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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to . |
Commission File Number 000-26247
VERITAS Software Corporation
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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77-0507675 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
350 Ellis Street
Mountain View, California 94043
(650) 527-8000
(Address, including Zip Code, of Registrant’s Principal
Executive Offices and
Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 par value per share;
Preferred Share Purchase Rights
Indicate by check mark whether the Registrant:(1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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. þ
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of the Registrant’s common
stock, $0.001 par value per share, held by non-affiliates
of the Registrant on June 30, 2004, the last business day
of the Registrant’s most recently completed second fiscal
quarter, was approximately $12 billion (based on the
closing sales price of the Registrant’s common stock on
that date). Shares of the Registrant’s common stock held by
each officer and director and each person who owns 10% or more
of the outstanding common stock of the Registrant have been
excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 31, 2005, 427,229,966 shares of the
Registrant’s common stock were outstanding.
VERITAS SOFTWARE CORPORATION
INDEX
VERITAS, the VERITAS logo and all other VERITAS names are
trademarks or registered trademarks of VERITAS Software
Corporation or its affiliates in the United States and other
countries. Other names may be trademarks of their respective
owners.
This annual report on Form 10-K 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 forward-looking statements include
statements about our revenue, revenue mix, gross margin,
operating expense levels, financial outlook, commitments under
existing leases, research and development initiatives, sales and
marketing initiatives, competition and continued listing on
Nasdaq. In some cases, forward-looking statements are identified
by words such as “believe,” “anticipate,”
“expect,” “intend,” “plan,”
“will,” “may” and similar expressions. You
should not place undue reliance on these forward-looking
statements, which speak only as of the date of this annual
report. All of 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 captioned “Factors That May
Affect Future Results” appearing in Item 7,
Management’s Discussion and Analysis of Financial Condition
and Results of Operations, and elsewhere in this annual report.
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 filings with the Securities and Exchange Commission, that
attempt to advise you of the risks and factors that may affect
our future results.
PART I
Merger of VERITAS Software Corporation with Symantec
Corporation
On December 16, 2004, VERITAS Software Corporation and
Symantec Corporation announced that the companies had entered
into a definitive agreement to merge in an all-stock
transaction. Under the agreement, which has been unanimously
approved by both boards of directors, our stock will be
converted into Symantec stock at a fixed exchange ratio of
1.1242 shares of Symantec common stock for each outstanding
share of our common stock. Upon closing, Symantec stockholders
will own approximately 60 percent and our stockholders will
own approximately 40 percent of the combined company.
Completion of the merger is subject to customary closing
conditions that include receipt of required approvals from
VERITAS and Symantec stockholders and receipt of required
regulatory approvals. The merger, which is expected to close in
the second calendar quarter of 2005, may not be completed if any
of the conditions are not satisfied or waived. Unless otherwise
indicated, the discussions in this document relate to VERITAS as
a stand-alone entity and do not reflect the impact of the
proposed merger with Symantec. For additional information
regarding the proposed merger, please refer to the Form S-4
(File No. 333-122724), containing a preliminary joint proxy
statement/prospectus in connection with the proposed merger,
filed by Symantec on February 11, 2005.
Overview
VERITAS Software Corporation is a leading independent supplier
of storage and infrastructure software products and services.
Our software products operate across a variety of computing
environments, from personal computers, or PCs, and workgroup
servers to enterprise servers and networking platforms in
corporate data centers to protect, archive and recover
business-critical data, provide high levels of application
availability, enhance and tune system and application
performance to define and meet service levels and enable
recovery from disasters. Our solutions enable businesses to
reduce costs by efficiently and effectively managing their
information technology, or IT, infrastructure as they seek to
maximize value from their IT investments. We offer software
products focused on three areas:
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Data Protection: products for ensuring the protection,
retention and recovery of data using both disk, tape and optical
media. |
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Storage Management: products for optimizing storage
hardware utilization, simplifying administration for
environments with diverse computer hardware and software
architectures and enabling high performance and continuous
availability of mission-critical applications. |
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Utility Computing Infrastructure: products for automating
the provisioning and management of servers and applications to
meet IT service levels for high availability, high performance
and process automation. |
We develop and sell software products for the most widely-used
operating systems, including various versions of Linux, NetWare,
UNIX and Windows. We also develop and sell software products
that support a wide variety of servers, storage devices,
databases, applications and network equipment. Our customers
include many leading global corporations and small and
medium-sized enterprises located around the world and operating
in a wide variety of industries. In addition to our software
products, we provide a full range of services to assist
customers in assessing, architecting, implementing, supporting
and maintaining their storage and infrastructure software
solutions.
