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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] 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 0-26247
VERITAS SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0507675
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1600 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 527-8000
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 28, 2001, 395,793,187 shares of the Registrant's common
stock were outstanding. The aggregate market value of the common stock held by
non-affiliates of the Registrant as of February 28, 2001 was approximately $25.5
billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement, to be delivered to
stockholders in connection with the Registrant's Annual Meeting of Stockholders,
are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders
Matters..................................................... 15
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 38
Item 8. Financial Statements and Supplementary Data................. 41
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure........................................ 43
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 43
Item 11. Executive Compensation...................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
Item 13. Certain Relationships and Related Transactions.............. 43
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 44
Signatures............................................................ 49
Financial Statements.................................................. 50
Financial Statement Schedule.......................................... 75
VERITAS, VERITAS Software, the VERITAS logo and other product names are
trademarks or registered trademarks of VERITAS Software Corporation in the
United States and other countries. Other product names mentioned herein may be
trademarks and/or registered trademarks of their respective companies.
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PART I
ITEM 1. BUSINESS
This annual report on Form 10-K contains forward-looking statements, within
the meaning of the Securities Exchange Act of 1934 and of the Securities Act of
1933, that involve risks and uncertainties. These forward-looking statements
include statements regarding our expectations, beliefs, intentions or strategies
regarding the future. All these forward-looking statements are based on
information available to us at this time, and we assume no obligation to update
any of these statements. Actual results could differ from those projected in
these forward-looking statements as a result of many factors, including those
identified in the section titled "Factors That May Affect Future Results" under
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations. We urge you to review and consider the various disclosures made
by us in this report, and those detailed from time to time in our reports and
filings with the SEC, that attempt to advise you of the risks and factors that
may affect our future results.
OVERVIEW
VERITAS is a leading independent supplier of data availability software
products. Data availability software includes storage management and data
protection software as well as clustering, replication and storage area
networking software. Data availability software has grown significantly in
importance during the last few years, and has become a critical component in the
success of a business enterprise. A key competitive factor for businesses today
is whether their critical data and related applications are available without
interruption 24 hours a day, seven days a week. Our products are designed to
enable continuous productivity for computing environments ranging from the
desktop computer to the large enterprise data center, including storage area
networks. VERITAS products assist businesses by helping to make sure that their
data is protected, can be accessed at all times, and can be managed and used in
compliance with business policies.
Demand for data availability products and services is fueled by many
factors. These factors include the rapid increase in the number of internet
users and the number of businesses doing business online, as well as the
continuing automation of traditional business processes. The widespread use of
business computer applications, coupled with the growth of corporate data, has
exceeded the ability of current computing architectures to handle availability,
scalability and manageability issues. A new storage-centric architecture, called
storage area networking, or SAN, has emerged to handle these issues. A SAN is a
high-speed computing network that directly connects storage hardware devices,
such as storage arrays, clustered servers, disk drives and tape drives, to
client and server computers. The typical SAN infrastructure is capable of
handling more data and transactions faster than a traditional network, can grow
along with a business' needs, and is more cost-effective than traditional
network architectures. We are a leading innovator in developing SAN technology
and taking our SAN-capable products to businesses that can benefit from them.
Our products help to improve the levels of centralization, control,
automation and manageability in computing environments, which allows information
technology, or IT, managers to be significantly more effective with constrained
resources and limited budgets. More specifically, our products offer protection
against data loss and file corruption, allow rapid recovery after disk or
computer system failure, enable IT managers to work efficiently with large
numbers of files, and make it possible to manage data distributed on large
networks of computer systems without harming productivity or interrupting users.
In addition, our products provide continuous availability of data in clustered
computer systems that share disk resources to maintain smooth business
operations. Our products are highly scalable in order to allow our customers to
keep up with the growth of data and technologies deployed in their businesses.
In summary, our products help our customers manage their data storage in complex
and diverse computing environments efficiently and cost-effectively.
We develop products for most popular operating systems, including versions
of UNIX, Windows NT and Linux. Our software solutions are used by customers
across a broad spectrum of industries, including many leading global
corporations and e-commerce businesses. We also provide a full range of services
to assist our customers in planning and implementing their data availability
solutions.
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We market our products and services to end users either directly or through
original equipment manufacturers and indirect sales channels such as resellers,
value-added resellers, hardware distributors, application software vendors and
systems integrators. Some of our customers include:
ORIGINAL EQUIPMENT
MANUFACTURERS INDIRECT SALES CHANNELS DIRECT SALES
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Compaq Ingram Micro Amazon.com
Dell Tech Data American Airlines
EMC Corporation AT&T
Fujitsu-Siemens Bank of America
Hewlett-Packard British Telecom
Hitachi eBay
IBM Corporation E*Trade
Microsoft Ford Motor Company
NEC GTE
SGI Lucent
StorageTek Morgan Stanley & Co.
Sun Microsystems Oracle
Yahoo!
PRODUCTS
We offer a wide range of leading data availability software products to
manage the rapid growth of available data and the growing complexity and size of
networked environments that our customers face. Our products allow businesses to
improve the management of their data, to protect their data and to increase the
availability of their data.
File and volume management
We offer products designed to improve the manageability and performance of
business critical data. Our principal management and performance products
include:
PRODUCT DESCRIPTION
------- -----------
VERITAS Volume Manager.................... VERITAS Volume Manager allows for online disk storage
management for business computing environments. It
provides tools to protect against data loss due to
hardware failure, to accelerate system performance by
allowing files to be spread across multiple disks and to
allow IT managers to reconfigure data locations without
interrupting users.
VERITAS File System....................... VERITAS File System is designed to enable fast system
recovery, generally within seconds, from operating
system failure or disruption. It gives mission-critical
servers mainframe-level capabilities by providing
superior performance, data integrity, high availability
and online manageability.
VERITAS Foundation Suite.................. VERITAS Foundation Suite combines VERITAS Volume Manager
and VERITAS File System. These two products together are
intended to improve performance, availability and
manageability.
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Data protection
We offer products designed to back up and restore data. Our leading data
protection products include:
PRODUCT DESCRIPTION
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VERITAS NetBackup......................... VERITAS NetBackup is designed to protect data of medium
to large businesses. It provides centralized backup
scheduling, user-directed backups and restores, and
automated distribution and installation of client
software over a network. It supports all major
platforms, including UNIX, Windows NT, Novell NetWare
and Linux, and includes support for storage area
networks.
VERITAS NetBackup......................... VERITAS NetBackup BusinesServer is a backup and recovery
BusinesServer solution designed for small to mid-size UNIX and
high-end Windows NT installations, and for the many IT
operations that run a combination of the two.
VERITAS Backup Exec....................... VERITAS Backup Exec is designed to provide backup and
restore functions for smaller business, including
scheduled automated data backup operations. It supports
Windows NT, Windows 2000 and Windows 95/98, and has an
array of options designed to protect data contained in
applications such as Microsoft Outlook and Novell
NetWare.
VERITAS Global Data Manager............... VERITAS Global Data Manager centrally manages VERITAS
NetBackup, VERITAS NetBackup BusinesServer and VERITAS
Backup Exec servers at different geographic locations
that are part of a business' intranet or wide area
network. Its intended benefits include increased
flexibility and control, global scalability,
uninterrupted global operations and reduced management
costs.
VERITAS Storage Migrator.................. VERITAS Storage Migrator is designed to increase the
availability of critical business data by ensuring that
only frequently used information is kept online. It
migrates infrequently-used data from online devices to
lower cost secondary storage, and recalls migrated data
to primary online storage when it is accessed by users
or applications.
VERITAS Remote Storage for................ VERITAS Remote Storage for Microsoft Exchange is an
Microsoft Exchange e-mail space management application that moves older
e-mail message attachments from Microsoft Exchange onto
a secondary storage device, such as a tape drive, but
still allows users access to their attachments.
Clustering and replication
We offer products that improve availability of key applications in complex
computing environments. These products include:
PRODUCT DESCRIPTION
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VERITAS Cluster Server.................... VERITAS Cluster Server, or VCS, is an availability
management solution designed to maximize data and
application availability through proactive management of
planned and unplanned downtime. It is also useful in
storage area networks.
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PRODUCT DESCRIPTION
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VERITAS ClusterX for...................... VERITAS ClusterX for Microsoft Cluster Service, or MSCS,
Microsoft Cluster Service addresses the management and deployment of multiple
distributed Windows NT clustered computers. It is
designed to provide failover support for applications
such as databases, messaging systems, and file and print
services.
VERITAS ClusterX for WLBS................. VERITAS ClusterX for WLBS focuses on managing Windows NT
Load Balancing Service servers and is designed to
improve their availability, reliability, scalability and
performance It is designed to enhance both the
availability and scalability of internet server-based
programs such as web servers and streaming media
servers.
VERITAS Global Cluster Manager............ VERITAS Global Cluster Manager is a cluster management
product designed to monitor multiple geographically
distributed VCS clustered computers and to manage
failover of an entire cluster from one site to another.
VERITAS File Replicator................... VERITAS File Replicator is a general purpose data
replication tool designed for use in enterprise
environments. It ensures that data written to one server
is reliably replicated to other participating servers,
so that all updates are available for use in active file
systems across all servers.
