 24 months; an expected volatility factor of 0.90 for the three months ended March&nb

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