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 | |
| For the quarterly period ended September 30, 2003 | ||
| 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 | |
| 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
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 October 31, 2003 was 427,576,471 shares.
VERITAS SOFTWARE CORPORATION
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| PART I: FINANCIAL INFORMATION | ||||||
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Item 1.
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Condensed Consolidated Financial Statements
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2 | ||||
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Condensed Consolidated Balance Sheets
as of September 30, 2003 and December 31, 2002
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2 | |||||
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Condensed Consolidated Statements of
Operations for the Three and Nine Months Ended
September 30, 2003 and 2002
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3 | |||||
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Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended September 30, 2003 and
2002
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4 | |||||
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Notes to Condensed Consolidated
Financial Statements
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5 | |||||
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Item 2.
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Management’s Discussion and Analysis of
Financial Condition and
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Results of Operations
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24 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures About
Market Risk
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55 | ||||
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Item 4.
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Controls and Procedures
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58 | ||||
| PART II: OTHER INFORMATION | ||||||
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Item 1.
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Legal Proceedings
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59 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K
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60 | ||||
| Signature | 61 | |||||
1
PART I: FINANCIAL INFORMATION
| Item 1. | Condensed Consolidated Financial Statements |
VERITAS SOFTWARE CORPORATION
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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||||||||||
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Cash and cash equivalents
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$ | 722,612 | $ | 764,062 | ||||||
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Short-term investments
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1,566,441 | 1,477,259 | ||||||||
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Accounts receivable, net of allowance for
doubtful accounts of $10,495 at September 30, 2003 and
$11,308 at December 31, 2002
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144,729 | 170,204 | ||||||||
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Other current assets
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79,557 | 74,178 | ||||||||
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Deferred income taxes
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60,808 | 59,995 | ||||||||
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Total current assets
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2,574,147 | 2,545,698 | ||||||||
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Property and equipment, net
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568,952 | 230,261 | ||||||||
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Other intangibles, net
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90,052 | 72,594 | ||||||||
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Goodwill, net
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1,763,056 | 1,196,593 | ||||||||
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Other non-current assets
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37,388 | 45,071 | ||||||||
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Deferred income taxes
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131,093 | 127,863 | ||||||||
| $ | 5,164,688 | $ | 4,218,080 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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Accounts payable
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$ | 29,859 | $ | 33,823 | ||||||
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Accrued compensation and benefits
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100,447 | 97,233 | ||||||||
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Accrued acquisition and restructuring costs
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33,918 | 37,742 | ||||||||
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Other accrued liabilities
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83,180 | 94,352 | ||||||||
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Income taxes payable
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203,636 | 123,569 | ||||||||
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Deferred revenue
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323,020 | 280,314 | ||||||||
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Total current liabilities
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774,060 | 667,033 | ||||||||
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Convertible subordinated notes
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520,000 | 460,252 | ||||||||
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Long-term debt
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380,630 | — | ||||||||
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Accrued acquisition and restructuring costs
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65,053 | 72,402 | ||||||||
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Other long-term liabilities
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21,874 | 21,526 | ||||||||
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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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1,874,717 | 1,334,313 | ||||||||
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Stockholders’ equity:
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||||||||||
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Common stock
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455 | 431 | ||||||||
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Additional paid-in capital
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6,882,347 | 6,334,581 | ||||||||
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Accumulated deficit
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(1,576,861 | ) | (1,745,712 | ) | ||||||
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Deferred stock-based compensation
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(9,678 | ) | — | |||||||
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Accumulated other comprehensive income (loss)
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12,011 | (3,469 | ) | |||||||
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Treasury stock, at cost; 28,609 shares at
September 30, 2003 and 18,675 shares at December 31,
2002
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(2,018,303 | ) | (1,702,064 | ) | ||||||
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Total stockholders’ equity
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3,289,971 | 2,883,767 | ||||||||
| $ | 5,164,688 | $ | 4,218,080 | |||||||
See accompanying notes to condensed consolidated financial statements.