VERITAS Storage Replicator................ VERITAS Storage Replicator delivers data replication for
Windows NT environments. It can duplicate files or file
systems at multiple locations for complete data
protection or information distribution. It offers
centralized management, high replication performance,
minimal system requirements, both real-time and
schedule-based replication, and selectable bandwidth
usage.
VERITAS Volume Replicator................. VERITAS Volume Replicator helps businesses ensure that
current data is available at multiple global locations.
It is a robust, flexible, multi-purpose data replication
tool designed for enterprise environments.
Desktop and mobile
VERITAS has product solutions designed for personal data availability for a
wide range of devices in the home, small office and mobile business
environments. These products include:
PRODUCT DESCRIPTION
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VERITAS Simple Backup..................... VERITAS Simple Backup provides basic data protection for
novice computer users and supports a wide range of
compact disc devices.
VERITAS BackupExec Desktop................ VERITAS BackupExec Desktop is designed for the home
office or small business computer user who has knowledge
of data protection and requires a variety of advanced,
versatile features for protection of a single computer.
VERITAS BackupExec Desktop Pro............ VERITAS BackupExec Desktop Pro is designed for the small
business and corporate computer user who has advanced
knowledge of data protection and needs a wide range of
features for protection of one or more computers. It
also includes a disaster recovery function designed to
restore an entire system in the event of disaster.
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PRODUCT DESCRIPTION
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VERITAS NetBackup Pro..................... VERITAS NetBackup Pro is a backup and disaster recovery
tool for portable and desktop computers in remote
offices and telecommuting work locations.
VERITAS MyCD.............................. VERITAS MyCD provides basic music and data storage on
compact disc.
VERITAS MyCD Pro.......................... VERITAS MyCD Pro provides high performance compact disc
recording for music enthusiasts and professionals.
Application solutions
Businesses need integrated solutions to optimize their data availability
strategies. Our principal products offering these integrated solutions include:
PRODUCT DESCRIPTION
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VERITAS Database Edition for.............. VERITAS Database Edition for Oracle is an integrated
Oracle suite of several VERITAS products designed to deliver
improved performance, enhanced manageability and
continuous database access to support the complex and
demanding work of database administrators operating
Oracle servers.
VERITAS Database Replication.............. VERITAS Database Replication Option for Oracle maintains
Option for Oracle a replicated database designed to enable easier ongoing
administrative tasks, such as backups, reporting and
data extraction, on large Oracle databases.
VERITAS Database Edition for.............. VERITAS Edition for Sybase is an integrated suite of
Sybase several VERITAS solutions combined with specialized
software agents designed to increase system performance
and manageability in Sybase database environments.
VERITAS Edition for NFS................... VERITAS Edition for Network File System, or NFS, is
designed to deliver superior performance and higher
availability for SPARC/Solaris servers in computing
environments that run both UNIX and Windows. It also
meets the demand for improved manageability of these
complex networks, and helps to ensure efficient workflow
for users.
VERITAS Edition for Web................... VERITAS Edition for Web is designed to optimize the
availability, performance and manageability of web
servers, particularly for internet service providers, or
ISPs, and corporate web server administrators.
VERITAS File Server Edition............... VERITAS File Server Edition is an integrated suite of
VERITAS storage management products designed to improve
the performance, availability, and manageability of
heterogeneous file system environments.
SAN Products
VERITAS is a leader in developing storage area networking products designed
to reduce the cost and complexity of managing expanding networked storage
environments. These products include:
PRODUCT DESCRIPTION
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VERITAS SANPoint Control.................. VERITAS SANPoint Control is a centralized management
tool to help administer SAN-connected devices.
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PRODUCT DESCRIPTION
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VERITAS SANPoint Direct................... VERITAS SANPoint Direct file access is designed to bring
increased performance and scalability to SAN
environments by allowing computing nodes to access data
directly at faster SAN speeds.
VERITAS SANPoint Foundation............... VERITAS SANPoint Foundation Suite HA is designed to
Suite HA extend VERITAS File System and VERITAS Volume Manager to
support shared data in a SAN environment. With the
software, multiple servers can access shared storage and
files, transparently to the applications and
concurrently with each other.
VERITAS SANPoint Storage.................. VERITAS SANPoint Storage Appliance is designed to enable
Appliance a standard computer server to become a high performance
and high availability storage server.
SERVICES
Our customer service and support organization provides customers with
maintenance, technical support, consulting and training services. We believe
that providing a high level of customer service and technical support is
critical to customer satisfaction and our success. Most of our customers have
support agreements with us that provide for fixed fee, renewable annual
maintenance consisting of technical and emergency support, and minor when-and-if
available product upgrades free of charge. Our service group provides the
following services:
Maintenance and technical support
We offer seven day-a-week, 24-hour telephone support, as well as electronic
mail and fax customer support. Our customers can choose from a variety of
support packages to address their specific needs, ranging from one-time incident
charges to comprehensive support services with a dedicated single point of
contact at VERITAS for some of our applications. Additional customer support is
provided by some of our value-added resellers, system integrators and original
equipment manufacturers.
Consulting
We believe that most customers need assistance before product selection and
not just for the implementation of purchased products. Therefore, we offer
strategy and analysis consulting services for planning the management and
control of enterprise computing in specific customer environments, including SAN
environments. In addition, we offer services to assist customers with product
implementation. As part of our broad range of services, we believe we offer
particular expertise in analyzing network security threats and security policy
integrity.
Training
We have a worldwide customer education and training organization. We offer
training that enables customers to utilize our products, reduces the need for
technical support and provides customers with a means to optimize their
personnel investment by allowing their technical staff access to high quality,
comprehensive instruction. The focus of this organization is aligned with our
strategy to offer end-to-end data availability solutions by providing
instruction from highly-experienced training professionals either at the
customer's location or at one of our multi-platform classrooms.
MARKETING, SALES AND DISTRIBUTION
We market our products and related services through original equipment
manufacturers and a combination of other distribution channels such as direct
sales, resellers, value-added resellers, hardware distributors, application
software vendors and systems integrators. Original equipment manufacturers
incorporate our
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products into their operating systems on a bundled basis or license them to
third parties as an optional product. In most cases, we receive a user license
fee for each copy of our software sublicensed by the original equipment
manufacturer to third parties. We provide our software products to customers
under non-exclusive license agreements, including shrink-wrap licenses for some
products. As is customary in the software industry, in order to protect our
intellectual property rights, we do not sell or transfer title to our software
products to customers. We enter into both object-code only and source-code
licenses of our products.
Our principal original manufacturer relationships are with Hewlett-Packard,
IBM, Microsoft and Sun Microsystems.
- Hewlett-Packard. In November 1997, we entered into an agreement with
Hewlett-Packard under which Hewlett-Packard offers some functional
components of VERITAS NetBackup, VERITAS Volume Manager and VERITAS File
System with the HP-UX operating system. We receive no royalties with
respect to the version of the VERITAS File System embedded in the HP-UX
operating system. Hewlett-Packard has become our reseller with respect to
some of our products, including full feature versions of our products,
and we have offered full feature products and value-added products to the
HP-UX installed customer base. Hewlett-Packard is not obligated to sell
our products under this agreement. In the fourth quarter of 1999, we
dedicated personnel to define and build versions of our products that
meet the needs specific to the Hewlett-Packard marketplace, and to
further focus our sales and marketing efforts on the Hewlett-Packard
sales channel. We cannot assure you that this strategy will be
successful.
- IBM. In April 2000, we entered into an agreement with IBM under which we
will port and optimize our complete set of data availability solutions,
including VERITAS Volume Manager and VERITAS File System, to AIX/Monterey
for IBM POWER and Intel IA-64 processor-based systems. This relationship
is designed to augment solutions already available from VERITAS for the
IBM platform. We have not recognized any significant revenue under this
agreement to date, and IBM is not obligated to sell any of our products
under this agreement.
- Microsoft. In August 1996, we entered into an agreement with Microsoft
under which we agreed to develop a version of VERITAS Volume Manager,
which Microsoft has called Logical Disk Manager, to be ported to and
embedded in version 5.0 of Microsoft's Windows NT operating system, which
now has been released as Windows 2000. We do not receive royalties with
respect to sales of the embedded product by Microsoft. Our products may
not become available for use in, and Microsoft is not required to use our
products in, future versions of Windows NT. We cannot assure you that we
will realize any benefits from the inclusion of this embedded product in
Windows 2000 or future versions of Windows NT. In addition, we authored
several other customized versions of our products that are packaged with
Windows 2000.
- Sun Microsystems. In January 1997, we entered into an agreement with Sun
Microsystems under which we bundle a version of VERITAS Volume Manager
with some of Sun Microsystems' storage technologies. The agreement also
provided for the license of full versions of some of our products and
add-on modules to Sun Microsystems for bundling with some Sun
Microsystems products. In August 1998, we amended the agreement and
granted Sun Microsystems a license to distribute and sub-license VERITAS
NetBackup, VERITAS Storage Migrator and some of the VERITAS Editions.
This license is non-exclusive except with respect to certain named
resellers for which Sun Microsystems retained exclusive distribution
rights. Sun Microsystems is not obligated to sell any of our products
under this agreement. In November 1999, we announced that Sun
Professional Services would be providing our packaged professional
services as well as our custom consulting. This is designed to enable Sun
Microsystems' customers and our customers to maximize their system
availability through optimal configurations and reliable installations.
We cannot assure you that this arrangement will be successful.