Our product strategy is to meet the data storage, system and
application availability and performance needs of our customers,
while remaining at the forefront of innovation to support our
customers’ long-term requirements by providing the building
blocks for utility computing. Utility computing is a computing
model that delivers IT as a measurable service, aligned with
business needs and capable of adapting to changing demands. We
offer a building block approach that allows our customers to
evolve to a utility computing model in an evolutionary and
modular fashion while leveraging their existing IT investments.
In 2004, we completed the acquisitions of Ejasent, Inc., Invio
Software, Inc. and KVault Software Limited, or KVS. Through our
acquisition of Ejasent in January 2004, we acquired UpScale,
which offers the ability to move applications from one server to
another without disrupting or terminating the application, and
MicroMeasure, which enables usage-based metering and billing of
physical and logical data center assets, including servers,
storage and application transactions by specific users and
departments. Our acquisition of Invio in July 2004 provided us
with software that standardizes and automates IT service
delivery in key areas such as storage provisioning, server
provisioning and data protection. In addition, in September
2004, we acquired KVS and its Enterprise Vault software, the
leading Microsoft Exchange e-mail archiving product, to address
compliance and data management, a critical component and
addition to our data protection portfolio.
With revenue of $2.04 billion in 2004, VERITAS ranks among
the top 10 software companies in the world and, as of
December 31, 2004, had 7,587 employees in 38 countries. We
were incorporated in Delaware in October 1998. Our predecessor
company was originally incorporated in California in 1982 and
reincorporated in Delaware in 1997. Our principal offices are
located at 350 Ellis Street, Mountain View, California
94043, and our telephone number at that location is
(650) 527-8000. Our home page on the Internet is at
http://www.veritas.com. Information on our website is not a part
of this annual report.
Products
VERITAS offers a wide range of industry leading software
products that are broadly categorized into data protection,
storage management and utility computing infrastructure
solutions. Demand for our software products and services is
driven by the ever increasing quantity of data being collected
and the need for data to be protected, recoverable and
accessible at all times, particularly in the event of a
disaster. Other factors driving demand include the rapid
increase in the number of Internet users and companies
conducting business online, the continuous automation of
business processes, increased pressures on companies to lower
storage and server management costs, while increasing the
utilization and performance of their existing heterogeneous IT
infrastructure and the increasing importance of document
retention and regulatory compliance solutions. Our products
offer our customers scalability for managing the rapid growth of
data and the increasing complexity and size of IT environments.
We offer software products designed to protect, backup, archive
and restore data across a broad range of computing environments
from large corporate data centers to remote groups and PC
clients, such as desktop and laptop computers. Our data
protection products protect and recover data on servers and
clients running most major operating systems and databases.
These products integrate to provide solutions to manage data
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throughout its lifecycle — from creation to disposal,
both onsite and offsite, across all levels of the storage
hierarchy — including disk, tape and optical storage
media. Our data protection products include:
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VERITAS NetBackup |
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VERITAS NetBackup software delivers enterprise data protection
for the largest Linux, NetWare, UNIX and Windows environments,
and offers enterprise-strength features, such as synthetic
backups that allow for quick client restore from a single backup
image, disk-based protection, automated disaster recovery and
desktop and laptop protection. VERITAS NetBackup provides
advanced media management, including tape labeling, tape media
pool creation, device sharing, media/device reporting and bar
code support. VERITAS NetBackup also provides optional database
and application aware backup and recovery solutions for Oracle,
SAP, Microsoft SQL Server, Microsoft Exchange, Microsoft
SharePoint Portal Server, DB2, Lotus Notes/Domino, Sybase and
Informix to deliver data availability for Utility Computing. |
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VERITAS Backup Exec |
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VERITAS Backup Exec for Windows Servers provides comprehensive,
cost-effective and certified backup and recovery including
disk-based recovery. An intuitive, web-based user interface
simplifies installation and management of backup and remote
servers with easy-to-use wizards. Centralized administration
provides scalable management of distributed backup and remote
servers. Easy-to-use wizards simplify data protection and
recovery procedures for any level user and any size network.