2
VERITAS SOFTWARE CORPORATION
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||
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Net revenue:
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User license fees
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$ | 290,219 | $ | 240,699 | $ | 805,745 | $ | 742,286 | |||||||||||
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Services
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160,722 | 124,985 | 452,438 | 358,537 | |||||||||||||||
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Total net revenue
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450,941 | 365,684 | 1,258,183 | 1,100,823 | |||||||||||||||
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Cost of revenue:
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User license fees
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11,177 | 8,250 | 34,311 | 26,222 | |||||||||||||||
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Services
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54,733 | 46,686 | 152,867 | 132,693 | |||||||||||||||
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Amortization of developed technology
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5,043 | 16,457 | 30,379 | 50,264 | |||||||||||||||
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Total cost of revenue
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70,953 | 71,393 | 217,557 | 209,179 | |||||||||||||||
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Gross profit
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379,988 | 294,291 | 1,040,626 | 891,644 | |||||||||||||||
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Operating expenses:
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Selling and marketing
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138,968 | 122,042 | 384,120 | 375,736 | |||||||||||||||
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Research and development
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77,964 | 69,182 | 221,931 | 202,067 | |||||||||||||||
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General and administrative
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38,396 | 35,179 | 115,451 | 102,905 | |||||||||||||||
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Amortization of other intangibles
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2,454 | 18,016 | 32,895 | 54,048 | |||||||||||||||
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In-process research and development
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— | — | 19,400 | — | |||||||||||||||
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Total operating expenses
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257,782 | 244,419 | 773,797 | 734,756 | |||||||||||||||
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Income from operations
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122,206 | 49,872 | 266,829 | 156,888 | |||||||||||||||
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Interest and other income, net
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16,677 | 10,619 | 36,346 | 37,480 | |||||||||||||||
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Interest expense
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(9,249 | ) | (7,606 | ) | (24,785 | ) | (22,988 | ) | |||||||||||
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Loss on extinguishment of debt
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(4,714 | ) | — | (4,714 | ) | — | |||||||||||||
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Loss on strategic investments
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— | — | (3,518 | ) | (14,802 | ) | |||||||||||||
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Income before income taxes and cumulative effect
of change in accounting principle
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124,920 | 52,885 | 270,158 | 156,578 | |||||||||||||||
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Provision for income taxes
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41,085 | 16,659 | 95,058 | 49,841 | |||||||||||||||
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Income before cumulative effect of change in
accounting principle
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83,835 | 36,226 | 175,100 | 106,737 | |||||||||||||||
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Cumulative effect of change in accounting
principle, net of tax
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6,249 | — | 6,249 | — | |||||||||||||||
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Net income
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$ | 77,586 | $ | 36,226 | $ | 168,851 | $ | 106,737 | |||||||||||
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Income per share before cumulative effect of
change in accounting principle:
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Basic
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$ | 0.20 | $ | 0.09 | $ | 0.42 | $ | 0.26 | |||||||||||
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Diluted
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$ | 0.19 | $ | 0.09 | $ | 0.41 | $ | 0.25 | |||||||||||
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Cumulative effect of change in accounting
principle:
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Basic
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$ | 0.02 | $ | — | $ | 0.02 | $ | — | |||||||||||
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Diluted
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$ | 0.01 | $ | — | $ | 0.02 | $ | — | |||||||||||
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Net income per share:
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Basic
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$ | 0.18 | $ | 0.09 | $ | 0.40 | $ | 0.26 | |||||||||||
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Diluted
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$ | 0.18 | $ | 0.09 | $ | 0.39 | $ | 0.25 | |||||||||||
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Number of shares used in computing per share
amounts — basic
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425,153 | 410,898 | 418,314 | 408,827 | |||||||||||||||
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Number of shares used in computing per share
amounts — diluted
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440,815 | 416,587 | 430,587 | 418,823 | |||||||||||||||
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Pro forma amounts with the change in accounting
principle applied retroactively:
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Net income
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N/A | $ | 35,387 | N/A | $ | 104,628 | |||||||||||||
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Net income per share — basic
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N/A | $ | 0.09 | N/A | $ | 0.26 | |||||||||||||
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Net income per share — diluted
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N/A | $ | 0.08 | N/A | $ | 0.25 | |||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
VERITAS SOFTWARE CORPORATION
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
| (Unaudited) | ||||||||||||
| (In thousands) | ||||||||||||
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Cash flows from operating activities:
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Net income
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$ | 168,851 | $ | 106,737 | ||||||||
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Adjustments to reconcile net income to net cash
provided by operating activities:
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Cumulative effect of change in accounting
principle, net of tax
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6,249 | — | ||||||||||
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Depreciation and amortization
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83,546 | 80,087 | ||||||||||
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Amortization of other intangibles
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32,895 | 54,048 | ||||||||||
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Amortization of developed technology
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30,379 | 50,264 | ||||||||||
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Amortization of original issue discount on
convertible notes
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10,696 | 12,099 | ||||||||||
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In-process research and development
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19,400 | — | ||||||||||
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Provision for doubtful accounts
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1,446 | 4,017 | ||||||||||
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Stock-based compensation
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1,405 | — | ||||||||||
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Tax benefits from stock plans
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24,869 | 19,593 | ||||||||||
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Loss on extinguishment of debt
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4,714 | — | ||||||||||
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Loss on strategic investments
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3,518 | 14,802 | ||||||||||
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Gain on sale of assets
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(824 | ) | (62 | ) | ||||||||
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Deferred income taxes
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(21,545 | ) | (39,437 | ) | ||||||||
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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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31,766 | 57,490 | ||||||||||
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Other assets
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(4,283 | ) | 9,980 | |||||||||
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Accounts payable
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(12,052 | ) | (2,228 | ) | ||||||||