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Sales, marketing and support organization
During 2000, we continued to build our sales, marketing and customer
support organization with a focus on delivering our products to resellers,
integrators and end users and integrating the sales force of the Network &
Storage Management Group business, or NSMG. We have sales subsidiaries and
direct sales personnel in North America, South America, Europe and Asia-Pacific.
We also have resellers located in North America, South America, Europe,
Asia-Pacific and the Middle East.
We expect to increase the number of our sales, marketing and customer
support employees in the future to expand our direct sales efforts to resellers
and end users. We may not have the necessary resources to accomplish this. It is
also possible that we will not be able to establish and expand these new
distribution channels successfully or complete the integration of our sales and
marketing efforts successfully. We expect to hire additional sales employees in
all regions during 2001. Competition for qualified sales, technical and other
personnel is intense, and we may not be able to attract, assimilate or retain
additional highly qualified employees in the future. We also may not be able to
manage our growth effectively.
Concentration of customers
In 2000 and 1999, no customer accounted for more than 10% of our net
revenue. Revenue from Sun Microsystems accounted for 12% of our net revenue in
1998.
COMPETITION
The markets in which we compete are intensely competitive and rapidly
changing. Our principal competitors are:
- internal development groups within our original equipment manufacturer
customers that provide data availability functions to support their
systems;
- hardware and software vendors that offer data protection and file and
volume management products;
- hardware and software vendors that offer clustering and replication
products; and
- hardware and software vendors that offer storage area networking
management solutions.
These internal development groups have the resources and capability to
develop their own data availability solutions. Some original equipment
manufacturer customers are also our competitors, including Compaq Computer, EMC,
Hewlett-Packard, IBM, Microsoft and Sun Microsystems. Relationships between us
and these competitors are complex. While we may compete with them for a share of
the market, they also resell our products. We also may be involved with them in
collaborative efforts to address interoperability issues and to set standards
for evolving technology.
The principal markets in which we compete are the markets for data
protection, file and volume management, clustering, replication and storage area
networking management solutions. Our principal competitors in each of these
areas, including the original equipment manufacturer customers listed above,
include:
- Data protection and file and volume management. Computer Associates, EMC,
Hewlett-Packard, IBM, Legato, Microsoft and Sun Microsystems.
- Clustering and replication. Compaq Computer, EMC, Hewlett-Packard,
Hitachi Data Systems, IBM, Legato, Microsoft and Sun Microsystems.
- Storage area networking management. Compaq Computer, Computer Associates,
EMC, IBM and network switch vendors.
The principal competitive factors in our industry include price, product
functionality, product integration, platform coverage, ability to scale,
worldwide sales infrastructure and global technical support. Although many of
our competitors have greater financial, technical, sales, marketing and other
resources than we do, as well as greater name recognition and a larger installed
customer base, we believe we compete favorably on the basis of each of these
competitive factors relative to our competitors.
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Our future anticipated growth and success will depend on our ability to
develop superior products more rapidly and less expensively than our
competitors, and to educate potential customers as to the benefits of licensing
our products rather than developing their own products. Our future and existing
competitors could introduce products with superior features, scalability and
functionality at lower prices than our products, and could also bundle existing
or new products with other more established products in order to compete with
us. Our competitors could also gain market share by acquiring or forming
strategic alliances with our other competitors. Finally, because new
distribution methods offered by the Internet and electronic commerce have
removed many of the barriers to entry historically faced by start-up companies
in the software industry, we expect to face additional competition from these
companies in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
adversely affect our business and operating results.
RESEARCH AND DEVELOPMENT
Our research and development efforts have been directed toward developing
new products for UNIX and Windows NT, developing new features and functionality
for existing products, integrating products in the existing product line and
porting new and existing products to different operating systems.
Our major research and development initiatives include:
- Additional integration of the full family of data availability products,
including further integration of VERITAS Volume Manager, VERITAS File
System and VERITAS NetBackup;
- Development of additional Linux versions of our products;
- Development of additional clustering products; and
- Development of additional storage area network products.
Each of these initiatives involves technical and competitive challenges,
which we may not be able to overcome successfully.
Development work under original equipment manufacturer agreements
We devote a substantial amount of development effort to making sure that
our products work on our original equipment manufacturer customer's platforms.
This is technically challenging, and we may not succeed in our effort.
We have contractual development obligations with some of our original
equipment manufacturer customers. Our agreement with Microsoft requires us to
develop a disk management graphical user interface designed specifically for
Windows NT. Microsoft is providing funding for a significant portion of the
development expenses for this product payable in quarterly increments. In order
to perform under the agreement, we have hired additional personnel with
expertise in the Windows NT operating system environment and are devoting
capital investment and resources to complete this project successfully. In
addition, our agreements with Sun Microsystems and Hewlett-Packard require us to
commit staffing to our projects with them. We may not have the resources
necessary to perform our obligations under these agreements.
Size and location of research and development group
As of December 31, 2000, our research and development staff consisted of
1,330 employees located mainly at our Mountain View, California headquarters and
in Pune, India.
Research and development expenditures
We had research and development expenses of $175.9 million in 2000, $94.5
million in 1999 and $40.2 million in 1998. These amounts exclude $104.2 million
in 1999 and $0.6 million in 1998 for in-process research and development charges
in connection with acquisitions. We believe that technical leadership is
essential to our success and expect to continue to commit substantial resources
to research and development.
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Our future success will depend in large part on our ability to enhance existing
products, respond to changing customer requirements and develop and introduce
new products in a timely manner that keep pace with technological developments
and emerging industry standards. We continue to make substantial investments in
undisclosed new products, which may or may not be successful. We may not
complete these research and development efforts successfully and therefore,
future products may not be available on a timely basis or achieve market
acceptance.
Need to hire research and development personnel
We need to hire additional research and development personnel to complete
new products on a timely basis, including the adaptation of our products to
Windows NT and performance of obligations to key original equipment manufacturer
partners. The market for these personnel is very competitive and we cannot
assure you that we can hire them on a timely basis or at all. We may consider
acquiring and purchasing technology to achieve some of our objectives, but we
may not be able to accomplish this successfully.
Effect of technological advances
From time to time, we or our competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of our existing products. Announcements of currently planned or
other new products could cause customers to defer purchasing our existing
products. We have from time to time in the past experienced delays of up to
several months due to the complex nature of software developed by us and other
software developers for whose systems or applications we offer products. We
could experience delays in connection with our current or future product
development activities. Any of these delays could harm our business.
PROPRIETARY RIGHTS
Measures we take to protect our intellectual property
We regard some of the features of our internal operations, software and
documentation as proprietary and rely on copyright, patent, trademark and trade
secret laws, confidentiality procedures, contractual and other measures to
protect our proprietary information.
As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, distributors and corporate
partners, and license agreements with respect to our software, documentation and
other proprietary information. These licenses are generally non-transferable and
have a perpetual term.
Trademarks
VERITAS is a registered trademark in the United States. VERITAS Software
and the VERITAS logo are trademarks or registered trademarks in the United
States and other countries. Our other trademarks include:
- - VERITAS BackupExec - VERITAS MyCD Pro
- - VERITAS BackupExec Desktop - VERITAS NetBackup
- - VERITAS BackupExec Desktop Pro - VERITAS NetBackup BusinesServer
- - VERITAS Cluster Server - VERITAS NetBackup Pro
- - VERITAS ClusterX - VERITAS Remote Storage
- - VERITAS Database Edition - VERITAS SANPoint Control
- - VERITAS Database Replication Option - VERITAS SANPoint Direct
- - VERITAS Edition - VERITAS SANPoint Foundation Suite HA
- - VERITAS File Replicator - VERITAS SANPoint Storage Appliance
- - VERITAS File Server Edition - VERITAS Simple Backup
- - VERITAS File System - VERITAS Storage Migrator
- - VERITAS Foundation Suite - VERITAS Storage Replicator
- - VERITAS Global Cluster Manager - VERITAS Volume Manager
- - VERITAS Global Data Manager - VERITAS Volume Replicator
- - VERITAS MyCD
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Patents and patent applications
We have 22 United States issued patents and 8 pending patent applications,
including patents and rights to patent applications acquired from the NSMG
business, TeleBackup Systems, Inc. and NuView, Inc. Any patents obtained may not
provide substantial protection or be of commercial benefit to us. It is also
possible that their validity will be challenged.
EMPLOYEES
As of December 31, 2000, we had 4,784 full-time employees, including 1,330
in research and development, 2,840 in sales, marketing, consulting, customer
support and strategic initiatives and 614 in finance and administrative
services. We expect to hire a significant number of new employees in 2001,
particularly in research and development and in sales, marketing, consulting and
customer support. We have not entered into any collective bargaining agreement
with our employees, and believe that our relations with our employees are good.
We believe that our future success will depend in part upon the continued
service of our key employees and on our continued ability to hire and retain
qualified personnel. We may not be able to retain our key employees and may not
be successful in attracting and retaining sufficient numbers of qualified
personnel to conduct our business in the future.
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EXECUTIVE OFFICERS
The names of our executive officers, their ages as of December 31, 2000,
their positions and other information about them are shown below. The dates
given for time of service with VERITAS include time, where applicable, served by
each individual with one of our principal predecessor companies.