This product includes a complete family of agents and options
available to protect Windows, Linux, NetWare and UNIX server
data, as well as Windows desktops and laptops. |
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VERITAS Backup Exec for NetWare Servers provides backup and
restore technology for protecting server and workstation data.
An intuitive graphical user interface provides enhanced
functionality and manageability. Local and remote agents offer
cross platform protection for mixed platform environments. |
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VERITAS Enterprise Vault |
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VERITAS Enterprise Vault provides a flexible, software-based
e-mail archiving framework to enable the discovery of content
held within Microsoft Exchange, Microsoft SharePoint Portal
Server and Microsoft Windows file systems, while helping to
reduce storage costs and simplify management. Enterprise Vault
manages e-mail content through automated, policy-controlled
archiving to online stores for active retention and retrieval of
information, and includes powerful search and discovery
capabilities, complemented by specialized client applications
for NASD compliance and legal discovery. Implementing Enterprise
Vault helps customers with business issues such as: compliance
and discovery, storage optimization, operational efficiency,
knowledge exploitation and migration and consolidation. |
We offer products for optimizing storage resource utilization,
simplifying administration of heterogeneous environments and
providing continuous availability of mission-critical
applications and data. These products are designed for most
Linux, NetWare, UNIX and Windows servers, and include
replication and a storage resource management suite. They are
offered in both standalone and application solutions, as agents
and
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options, and are often combined with our utility computing
infrastructure and data protection products to deliver high
levels of availability and performance. Our storage management
products include:
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VERITAS Storage Foundation |
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VERITAS Storage Foundation combines VERITAS Volume Manager and
VERITAS File System to provide a complete solution for online
storage management. With VERITAS Storage Foundation, physical
disks can be grouped into logical volumes to improve disk
utilization and eliminate storage-related downtime. In addition,
VERITAS Storage Foundation helps to provide administrators with
the flexibility to move data between different operating systems
and storage arrays, balance input/output across multiple paths
to improve performance, replicate data to remote sites for
higher availability and move unimportant or out-of-date files to
less expensive storage without changing the way users or
applications access the files. |
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VERITAS Replication Exec and VERITAS Volume Replicator |
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VERITAS Replication Exec provides continuous remote office data
protection and helps to reduce costs and minimize IT workload.
Replication Exec copies data from multiple remote offices over
an IP connection, to a central location at the main office for
consolidated backups. By centralizing backups, Replication Exec
helps reduce infrastructure costs by eliminating the need for
backup hardware, media, and administration resources to be
located at each remote office. Replication Exec integrates with
Backup Exec (using Backup
ExectmSmartLink
technology) to help simplify management and enable
administrators to monitor company-wide data protection from a
centralized management console. |
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VERITAS Volume Replicator provides the foundation for seamless
data availability across central and remote sites. Based on
VERITAS Volume Manager, Volume Replicator replicates data from
central to remote locations over any IP network when data loss
and prolonged downtime cannot be tolerated. |
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VERITAS CommandCentral Storage and VERITAS Storage Exec |
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VERITAS CommandCentral Storage integrates storage resource
management, performance and policy management, storage
provisioning and zoning capabilities to help ensure that storage
infrastructure runs as efficiently as possible. The active
management of storage resources drives service level agreements,
and is designed to ensure optimal performance and availability
of business critical applications by managing the entire data
path from application to array and everything in between.
