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 September 30, 2004

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		77-0507675
(State or other jurisdiction of incorporation or organization)		(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 October 29, 2004 was 422,130,057 shares.

VERITAS SOFTWARE CORPORATION

INDEX


		Page

PART I: FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements		2
	Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003		3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003		4
	Notes to Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		50
Item 4.	Controls and Procedures		54
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings		54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		56
Item 4.	Submission of Matters to a Vote of Security Holders		57
Item 6.	Exhibits		57
Signature			59
EXHIBIT 2.01
EXHIBIT 10.02
EXHIBIT 10.03
EXHIBIT 10.04
EXHIBIT 10.05
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01

PART I: FINANCIAL INFORMATION


Item 1.	*Condensed Consolidated Financial Statements*

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


			September 30,			December 31,
			2004			2003

			(Unaudited)

			(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents		$	626,291		$	823,171
	Short-term investments			1,912,939			1,679,844
	Accounts receivable, net of allowance for doubtful accounts of $6,509 and $7,807, respectively			205,209			250,098
	Other current assets			73,447			60,254
	Deferred income taxes			34,230			30,302

		Total current assets		2,852,116			2,843,669
Property and equipment, net				574,850			572,977
Other intangibles, net				160,824			81,344
Goodwill, net				1,983,006			1,755,591
Other non-current assets				23,414			25,385
Deferred income taxes				57,196			69,500

			$	5,651,406		$	5,348,466


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	44,319		$	38,289
	Payable for repurchase of common stock			23,365			—
	Accrued compensation and benefits			125,359			124,655
	Accrued acquisition and restructuring costs			23,091			25,051
	Other accrued liabilities			69,288			83,184
	Current portion of long-term debt			380,630			—
	Income taxes payable			138,323			141,623
	Deferred revenue			418,157			398,772

		Total current liabilities		1,222,532			811,574
	Convertible subordinated notes			520,000			520,000
	Long-term debt			—			380,630
	Accrued acquisition and restructuring costs			49,808			69,019
	Other long-term liabilities			24,404			23,649

		Total liabilities		1,816,744			1,804,872

Stockholders’ equity:
	Common stock			463			458
	Additional paid-in capital			7,062,464			6,941,798
	Accumulated deficit			(1,095,359	)		(1,378,076	)
	Deferred stock-based compensation			(27,889	)		(8,455	)
	Accumulated other comprehensive income			7,576			6,172
	Treasury stock, at cost; 34,009 and 28,609 shares at September 30, 2004 and December 31, 2003, respectively			(2,112,593	)		(2,018,303	)

		Total stockholders’ equity		3,834,662			3,543,594

			$	5,651,406		$	5,348,466

See accompanying notes to condensed consolidated financial statements.

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



				Three Months Ended						Nine Months Ended
				September 30,						September 30,

				2004			2003			2004			2003


				(Unaudited)
				(In thousands, except per share amounts)
Net revenue:
	User license fees			$	287,352		$	281,814		$	859,677		$	782,070
	Services				209,306			164,811			607,762			463,059

		Total net revenue			496,658			446,625			1,467,439			1,245,129
Cost of revenue:
	User license fees				5,103			11,483			23,500			35,116
	Services(1)				68,793			58,948			201,448			166,057
	Amortization of developed technology				4,376			5,043			12,255			30,379

		Total cost of revenue			78,272			75,474			237,203			231,552

			Gross profit		418,386			371,151			1,230,236			1,013,577
Operating expenses:
	Selling and marketing(1)				153,037			136,184			447,655			373,325
	Research and development(1)				87,196			77,377			250,700			219,433
	General and administrative(1)				49,541			39,209			143,679			117,026
	Amortization of other intangibles				1,389			2,454			6,192			32,895
	In-process research and development				11,500			—			11,900			19,400
	Restructuring reversals, net				(9,648	)		—			(9,648	)		—

		Total operating expenses			293,015			255,224			850,478			762,079

			Income from operations		125,371			115,927			379,758			251,498
Interest and other income, net					13,661			8,653			35,425			33,556
Interest expense					(6,455	)		(9,249	)		(18,157	)		(24,785	)
Loss on extinguishment of debt					—			(4,714	)		—			(4,714	)
Gain (loss) on strategic investments					—			—			7,496			(3,518	)

			Income before income taxes and cumulative effect of change in accounting principle		132,577			110,617			404,522			252,037
Provision for income taxes					36,378			36,250			121,805			88,932

			Income before cumulative effect of change in accounting principle		96,199			74,367			282,717			163,105
Cumulative effect of change in accounting principle, net of tax					—			(6,249	)		—			(6,249	)

			Net income	$	96,199		$	68,118		$	282,717		$	156,856

Net income per share:
		Basic		$	0.22		$	0.16		$	0.65		$	0.37

		Diluted		$	0.22		$	0.15		$	0.64		$	0.36

Number of shares used in computing per share amounts — basic					433,126			425,153			431,933			418,314

Number of shares used in computing per share amounts — diluted					437,697			440,815			441,936			430,587


(1) Amortization of stock-based compensation consists of:
	Services		$	61	$	69	$	364	$	69
	Selling and marketing			578		246		4,440		246
	Research and development			608		642		2,444		1,372
	General and administrative			24		45		792		45

		Total amortization of stock-based compensation	$	1,271	$	1,002	$	8,040	$	1,732

See accompanying notes to condensed consolidated financial statements.

VERITAS SOFTWARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



			Nine Months Ended
			September 30,

			2004			2003


			(Unaudited)
			(In thousands)
Cash flows from operating activities:
Net income			$	282,717		$	156,856
Adjustments to reconcile net income to net cash provided by operating activities:
	Cumulative effect of change in accounting principle			—			6,249
	Depreciation and amortization			89,388			94,900
	Amortization of developed technology			12,255			30,379
	Amortization of other intangibles			6,192			32,895
	In-process research and development			11,900			19,400
	Provision for (recovery of) allowance for doubtful accounts			(135	)		1,459
	Stock-based compensation			8,040			1,732
	Tax benefits from stock plans			10,618			24,869
	Loss on extinguishment of debt			—			4,714
	(Gain) loss on strategic investments			(7,496	)		3,518
	(Gain) loss on sale and disposal of assets			833			(180	)
	Deferred income taxes			3,738			(27,580	)
Changes in operating assets and liabilities, net of effects of business combinations:
	Accounts receivable			53,880			40,259
	Other assets			(10,752	)		16,998
	Accounts payable			5,695			(12,036	)
	Accrued compensation and benefits			(315	)		(10,056	)
	Accrued acquisition and restructuring costs			(28,850	)		(21,248	)
	Other liabilities			(17,774	)		(28,794	)
	Income taxes payable			(3,208	)		72,972
	Deferred revenue			10,727			41,259

		Net cash provided by operating activities		427,453			448,565
Cash flows from investing activities:
	Purchases of investments			(3,604,703	)		(1,373,938	)
	Sales and maturities of investments			3,374,167			1,389,493
	Purchases of property and equipment			(84,349

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