NAME AGE POSITIONS
---- --- ---------
Gary L. Bloom........................ 40 President and Chief Executive Officer
Mark Leslie.......................... 55 Chairman of the Board
Geoffrey W. Squire................... 53 Executive Vice President and Vice-Chairman of the
Board
Fred van den Bosch................... 53 Executive Vice President, Engineering
Peter J. Levine...................... 40 Executive Vice President, Strategic Operations
Paul A. Sallaberry................... 44 Executive Vice President, Worldwide Field Operations
Kenneth E. Lonchar................... 42 Senior Vice President, Finance and Chief Financial
Officer
Michael Wentz........................ 48 Senior Vice President, Tech Support
Jay A. Jones......................... 46 Senior Vice President, Chief Administrative Officer
and Secretary
Mr. Bloom has served as our President and Chief Executive Officer since
November 2000. Mr. Bloom joined us after a 14-year career with Oracle
Corporation, where he served as Executive Vice President responsible for server
development, platform technologies, marketing, education, customer support and
corporate development from May 1999 to November 2000, as Executive Vice
President of the systems product division from March 1998 to May 1999, as Senior
Vice President of the system products division from November 1997 to March 1998,
as Senior Vice President of the worldwide alliances and technologies division
from May 1997 to October 1997, as Senior Vice President of the product and
platform technologies division from May 1996 to May 1997, and as Vice President
of the mainframe and integration technology division and Vice President of the
massively parallel computing division from 1992 to May 1996. Before joining
Oracle Corporation in 1986, Mr. Bloom held technical positions in the mainframe
area at both IBM Corporation and Chevron Corporation. Mr. Bloom serves on the
board of directors of Virata Corporation, a supplier of communications software
and semiconductors.
Mr. Leslie has served as our Chairman of the Board since 1990 and served as
our Chief Executive Officer from 1990 to November 2000. Mr. Leslie serves on the
boards of directors of Brocade Communications Systems, Inc., a supplier of
storage area network software, and Keynote Systems, Inc., a supplier of Internet
performance measurement and diagnostic services.
Mr. Squire has served as our Executive Vice President and Vice Chairman of
the Board since April 1997, when we merged with OpenVision Technologies, Inc.
Mr. Squire became a director of OpenVision in 1994 and was appointed Chief
Executive Officer of OpenVision in 1995, after serving as its President and
Chief Operating Officer from 1994 to 1995. Mr. Squire was President of the U.K.
Computing Services and Software Association in 1994 and, in 1995, was elected as
the founding President of the European Information Services Association. Mr.
Squire also serves on the board of directors of Industri-Mathematik
International Corp., a provider of supply chain and customer service software.
Mr. van den Bosch has served as our Executive Vice President, Engineering
since July 1997. Mr. van den Bosch served as our Senior Vice President,
Engineering from 1991 to July 1997 and was appointed as a director in 1996. From
1970 until 1990, he served in various positions with Philips Information
Systems, including Director of Technology.
Mr. Levine has served as our Executive Vice President, Strategic Operations
since December 1999, after serving as our Senior Vice President, Strategic
Operations from January 1999 to December 1999 and Senior Vice President, OEM
Sales from December 1997 to December 1998. Mr. Levine served as a senior
executive of VERITAS from 1995 to December 1997.
Mr. Sallaberry has served as our Executive Vice President, Worldwide Field
Operations since December 1999 after serving as our Senior Vice President,
Worldwide Sales from July 1999 to December 1999, and Vice
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President, Worldwide Sales from April 1997 to July 1999. Mr. Sallaberry was
OpenVision's Senior Vice President of North American Operations from 1995 until
the merger with VERITAS in April 1997.
Mr. Lonchar has served as our Chief Financial Officer since April 1997 and
as our Senior Vice President, Finance since January 1999. Mr. Lonchar served as
our Vice President, Finance from April 1997 until January 1999. Mr. Lonchar was
Chief Financial Officer and Senior Vice President of OpenVision from 1995 until
the merger with VERITAS in April 1997. Mr. Lonchar is a certified public
accountant. Mr. Lonchar also serves on the board of directors of Geoworks
Corporation, a provider of mobile e-commerce and information services and
software.
Mr. Wentz has served as our Senior Vice President, Tech Support since March
2000 and as our Vice President, Technical Services from May 1999 to March 2000.
Mr. Wentz was Vice President, Technical Support of the Network & Storage
Management Group of Seagate Software, Inc. from 1996 to until its acquisition by
VERITAS in May 1999, and was Vice President of Technical Support Services of
Arcada Software, Inc. from 1994 until its acquisition by Seagate Software in
1996.
Mr. Jones has served as our Senior Vice President, Chief Administrative
Officer and Secretary since January 1999. Mr. Jones served as our Vice
President, General Counsel and Secretary from April 1997 to January 1999. Mr.
Jones joined OpenVision as General Counsel in 1993 and was appointed Vice
President, General Counsel and Secretary in 1994 and served in those capacities
until the merger with VERITAS in April 1997. Mr. Jones is a member of the
California Bar Association.
ITEM 2. PROPERTIES
Our executive offices are located in Mountain View, California. Our
principal facilities are located in Mountain View, California and Heathrow,
Florida. All of our facilities are suitable for general office purposes. Large
portions of our facilities are occupied under leases that expire at various
times through 2012. The table below shows the approximate square footage of the
premises that we lease as of December 31, 2000, excluding approximately 34
executive suites in the Americas, 12 in Europe and two in Asia.
APPROXIMATE
SQUARE
LOCATION FOOTAGE
-------- -----------
Americas
California................................................ 482,511
Colorado.................................................. 27,256
Connecticut............................................... 3,585
Florida................................................... 228,694
Georgia................................................... 16,270
Illinois.................................................. 24,710
Maryland.................................................. 4,685
Massachusetts............................................. 37,769
Michigan.................................................. 16,613
Minnesota................................................. 73,274
New Jersey................................................ 17,473
New York.................................................. 16,801
North Carolina............................................ 16,570
Oregon.................................................... 10,425
Pennsylvania.............................................. 6,410
Texas..................................................... 28,557
Virginia.................................................. 20,539
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APPROXIMATE
SQUARE
LOCATION FOOTAGE
-------- -----------
Washington................................................ 35,364
Canada.................................................... 16,337
Argentina................................................. 3,013
Brazil.................................................... 2,152
---------
Total Americas.................................... 1,089,008
---------
Europe
France.................................................... 29,795
Germany................................................... 44,339
Holland................................................... 10,764
Ireland................................................... 10,342
Norway.................................................... 3,003
Scotland.................................................. 700
Spain..................................................... 5,490
Sweden.................................................... 8,310
United Kingdom............................................ 70,682
---------
Total Europe...................................... 183,425
---------
Asia
Australia................................................. 42,375
China..................................................... 11,694
Hong Kong................................................. 2,580
India..................................................... 33,229
Japan..................................................... 3,462
Korea..................................................... 1,800
Malaysia.................................................. 10,281
Singapore................................................. 6,139
---------
Total Asia........................................ 111,560
---------
Total............................................. 1,383,993
=========
Illinois facilities exclude approximately 17,135 square feet and Washington
facilities exclude 2,925 square feet of space that we sublease to third parties.
Facilities in Australia exclude approximately 1,949 square feet of space we
sublease to third parties. Facilities in the United Kingdom exclude
approximately 20,508 square feet of space that we sublease to third parties.
In 1999, we amended and revised our operating lease arrangement for a new
425,000 square foot campus facility in Mountain View, California. We expect to
occupy this facility beginning in the second quarter of 2001. In 1999, we also
entered into an operating lease arrangement for our existing facilities in
Roseville, Minnesota. We expect to improve and expand our existing facilities of
approximately 62,000 square feet and to develop adjacent property adding
approximately 260,000 square feet to the campus. We expect the first phase of
approximately 142,000 square feet to be completed in the second quarter of 2001.
In 2000, we entered into an operating lease arrangement for a new 999,990 square
foot facility in Milpitas, California. We expect to occupy this facility in
phases commencing in the second quarter of 2002 through the second quarter of
2003. Additionally, there is approximately 150,000 square feet of space
currently under construction in Reading, UK. We believe our existing and planned
facilities will be suitable for our needs.
ITEM 3. LEGAL PROCEEDINGS
The following discussion contains forward-looking statements, within the
meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933,
that involve risks and uncertainties. These statements relate to VERITAS' legal
proceedings described below. Litigation is inherently uncertain and may result
in
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adverse rulings or decisions. Additionally, we may enter into settlements or be
subject to judgments that may, individually or in the aggregate, have a material
adverse effect on our operating results. Accordingly, actual results could
differ materially from those projected in the forward-looking statements. The
following discussion relates to the multi-party transaction involving primarily
us, VERITAS Software Technology Corporation, formerly known as Seagate
Technology, Inc. ("Seagate") and Suez Acquisition Company (Cayman) Limited
("SAC"), a company formed by a group of private equity firms led by Silver Lake
Partners, that is described more fully under Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
In that transaction, Seagate sold all of its property and assets and the
property and assets of its consolidated subsidiaries, other than certain
designated assets, to Suez Acquisition Company (Cayman) Limited, which we refer
to as the leveraged buyout, and merged a wholly owned subsidiary of VERITAS with
and into Seagate, following which Seagate became VERITAS' wholly owned
subsidiary, which we refer to as the merger.