CommandCentral Storage offers customizable policy-based
management to automate notification, recovery and other
user-definable actions. |
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VERITAS CommandCentral Storage also provides IT managers with a
comprehensive view into the usage and utilization of storage
resources across their organization and enables storage
administrators to track critical details about their
departmental, and geographic (local, remote and enterprise-wide)
storage usage and provide detailed metrics. |
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VERITAS Storage Exec helps organizations to maximize their
storage resources and reduce backup and restore times by
providing automated storage management. Storage Exec enables
real-time storage quotas for individual users, blocks non-
business files such as MP3s and viruses from company servers and
creates extensive, detailed storage reports. Storage Exec helps
to reduce administration through email notification that enables
end-users to manage their own files without IT intervention. |
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Utility Computing Infrastructure |
Our utility computing infrastructure products include tools for
managing application availability and performance service level
agreements, improving server and storage utilization and
automating IT processes for enterprise data centers. These
products include application performance management and
centralized
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service level management functionality. These products also
include capabilities to measure and report costs incurred and
standardized Web-based interfaces that reduce administrative
costs. Our utility computing infrastructure products include:
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Description |
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VERITAS Cluster Server |
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VERITAS Cluster Server is designed to help reduce planned and
unplanned downtime, facilitate server consolidation and
effectively manage a wide range of applications running across
heterogeneous IT environments. With scalability for up to 32
node clusters, VERITAS Cluster Server can protect single
critical database instances, as well as large, globally
dispersed, multi-application clusters. VERITAS Cluster Server
increases automation by providing features to test production
disaster recovery scenarios and plans without disruption, and
offers intelligent workload management to help cluster
administrators maximize resources by moving beyond reactive
recovery to proactive management of application availability. |
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VERITAS CommandCentral Availability |
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VERITAS CommandCentral Availability is a Web-based management
solution that allows IT staff to manage application availability
for geographically distributed data centers from a central
console. Administrators can view and manage their distributed
VERITAS Cluster Server clusters running all major operating
systems. Consolidated management helps to reduce administrative
overhead for any business with two or more server clusters.
VERITAS CommandCentral Availability helps to increase IT staff
productivity by providing centralized and common cluster
visualization, monitoring and control in real-time.
Administrators can also consolidate the deployment of
configuration changes for multiple clusters. VERITAS
CommandCentral Availability improves application availability by
enabling administrators to detect, isolate and correct errors
quickly. |
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VERITAS OpForce |
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VERITAS OpForce is a server automation solution with lifecycle
management capabilities that enables customers to build, manage
and optimize their server infrastructure. OpForce provides a
secure solution for increasing the availability, manageability
and performance of servers and software. OpForce allows
customers to securely deploy software, applications and patches
remotely across multiple systems. OpForce software’s
snapshot technology and in-context provisioning introduces
personalization while managing customers’ devices,
directories and networks. OpForce provides an integrated
provisioning platform for Linux, UNIX (Sun Solaris and IBM AIX)
and Windows environments. |
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VERITAS
i3 |
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VERITAS i3
is an integrated software solution that provides a
methodology for improving application performance. VERITAS
i3
correlates the application flow across the multi-tiered IT
infrastructure by continuously monitoring all the technologies
that contribute to response time. This enables rapid detection
to correction of performance degradation before the end-user
community is adversely affected. VERITAS
i3
includes three key software elements, VERITAS Indepth,
VERITAS Inform and VERITAS Insight. |
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VERITAS Indepth collects detailed performance metrics from the
underlying technologies that contribute to response time such as
Oracle, SQL Server, DB2 UDB, J2EE application servers, Web
servers and storage to provide visibility into complex
performance issues. The information is leveraged to identify the
root cause of performance degradation within that technology
tier and to generate expert tuning advice to resolve the issue.
The information is stored in a performance warehouse so
historical trends and real-time alerts can be generated by
VERITAS Inform. |
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VERITAS Inform delivers key performance information collected by
Insight and Indepth in the form of historical reports and
exception alerts. Performance metrics such as response time can
be reported to show gradual degradation and identify a point in
time when action must be taken to ensure response time stays at
an acceptable level. Real-time alerting notifies IT staff when a
key performance metric has exceeded a threshold and needs
attention which helps to ensure that the issue does not go
unattended and the problem is resolved as quickly as possible. |
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VERITAS Insight measures the real end-user response time of a
multi-tier application and, within an end-to-end view, breaks
down the response time by the technology tiers such as web
server, application server, database server or storage, so IT
staff know where to prioritize their efforts. Insight also
provides application specific performance metrics for SAP,
Oracle, PeopleSoft, Siebel, BEA Tuxedo and J2EE-based
applications. These application specific metrics provide a
deeper understanding of how the application is performing and
provide the visibility required to resolve the most complex
performance issues. The information is stored in a performance
warehouse so historical trends and real-time alerts can be
generated by VERITAS Inform. |
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VERITAS CommandCentral Service |
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VERITAS CommandCentral Service is a software product designed to
help organizations move toward a utility computing model, where
IT acts like a service provider to its various customers.