Following the announcement of the transaction on March 29, 2000, Seagate
stockholders filed 17 lawsuits in Delaware and five lawsuits in California
against Seagate, the individual members of Seagate's board of directors, certain
executive officers of Seagate, Silver Lake Partners, LP, and VERITAS. Between
April 18, 2000 and October 13, 2000, the Delaware Chancery Court consolidated
the 17 lawsuits into a single action captioned In Re Seagate Technology, Inc.
Shareholders Litigation and certified the class action, and the plaintiffs filed
two amended complaints and a motion for a preliminary injunction to enjoin the
closing of the proposed transaction. The plaintiffs' second amended complaint
alleged that Seagate's board of directors breached their fiduciary duties to
their stockholders by entering into the leveraged buyout and merger agreements
and that they did not secure the highest possible price for Seagate's shares,
and alleged that VERITAS aided and abetted that alleged breach. The plaintiffs
sought unspecified damages and an injunction of the closing of the transaction.
On September 28, 2000, the five California complaints were coordinated, with
venue in Santa Clara County. All five of the California complaints have been
voluntarily dismissed.
On October 13, 2000, the parties to the Delaware lawsuit entered into a
Memorandum of Understanding to settle the action. On January 28, 2001, the
parties filed a Stipulation of Settlement in the Court of Chancery of the State
of Delaware in and for New Castle County outlining the terms of the settlement
pursuant to the Memorandum of Understanding. A hearing is scheduled on April 9,
2001 to determine whether the proposed settlement is fair and reasonable and
should be approved by the Court, and whether plaintiffs' counsels' award for
fees and expenses should be paid pursuant to the terms set out in the
Stipulation. The settlement is conditioned on, among other things, the
consummation of the leveraged buyout and the merger and final court approval of
the settlement.
Although VERITAS expects final court approval of the Delaware settlement to
occur during the first half of 2001, it is possible that final approval of the
settlement will be denied or delayed. While the outcome of these matters is
currently not determinable, we believe that the ultimate resolution of these
matters will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of stockholders held by VERITAS on November 21, 2000,
our stockholders approved the issuance by VERITAS of new shares of our common
stock to stockholders of Seagate Technology, Inc. in connection with a merger
between Seagate Technology, Inc. and a subsidiary of ours. The issuance was
approved by the following vote:
FOR AGAINST ABSTAIN
- ----------- --------- ---------
324,236,711 1,159,377 1,558,381
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the Nasdaq National Market under the symbol
"VRTS." The table below shows the range of high and low reported sale prices on
the Nasdaq National Market for our common stock, including our predecessor
corporation, for the periods indicated.
HIGH LOW
------- ------
1999
First Quarter........................................... $ 19.89 $12.89
Second Quarter.......................................... 22.17 13.56
Third Quarter........................................... 36.22 20.64
Fourth Quarter.......................................... 98.58 32.39
2000
First Quarter........................................... $174.00 $72.42
Second Quarter.......................................... 140.50 75.31
Third Quarter........................................... 149.81 87.50
Fourth Quarter.......................................... 166.88 79.25
As of February 28, 2001, there were approximately 3,800 holders of record
of our common stock. Brokers and other institutions hold many of such shares on
behalf of stockholders. We estimate the total number of stockholders represented
by these record holders to be approximately 266,000.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently anticipate that we will retain future earnings, if any, to fund
development and growth of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from our
consolidated financial statements. This data should be read in conjunction with
the consolidated financial statements and notes thereto, and Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total net revenue...................... $ 1,207,328 $ 596,112 $210,865 $121,125 $ 72,746
Amortization of developed technology... 62,054 35,659 -- -- --
Amortization of goodwill and other
intangibles.......................... 879,032 510,943 -- -- --
Acquisition and restructuring costs
(reversals).......................... (4,260) 11,000 -- 8,490 --
In-process research and development.... -- 104,200 600 -- 2,200
Income (loss) from operations.......... (553,880) (475,237) 53,668 20,076 11,858
Net income (loss)...................... (619,792) (502,958) 51,648 22,749 12,129
Net income (loss) per share -- basic... $ (1.55) $ (1.59) $ 0.24 $ 0.11 $ 0.06
Net income (loss) per
share -- diluted..................... $ (1.55) $ (1.59) $ 0.22 $ 0.10 $ 0.06
Number of shares used in computing per
share amounts -- basic............... 400,034 316,892 211,558 205,300 193,617
Number of shares used in computing per
share amounts -- diluted............. 400,034 316,892 232,519 222,716 209,228
DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
----------- ---------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................ $ 924,677 $ 630,440 $198,069 $187,667 $ 66,408
Total assets........................... 4,082,834 4,233,277 349,117 241,880 94,524
Long-term obligations.................. 429,176 451,044 100,000 100,000 463
Accumulated deficit.................... (1,152,166) (532,374) (29,416) (81,064) (103,813)
Stockholders' equity................... 2,982,571 3,393,061 169,854 104,193 74,955
In 1999, we acquired the NSMG business, TeleBackup and NuView. Because we
accounted for these acquisitions using the purchase method of accounting, we
recorded developed technology, goodwill and other intangible assets of
approximately $3,754.9 million in total. These assets are being amortized over
their estimated useful life of four years, and result in charges to operations
of approximately $234.8 million per quarter. We recorded one-time non-cash
charges of $104.2 million in our statements of operations in 1999, related to
the write-off of in-process research and development. We also recorded a
one-time restructuring charge in 1999 of $11.0 million related primarily to
costs for our duplicative facilities that we planned to vacate, of which $4.3
million was reversed in 2000 as a result of lower actual exit costs than
originally estimated with respect to our duplicative facilities.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This annual report on Form 10-K contains forward-looking statements that
involve numerous risks and uncertainties. These forward-looking statements
include statements regarding our expectations, beliefs, intentions or strategies
regarding the future. All these forward-looking statements are based on
information available to us at this time, and we assume no obligation to update
any of these statements. The actual results that we achieve may differ
materially from those anticipated by any forward-looking statement due to risks
and uncertainties including those described below under "Factors That May Affect
Future Results."
OVERVIEW
VERITAS is a leading independent supplier of data availability software
products. Data availability software includes storage management and data
protection software as well as clustering, replication and storage area
networking software.
We develop products for most popular operating systems, including versions
of UNIX, Windows NT and Linux. We market our products and services to original
equipment manufacturers and end user customers through a combination of direct
sales and indirect sales channels such as resellers, value-added resellers,
hardware distributors, application software vendors and systems integrators.
We derive user license fee revenue from shipments of our software products
to end-user customers through direct sales channels, indirect sales channels and
original equipment manufacturer customers. Our original equipment manufacturer
customers either bundle our products with the products licensed by the original
equipment manufacturers or offer them as options. Some original equipment
manufacturers also resell our products. We receive a royalty each time the
original equipment manufacturer licenses to a customer a copy of the original
equipment manufacturer's products that incorporates one or more of our products.
Our license agreements with our original equipment manufacturer customers
generally contain no minimum sales requirements. We cannot assure you that any
original equipment manufacturer will either commence or continue shipping
operating systems incorporating our products in the future. When we enter into
new agreements with original equipment manufacturer customers and resellers, a
significant period of time may elapse before we realize any associated revenue,
due to development work that we must generally undertake under these agreements
and the time needed for the sales and marketing organizations within these
customers and distributors to become familiar with and gain confidence in our
products.
Our services revenue consists of fees derived mainly from annual
maintenance agreements, as well as fees from consulting and training services.
Original equipment manufacturer maintenance agreements covering our products
provide for technical and emergency support and minor unspecified product
upgrades for a fixed annual fee. Maintenance agreements covering products that
are licensed through channels other than original equipment manufacturers
provide for technical support and unspecified product upgrades for an annual fee
based on the number of user licenses purchased and the level of service
subscribed.
INTERNATIONAL SALES AND OPERATIONS
Our international sales are generated primarily through our international
sales subsidiaries. International revenue, most of which is collectible in
foreign currencies, accounted for approximately 24% of our total revenue in
2000, 24% of our total revenue in 1999 and 26% of our total revenue in 1998. Our
international revenue increased 103% to $294.4 million in 2000 from $144.9
million in 1999, and 167% in 1999 from $54.2 million in 1998.
We believe that our success depends upon continued expansion of our
international operations. We currently have sales and service offices and
resellers located in North America, Europe, Asia-Pacific, South America and the
Middle East, and a development center in India. International expansion will
require us to establish additional foreign offices, hire more personnel and
recruit new international resellers, resulting in the diversion of significant
management attention and the expenditure of financial resources. To the extent
that we are unable to meet these additional requirements, growth in
international sales will be limited, which would have an adverse effect on our
business, operating results and financial condition. International operations
also
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subject us to a number of risks inherent in developing and selling products
outside the United States, including potential loss of developed technology,
limited protection of intellectual property rights, imposition of government
regulation, imposition of export duties and restrictions, cultural differences
in the conduct of business, and political and economic instability.
SEAGATE TECHNOLOGY TRANSACTION
On November 22, 2000, we completed a multi-party transaction with Seagate
Technology, Inc. ("Seagate") and Suez Acquisition Company (Cayman) Limited
("SAC"), a company formed by a group of private equity firms led by Silver Lake
Partners. The transaction was structured as a leveraged buyout of Seagate
pursuant to which Seagate sold all of its operating assets to SAC, and SAC
assumed and indemnified Seagate and us for substantially all liabilities arising
in connection with those operating assets. At the closing, and after the
operating assets and liabilities of Seagate had been transferred to SAC, a
wholly-owned subsidiary of ours merged with and into Seagate, following which
Seagate became our wholly-owned subsidiary and was renamed VERITAS Software
Technology Corporation. We issued approximately 109.4 million shares of our
common stock to the Seagate stockholders in exchange for approximately 128.1
million shares of our common stock and equity securities in Gadzoox Networks,
Inc. held by Seagate. We recorded the equity securities in Gadzoox and other
assets and liabilities assumed from Seagate at their fair values. In addition,
we accrued $40 million of direct transaction costs, of which $9 million was paid
as of December 31, 2000. We did not acquire Seagate's disc drive business or any
other Seagate operating business.
The transaction had no impact on our consolidated statement of operations.
The impact of the decrease of approximately 18.7 million of shares our common
stock outstanding was a reduction of approximately 2.0 million shares used in
computing net loss per share for the year ended December 31, 2000, resulting in
an incremental net loss per share of $0.01.
The transaction had impacts on our consolidated balance sheet. As of
December 31, 2000, our other assets included $70 million of indemnification
receivable from SAC and $4 million for our ownership in Gadzoox Networks, Inc,
our accrued acquisition and restructuring costs included $31 million of direct
transaction costs, which was net of $9 million paid in 2000, and our deferred
and other income taxes included an additional $132 million, which is net of a
deferred tax asset of $3 million related to our ownership in Gadzoox Networks,
Inc.
BUSINESS COMBINATIONS
On May 28, 1999, we acquired the Network & Storage Management Group
business of Seagate Software, Inc., which we refer to as NSMG. On June 1, 1999
we acquired TeleBackup Systems, Inc., which we refer to as TeleBackup. On August
10, 1999, we acquired certain assets of NuView, Inc., which we refer to as
NuView.
NSMG acquisition
The NSMG business developed and marketed software products and provided
related services enabling information technology professionals to manage
distributed network resources and to secure and protect enterprise data. In
connection with the NSMG acquisition, we issued 155,583,486 shares of our common
stock to Seagate Software and issued options to purchase 15,626,358 shares of
our common stock to our employees who were former NSMG employees. We accounted
for the NSMG acquisition using the purchase method of accounting, and we are
incurring charges of $221.5 million per quarter primarily related to the
amortization of developed technology, goodwill and other intangibles over their
estimated useful life of four years. The total NSMG purchase price was $3,464.5
million and included $3,151.4 million for the issuance of our common stock,
$269.7 million for the exchange of options to purchase our common stock and
$43.4 million of acquisition-related costs. The purchase price was allocated,
based on an independent valuation, to goodwill of $3,015.8 million, distribution
channels of $233.8 million, original equipment manufacturer agreements of $23.4
million, developed technology of $233.7 million, assembled workforce of $12.8
million, trademarks of
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$22.8 million, in-process research and development of $101.2 million, net
deferred tax liabilities of $179.5 million, other intangibles of $1.5 million
and tangible net liabilities assumed of $1.0 million. For 2000, we recorded
$827.6 million for the amortization of goodwill and other intangibles, and $58.4
million for the amortization of developed technology related to this acquisition
and for 1999, we recorded $482.5 million for the amortization of goodwill and
other intangibles, and $34.1 for the amortization of developed technology
related to this acquisition.
Acquisition-related costs consisted of direct transaction costs of $20.0
million, operating lease commitments on duplicative facilities of $8.2 million
and involuntary termination benefits of $15.2 million. Non-cash charges included
in the acquisition-related costs approximated $11.7 million.
Acquisition-related costs are summarized below (in millions):
OPERATING LEASE
DIRECT COMMITMENTS INVOLUNTARY
TRANSACTION ON DUPLICATIVE TERMINATION
COSTS FACILITIES BENEFITS TOTAL
----------- --------------- ----------- ------
Provision accrued at acquisition
date................................ $ 20.0 $ 8.2 $ 15.2 $ 43.4
Cash payments......................... (17.4) (0.3) (1.8) (19.5)
Non-cash charges...................... -- -- (11.7) (11.7)
------ ----- ------ ------
Balance at December 31, 1999.......... 2.6 7.9 1.7 12.2
Cash payments......................... (1.9) (1.9) (0.9) (4.7)
------ ----- ------ ------
Balance at December 31, 2000.......... $ 0.7 $ 6.0 $ 0.8 $ 7.5
====== ===== ====== ======
The remaining acquisition-related costs accrual of $7.5 million is
anticipated to be utilized primarily for servicing operating lease payments or
negotiated buyout of operating lease commitments, the lease terms of which will
expire at various times through the year 2013.
In addition, we recorded a restructuring charge of $11.0 million in 1999 as
a result of the NSMG acquisition. This restructuring charge related to exit
costs with respect to duplicative facilities that we planned to vacate, which
include $0.9 million of write-off of redundant equipment and leasehold
improvements, and involuntary termination benefits. Involuntary termination
benefits relate to the salary and fringe benefit expense for terminated
employees in research and development. The involuntarily terminated employees
represented 2% of the global workforce. In the fourth quarter of 2000, as a
result of lower actual exit costs than originally estimated with respect to
duplicative facilities, we reversed $4.3 million of the restructuring charge.
Restructuring costs are summarized below (in millions):
WRITE OFF OF
REDUNDANT
CANCELLATION INVOLUNTARY EQUIPMENT
OF FACILITIES LEASES TERMINATION AND LEASEHOLD
AND OTHER CONTRACTS BENEFITS IMPROVEMENTS TOTAL
-------------------- ----------- ------------- ------
Provision accrued at acquisition
date............................ $ 8.8 $ 1.3 $ 0.9 $ 11.0
Cash payments..................... -- (0.9) -- (0.9)
Non-cash charges.................. -- -- (0.9) (0.9)
----- ----- ----- ------
Balance at December 31, 1999...... 8.8 0.4 -- 9.2
Cash payments..................... (0.2) -- -- (0.2)
Reversal.......................... (3.9) (0.4) -- (4.3)
----- ----- ----- ------
Balance at December 31, 2000...... $ 4.7 $ -- $ -- $ 4.7
===== ===== ===== ======
The remaining restructuring charge accrual of $4.7 million is anticipated
to be utilized for servicing operating lease payments or negotiated buyout of
operating lease commitments, the lease terms of which will expire at various
times through the year 2012.
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TeleBackup acquisition
TeleBackup designed, developed and marketed software products for local and
remote backup and recovery of electronic information stored on networked, remote
and mobile personal computers. TeleBackup became our wholly-owned subsidiary in
exchange for the issuance of 6,842,795 shares of either our common stock or
exchangeable shares exchangeable into our common stock to the holders of
TeleBackup common shares, and the exchange of options to purchase 154,706 shares
of our common stock to our employees who were former employees of TeleBackup. We
accounted for the TeleBackup acquisition using the purchase method of
accounting, and we are incurring charges of $9.0 million per quarter, primarily
related to the amortization of developed technology, goodwill and other
intangibles over their estimated useful life of four years. The total purchase
price for TeleBackup was $143.1 million and included $134.1 million related to
the issuance of our common stock, $2.8 million for the issuance of options to
purchase our common stock and $6.2 million in acquisition-related costs. The
purchase price was allocated, based on an independent valuation, to goodwill of
$133.1 million, distribution channels of $1.0 million, original equipment
manufacturer agreements of $2.1 million, developed technology of $6.6 million,
assembled workforce of $0.3 million, trademarks of $1.3 million, in-process
research and development of $1.9 million, net deferred tax liabilities of $3.0
million and tangible net liabilities assumed of $0.2 million. For 2000, we
recorded $34.5 million for amortization of goodwill and other intangibles, and
$1.7 million for the amortization of developed technology related to this
acquisition and for 1999, we recorded $20.1 million for amortization of goodwill
and other intangibles, and $1.0 for the amortization of developed technology
related to this acquisition.
The acquisition costs of $6.2 million consist primarily of direct
transaction costs and involuntary termination benefits.
Acquisition-related costs are summarized below (in millions):
DIRECT INVOLUNTARY
TRANSACTION TERMINATION
COSTS BENEFITS TOTAL
----------- ----------- -----
Provision accrued at acquisition date................. $ 5.6 0.6 $ 6.2
Cash payments......................................... (5.1) (0.2) (5.3)
----- ----- -----
Balance at December 31, 1999.......................... 0.5 0.4 0.9
Cash payments......................................... (0.2) (0.4) (0.6)
----- ----- -----
Balance at December 31, 2000.......................... $ 0.3 $ -- $ 0.3
===== ===== =====
The remaining $0.3 million is anticipated to be utilized in 2001.
NuView acquisition
Under an asset purchase agreement, we acquired certain assets of NuView for
a total cost of approximately $67.9 million. We accounted for the acquisition
using the purchase method of accounting, and we are incurring charges of $4.3
million per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated useful life of
four years. The purchase price included $47.7 million related to the issuance of
our common stock, $0.8 million for the issuance of options to purchase our
common stock to former NuView employees, $0.2 million in acquisition-related
costs and $19.2 million paid in cash. The purchase price was allocated, based on
an independent valuation, to goodwill of $62.6 million, developed technology of
$2.4 million, assembled workforce of $0.6 million, trademarks of $0.3 million,
covenant-not-to-compete of $0.9 million and in-process research and development
of $1.1 million. For 2000, we recorded $16.5 million for amortization of
goodwill and other intangibles, and $0.6 million for the amortization of
developed technology related to this acquisition and for 1999, we recorded $8.1
million for amortization of goodwill and other intangibles, and $0.3 million for
the amortization of developed technology related to this acquisition.