CommandCentral Service allows IT to define services being
offered, present those services to consumers, measure and report
on service levels and resource usage, automate provisioning
processes through the embedded workflow engine and allocate
costs for services used. CommandCentral Service then becomes a
portal interface between IT and its consumers. The service
levels that consumers define subsequently map to service
implementations in underlying VERITAS and non-VERITAS products.
In this way, IT becomes more transparent, measurable and aligned
with the larger objectives of the business. VERITAS
CommandCentral Service facilitates the shift to utility
computing. |
For information regarding revenue and long-lived assets by
geographic areas, see Note 20, “Segment
Information” in the Notes to Consolidated Financial
Statements. For information regarding the amount and percentage
of our revenue contributed in each of our product categories,
our practices regarding working capital requirements and our
financial information, including information about geographic
areas in which we operate, see “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Services
We provide a full range of services to assist our customers in
assessing, architecting, implementing, supporting and
maintaining their storage and infrastructure software solutions.
Our global services organization provides customers with
maintenance and technical support, consulting and education
services.
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Maintenance and Technical Support |
We believe that providing a high level of customer service and
technical support is critical to customer satisfaction and our
success in increasing the adoption rate of our solutions. Most
of our customers have maintenance and technical support
agreements with us that provide for fixed fee, renewable annual
maintenance and technical support, consisting of technical and
emergency support, bug fixes and product upgrades. 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. We offer seven-day a week, 24-hour a day
telephone support, as well as e-mail customer support. In
addition, through our “Business Critical” service, we
provide our enterprise customers with support account
management, emergency fly-to-site capability and specialized
reporting. Some of the value-added resellers, system integrators
and original equipment manufacturers that offer our products
also provide customer
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technical support for our products through a frontline/backline
arrangement whereby the partner handles the initial customer
contact, the frontline, and we provide secondary support and
engineering assistance, the backline.
We offer our customers a full suite of consulting services,
ranging from basic product selection and implementation
engagements to more complex strategic and analytical services
like business continuity readiness assessments and disaster
recovery planning. These services help our customers plan for
the management and control of enterprise computing in their
specific computing environments, including storage area network
environments.
VERITAS consulting services are intended to complement existing
professional services offerings and are available to customers
through their sales account managers. We currently have four
consulting practices. They are:
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Disaster Recovery — Certified disaster recovery
professionals along with engineers and architects consult and
advise in the development of comprehensive disaster recovery
programs that minimize the impact of unplanned downtime. |
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Storage Management — Professionals consult and
advise in identifying suboptimal areas of storage service and
offer product-independent reference models for benchmarking.
They facilitate the development of open architectures, processes
and organizations that optimize the use of existing resources
and lay the foundation for evolving to a utility computing
infrastructure. |
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Application Performance Management —
Professionals consult and advise to identify mission-critical
application performance bottlenecks to recommend solutions that
improve user satisfaction and productivity and to create
reporting tools that help IT identify trends before they become
problems. |
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Utility Computing — Through workshops and
assessments, professionals develop a utility transformation
program to execute a pragmatic building block approach to the
deployment of service level agreements and the metering and
chargeback of IT services. |
We have a worldwide customer education organization that offers
structured training to our customers. The focus of this
organization is aligned with our strategy to offer end-to-end
software solutions by providing instruction from highly
experienced education professionals either at the customer
location or in one of our multi-platform classrooms. The
training helps our customers optimize their investments in
technology and technical personnel through access to high
quality, comprehensive instruction.
Marketing, Sales and Distribution
We sell and market our products and related services both
directly to end-users and through a variety of indirect sales
channels, which include value-added resellers, or VARs,
distributors, system integrators, or SIs, and original equipment
manufacturers, or OEMs. Our customers include many leading
global corporations and small and medium-sized enterprises
around the world operating in a wide variety of industries.
Direct Sales to End-Users, and VARs. One of our primary
methods of distribution to end-users is through our direct
sales, services and technical support organizations that market
our products and services throughout the world. Many of our
products involve a consultative, solution-oriented sales model
that uses the collaboration of technical and sales personnel to
propose solutions to specific customer requirements, often in
conjunction with hardware, software and managed services
providers. We focus our initial sales efforts on senior
executives and IT department personnel who are responsible for a
customer’s business initiatives and data center management.