For the years ended December 31, 1999 and 2000, we incurred net losses due
to the amortization of developed technology, goodwill and other intangibles
related to the acquisitions of the NSMG business,
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TeleBackup and NuView. Because of these acquisitions, we will incur total
charges of $234.8 million per quarter until the second quarter of 2003 related
to the amortization of developed technology, goodwill and other intangibles.
Because of these significant quarterly charges it is likely that we will remain
unprofitable at least through the second quarter of 2003.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected items
in our statements of operations expressed as a percentage of total revenue.
YEARS ENDED
DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----
Net revenue:
User license fees......................................... 82% 84% 80%
Services.................................................. 18 16 20
--- --- ---
Total net revenue................................. 100 100 100
Cost of revenue:
User license fees......................................... 4 4 4
Services.................................................. 7 6 10
Amortization of developed technology...................... 5 6 --
--- --- ---
Total cost of revenue............................. 16 16 14
--- --- ---
Gross profit................................................ 84 84 86
Operating expenses:
Selling and marketing..................................... 37 37 36
Research and development.................................. 15 16 19
General and administrative................................ 6 6 5
Amortization of goodwill and other intangibles............ 73 86 --
Acquisition and restructuring costs....................... (1) 2 --
In-process research and development....................... -- 17 --
--- --- ---
Total operating expenses.......................... 130 164 60
--- --- ---
Income from operations...................................... (46) (80) 26
Interest and other income, net.............................. 5 4 6
Interest expense............................................ (2) (2) (3)
--- --- ---
Income before income taxes.................................. (43) (78) 29
Provision for income taxes.................................. 8 6 4
--- --- ---
Net income.................................................. (51)% (84)% 25%
=== === ===
Net Revenue
Net revenue increased 103% to $1,207.3 million in 2000 from $596.1 million
in 1999, when it increased 183% from $210.9 million in 1998. While we believe
that the percentage increases in net revenue achieved in these periods are not
necessarily indicative of future results, we expect net revenue to continue to
grow in 2001. Our revenue comprises user license fees and service revenue.
User License Fees. User license fees increased 98% to $987.4 million in
2000 from $498.0 million in 1999, when it increased 197% from $167.7 million in
1998. The increases in 2000 and 1999 were primarily the result of the continued
growth in market acceptance of our software products, introduction of new
products, a greater volume of large end-user transactions, and increased revenue
from original equipment manufacturers. In particular, our license fees from our
data protection, file and volume management and application solutions products
increased 91% to $848.4 million in 2000 from $443.6 million in 1999, when it
increased 194% from $150.7 million in 1998. The user license fees from our data
protection, file and volume management and application solutions products
accounted for 86% of user license fees in 2000, 89% in 1999 and 90% in 1998.
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Our user license fees from our newer clustering and replication products
increased 155% to $139.0 million in 2000 from $54.4 million in 1999, when it
increased 220% from $17.0 in million in 1998. In 2000 and 1999, we also recorded
a greater volume of large end-user transactions. For end-user transactions
valued at $250,000 or more, our user license fees increased 284% to $216.3
million in 2000 from $56.4 million in 1999, when it increased 165% from $21.3
million in 1998. Our user license fees from original equipment manufacturers
increased 76% to $169.1 million in 2000 from $95.9 million in 1999, when it
increased 11% from $86.3 million in 1998. The user license fees from original
equipment manufacturers accounted for 17% of user license fees in 2000, 19% in
1999 and 51% in 1998. The increases in user license fees in 2000 and 1999 were
also the result of the acquisition of NSMG in May 1999.
Service Revenue. We derive our service revenue primarily from contracts for
software maintenance and technical support and, to a lesser extent, consulting
and training services. Service revenue increased 124% to $220.0 million in 2000,
from $98.1 million in 1999, when it increased 127% from $43.2 million in 1998.
These increases were primarily due to increased sales of service and support
contracts on new licenses, renewal of service and support contracts on existing
licenses and, to a lesser extent, an increase in demand for consulting and
training services. The increase in 2000 was also attributable to the acquisition
of NSMG. Service revenue represented 18% of total revenue in 2000 and is
expected to continue to grow as a percentage of total revenue.
Cost of Revenue
Cost of revenue increased 100% to $188.8 million in 2000 from $94.6 million
in 1999, when it increased 221% from $29.5 million in 1998. Gross margin on user
license fees is substantially higher than gross margin on service revenue,
reflecting the low materials, packaging and other costs of software products
compared with the relatively high personnel costs associated with providing
maintenance, technical support, consulting, training services and development
efforts. Cost of service revenue varies depending upon the mix of maintenance,
technical support, consulting and training services. We expect gross margin to
fluctuate in the future, reflecting this mix and the timing differences between
increasing our organizational investments and the recognition of revenue that we
expect as a result of these investments.
Cost of User License Fees (including amortization of developed
technology). Cost of user license fees consists primarily of royalties, media,
manuals and distribution costs. Also included in the cost of revenue is the
amortization of developed technology acquired in the NSMG, TeleBackup and NuView
acquisitions in 1999. Cost of user license fees increased 82% to $102.8 million
in 2000 from $56.4 million in 1999, and increased 541% in 1999 from $8.8 million
in 1998. The increases in 2000 and 1999 were primarily the result of the
amortization of developed technology. Gross margin on user license fees was 90%
in 2000, 89% in 1999 and 95% in 1998. The increase in gross margin on user
license fees in 2000 was due to a combination of an increase in user license
fees and the stability of the amortization of developed technology. If we
excluded the amortization of developed technology from the cost of user license
fees, the gross margin on user license fees would have been 96% in both 2000 and
1999. The gross margin on user license fees may vary from period to period based
on the license revenue mix, because some products carry higher royalty rates
than others. We do not expect gross margin on user license fees to increase
significantly in the future.
Cost of Service Revenue. Cost of service revenue consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers. Cost of service revenue increased 125% to $86.0
million in 2000 from $38.2 million in 1999, and increased 85% in 1999 from $20.7
million in 1998. Gross margin on service revenue was 61% in 2000, 61% in 1999,
and 52% in 1998. The gross margin improvement in 1999 was the result of
increased productivity and higher service revenue growth due to support fees
from a larger installed customer base and we maintained the same percentage of
gross margin in 2000. We expect the costs of service revenue to continue to
increase in absolute dollars in future periods and we expect the gross margin on
service revenue to increase slightly as a percentage.
Amortization of Developed Technology. Amortization of developed technology
was $62.1 million in 2000 and $35.7 million in 1999. These amounts mainly
represent the amortization of the developed technology recorded upon the
acquisition of NSMG, TeleBackup and NuView in 1999. The useful life of the
developed
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technology acquired is four years and we expect the amortization to be
approximately $15.6 million per quarter.
Operating Expenses
The NSMG and TeleBackup acquisitions that occurred during 1999 have
contributed to increases in all operating expense categories. Although the
increases relating to the acquisitions are most notable from 1998 to 1999, the
impact of acquisitions is still evident in 2000 since this was the first full
year that both NSMG and TeleBackup were reflected in our results. However, due
to the integration that has taken place to date, it is not possible to quantify
the portion of the increase that is related directly to these acquisitions.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with our sales and marketing efforts. Selling and marketing expenses
increased 100% to $443.8 million in 2000 from $222.0 million in 1999, and
increased 191% in 1999 from $76.4 million in 1998. As a percentage of net
revenue, selling and marketing expenses remained consistent at 37% in 2000 and
1999, only up slightly from 36% in 1998. The increase in absolute dollars is
primarily attributable to increased sales and marketing staffing and, to a
lesser extent, increased costs associated with new marketing programs. We intend
to continue to expand our global sales and marketing infrastructure, and
accordingly, we expect our selling and marketing expenses to increase in
absolute dollars but not to change significantly as a percentage of total
revenue in the future.
Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
engineering related costs. Research and development expenses increased 86% to
$175.9 million in 2000 from $94.5 million in 1999, and increased 135% in 1998
from $40.2 million in 1998. The increases were due primarily to increased
staffing levels associated with new hires and our acquisitions and expansion of
development efforts for new technology. As a percentage of net revenue, research
and development expenses were 15% in 2000, 16% in 1999 and 19% in 1998. We
believe that a significant level of research and development investment is
required to remain competitive, and expect these expenses will continue to
increase in absolute dollars in future periods and may increase slightly as a
percentage of net revenue. We expect research and development expenses to
fluctuate from time to time to the extent that we make periodic incremental
investments in research and development.
General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
128% to $77.9 million in 2000 from $34.2 million in 1999, and increased 225% in
1999 from $10.5 million in 1998. As a percentage of net revenue, general and
administrative expenses were 6% in 2000, 6% in 1999 and 5% in 1998. The
increases in absolute dollars in 2000 and 1999 were due to additional personnel
costs, including additional personnel related to the acquisitions in the second
quarter of 1999, and, to a lesser extent, to an increase in other expenses
associated with enhancing our infrastructure to support expansion of our
operations. We expect general and administrative expenses to increase in
absolute dollars, but not to change significantly as a percentage of net
revenue, as we expand our operations.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles increased 73% to $879.0 million in 2000 from $510.9
million in 1999. This amount represents amortization of goodwill, distribution
channels, trademarks and other intangibles assets recorded upon the acquisitions
of NSMG, TeleBackup and NuView in 1999. The estimated useful life of the
goodwill and the other intangibles is four years and we expect the amortization
to be approximately $219.7 million per quarter through 2003.
In-Process Research and Development. Upon the acquisition of NSMG,
TeleBackup and NuView in 1999, we recorded one-time charges to in-process
research and development totaling $104.2 million. We obtained outside valuations
for these acquisitions, and values were assigned to developed technology,
in-process research and development and other intangibles. The fair value of the
in-process research and development for each of the acquisitions was determined
using the income approach, which discounts expected future cash flows from
projects under development to their net present value. Each project was analyzed
to determine the characteristics and applications of the technology; the
complexity, cost and time to complete the remaining development efforts; any
alternative future use or current technological feasibility; and
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the stage of completion. The projected future cash flows from the projects under
development were based on management's estimates of revenues and operating
profits related to the projects. Revenues on the projects related to in-process
research and development were estimated to begin in 1999 through 2003, with the
majority of the revenues occurring between 2000 and 2002. The risk-adjusted
discount rate applied to after-tax cash flows was 20%, compared to an estimated
weighted-average cost of capital of 15%. We believe the amounts determined for
in-process research and development are representative of fair value and do not
exceed the amounts an independent third party would pay for the projects
assumed.
The total charge for in-process research and development was estimated to
be $101.2 million for the NSMG acquisition. Seven in-process research and
development projects were identified and valued, with two projects under the
data protection product group that accounted for approximately 71% of the value
assigned to in-process research and development. The data protection software
products provide backup and restore functions, including scheduled automated
unattended data backup operations. The remaining products identified and valued
were under the application solutions and replication product groups. The
application solutions software provides scaleable solution for managing the
behavior of different types of networks worldwide from one central location and
the replication software products deliver flexible and intelligent data
replication for Windows NT environments. Costs to complete all of the NSMG
in-process research and development projects were estimated to be $6.0 million.
At the date of acquisition, the development of all products ranged from 48% to
90% complete and averaged approximately 76% complete, with expected completion
dates through December 1999. At December 31, 2000, all in-process research and
development projects related to the NSMG acquisition were completed or
abandoned.
All in-process research and development projects related to the TeleBackup
and NuView acquisitions were individually insignificant and were completed or
abandoned as of December 31, 1999.
Acquisition and restructuring costs. In connection with the NSMG
acquisition, we recorded a one-time charge to acquisition and restructuring
costs of $11.0 million, which included approximately $9.7 million in exit costs
with respect to duplicative facilities that we planned to vacate and
approximately $1.3 million in severance benefits. In the fourth quarter of 2000,
mainly as a result of lower actual exit costs than originally estimated with
respect to duplicative facilities, we reversed $4.3 million of the restructuring
charge.
Interest and Other Income, Net. Interest and other income, net increased
156% to $59.6 million in 2000 from $23.3 million in 1999, and 97% from $11.8
million in 1998. The increases were due primarily to increased amounts of
interest income attributable to the higher level of funds available for
investment, primarily from the issuance of the convertible subordinated notes in
October 1997 and August 1999 and from the net cash provided by operating
activities. Foreign exchange transaction gains and losses that are included in
other income, net, have not had a significant effect on our results of
operations.
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Interest Expense. Interest expense increased to $31.6 million in 2000 from
$15.7 million in 1999 and $5.7 million in 1998. Interest expense in 2000, 1999
and 1998 consisted primarily of interest recorded under the 1.856% convertible
subordinated notes due 2006 issued in August 1999 and the 5.25% convertible
subordinated notes due 2004 issued in October 1997.
Income Taxes. We had effective tax rates of negative 18% in 2000, negative
8% in 1999 and positive 14% in 1998. Our 2000 and 1999 effective tax rates were
negative and differed from the combined federal and state statutory rates
primarily due to acquisition related charges that were non-deductible for tax
purposes. Our 1998 effective tax rate was lower than the combined federal and
state statutory rates primarily due to the utilization of federal net operating
loss carryforwards, other credit carryforwards and reduction of the valuation
allowance on deferred income taxes, offset by the impact of state and foreign
taxes.
New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards, or SFAS, No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133,
as amended by SFAS No. 137 and 138, establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We will be required to
implement SFAS No. 133 as of the beginning of our fiscal year 2001. The
implementation of SFAS No. 133 will not have a material impact on our financial
position, results of operations or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" or SAB 101. SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements. The required implementation date for us was the fourth quarter of
2000, retroactive to the beginning of the fiscal year. The implementation of SAB
101 did not have a material impact on our financial position, results of
operations or cash flows for the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and short-term investments totaled $1,119.4
million at December 31, 2000 and represented 62% of our net tangible assets.
Cash and cash equivalents are highly liquid with original maturities of ninety
days or less. Short-term investments consist mainly of investment grade
commercial paper, medium-term notes, corporate notes, government securities and
market auction preferreds. At December 31, 2000, we had $429.2 million of
long-term obligations and stockholders' equity was approximately $2,982.6
million.
Net cash provided from operating activities was $546.8 million in 2000,
$207.4 million in 1999 and $62.8 million in 1998. The increase in 2000 cash
provided by operating activities resulted primarily from income after
adjustments to exclude non-cash charges, including amortization of intangibles
related to acquisition activities, tax benefits from stock plans and an increase
in deferred revenue partially offset by an increase in account receivable and
other assets, as a result of our overall revenue growth. The increase in 1999
cash provided by operating activities resulted primarily from income after
adjustments to exclude non-cash charges, including amortization of intangibles
related to acquisition activities, and tax benefits from stock plans partially
offset by an increase in accounts receivable, as a result of our overall revenue
growth.
Our investing activities provided cash of $81.0 million in 2000 due to the
net decrease in short-term and long-term investments of $240.2 million,
partially offset by purchases of property and equipment of $134.7 million and
strategic investments of $22.0 million. Our investing activities used cash of
$577.0 million in 1999 primarily due to the net increase in short-term and
long-term investments of $505.2 million, purchases of property and equipment of
$59.7 million and purchase of certain assets of NuView. Our investing activities
used cash of $13.4 million in 1998 primarily due to capital expenditures of
$23.4 million.
Financing activities provided cash of $119.5 million in 2000 from the
issuance of common stock under our employee stock plans. Financing activities
provided cash of $379.6 million in 1999 from the net proceeds of $334.1 million
related to the issuance of the 1.856% convertible subordinated notes in August
1999 and $45.5 million from the issuance of common stock under our employee
stock plans. Financing activities
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provided cash of $14.0 million in 1998, arising from the issuance of common
stock under our employee stock plans.
In October 1997, we issued $100.0 million of 5.25% convertible subordinated
notes due 2004 (the "5.25% notes"), for which we received net proceeds of $97.5
million. We and our wholly-owned subsidiary, VERITAS Operating Corporation, are
co-obligors on the 5.25% notes and are unconditionally, jointly and severally
liable for all payments under the notes. During 2000, a total principal amount
at maturity of $35.5 million was converted into approximately 3.7 million shares
of our common stock. Based on the aggregate principal amount at maturity of
$64.5 million outstanding as of December 31, 2000, the 5.25% notes provide for
semi-annual interest payments of $1.7 million each May 1 and November 1. The
5.25% notes are convertible into shares of our common stock at any time prior to
the close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion price of $9.56 per share, subject to adjustment in
certain events, equivalent to a conversion rate of 104.65 shares of common stock
per $1,000 principal amount at maturity. On or after November 5, 2002, the 5.25%
notes will be redeemable over a period of time until maturity at our option at
declining premiums to par. The debt issuance costs are being amortized over the
term of the 5.25% notes using the interest method.
In August 1999, we and our wholly-owned subsidiary, VERITAS Operating
Corporation, issued $465.8 million, aggregate principal amount at maturity, of
1.856% convertible subordinated notes due 2006 (the "1.856% notes") for which we
received net proceeds of approximately $334.1 million. The interest rate of
1.856%, together with the accrual of original issue discount, represent a yield
to maturity of 6.5%. We and VERITAS Operating Corporation are co-obligors on the
1.856% notes and are unconditionally, jointly and severally liable for all
payments under the notes. During 2000, a total principal amount at maturity of
$1.0 million was converted into approximately 28,000 shares of our common stock.
Based on the aggregate principal amount at maturity of $464.7 million
outstanding as of December 31, 2000, the 1.856% notes provide for semi-annual
interest payments of $4.3 million each February 13 and August 13. The 1.856%
notes are convertible into shares of our common stock at any time prior to the
close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion price of $35.80 per share, subject to adjustment in
certain events, equivalent to a conversion rate of 27.934 shares of common stock
per $1,000 principal amount at maturity. On or after August 16, 2002, the 1.856%
notes will be redeemable over a period of time until maturity at our option at
the issuance price plus accrued original issue discount and any accrued
interest. The debt issuance costs are being amortized over the term of the
1.856% notes using the interest method.
At December 31, 2000, we have a ratio of long-term debt to total
capitalization of approximately 13%. The degree to which we will be leveraged
could materially and adversely affect our ability to obtain financing for
working capital, acquisitions or other purposes and could make us more
vulnerable to industry downturns and competitive pressures. We will require
substantial amounts of cash to fund scheduled payments of principal and interest