We complement our direct sales efforts with indirect sales
channels such as resellers, VARs, distributors and SIs. Single
and multiple tier distribution channels are important in our
global expansion strategy and are the primary channels for
addressing the small to medium-sized enterprise market.
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We will continue to invest in programs that train and enable our
channel partners to market our technologies and utility
computing capabilities. We provide our software products to our
channel partners and customers under non-exclusive license
agreements, including shrink-wrap or click-wrap licenses for
some products, without transferring title of our software
products.
Other Indirect Channels. An important element of our
sales and marketing strategy is to continue to expand our
relationships with third parties, including our strategic
partners, to increase market awareness, demand and acceptance of
our products. Our strategic partners generate and qualify sales
leads, recommend our solutions which interoperate with their
products or are related to their value-added services, bring us
into potential sales opportunities and complete transactions
through distribution rights granted by us. We may enter into
distribution arrangements for our products with our strategic
partners, including granting rights to integrate or bundle our
products with our partners’ products and services. Some of
our strategic partner relationships include:
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Independent Software Vendors: We collaborate with, and
license our software to, independent software vendors, or ISVs,
including enterprise application software, database,
infrastructure and other packaged application software vendors.
Some of our significant ISV partners include Amdocs Ltd., BEA
Systems, Inc., Novell Inc., Oracle Corporation, SAP and Sybase,
Inc. Application vendors can exert significant influence on our
joint customers’ buying decisions, so we will continue to
develop strong, market oriented relationships with certain ISVs,
including joining and investing in their partner programs and
demonstrating customer value for our joint solutions. We build,
maintain and promote certain application program interfaces
within our products that allow interoperability between our
products and the ISVs’ products. We also market ISV agents,
options and extensions that are specifically built to allow
interoperability with or optimal performance of our products and
ISV products. ISVs may incorporate our product into their
product, bundle our products with their products, serve as
authorized resellers of our products or use VERITAS with their
own products to provide hosted services. Under these
arrangements, ISVs are not obligated to sell our products or
services. |
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System Integrators and Managed Services Providers: We
collaborate with SIs, who may refer their customers to us,
utilize us as a subcontractor in some situations, build standard
and customized solutions with our products or use our products
to deliver hosted services as well as outsourced services. SIs
use our products and services in conjunction with optimizing
their client’s investment in high-end transactional
applications and related hardware. Some of our SI relationships
include Accenture Ltd., International Business Machines
Corporation, or IBM, CapGemini Ernst & Young Group,
Computer Services Corporation and Electronic Data Systems
Corporation. Some SIs are authorized resellers of our products
and some use our products and services to deliver consultative
services or managed services to their customers. Under these
arrangements, SIs and managed services providers are not
obligated to use or sell our products or services. |
In general, we receive a fee for each sublicense of our products
granted by our partners. In some cases, we grant rights to
distribute promotional versions of our products, which have
limited functionality or limited use periods, on a non-fee
basis. We enter into both object-code only and, when
appropriate, source-code licenses of our products. We do not
transfer title of our software products to our customers.
Original Equipment Manufacturers. Another important
element of our sales and marketing strategy involves our
strategic relationships with OEM partners. These OEM partners
may incorporate our products into their products, bundle our
products with their products, endorse our products in the
marketplace or serve as authorized resellers of our products.
Our OEM partners with whom we generate the greatest distribution
and sales of our products include Dell Products L.P.,
Hewlett-Packard Company, IBM, Microsoft Corporation and Sun
Microsystems, Inc. In addition, we have strategic relationships
with other OEMs, including Fujitsu Ltd., Hitachi Ltd., Storage
Technology Corporation, Network Appliance, Inc. and Unisys
Corporation. In order to reach new markets and extend the value
of our OEM partners, some of our partners may have additional
rights to our products and services. These include using VERITAS
products in a hosted services environment; integrating our
support services with their own support services, thereby
providing combined
8
services to our joint customers; or reselling our packaged as
well as our custom consulting services. These licensing and
services rights allow our partners’ customers to maximize
their system availability, performance and utilization through
optimal configurations and reliable installations. In general,
our OEM partners are not obligated to sell our products or
services under these arrangements and are not obligated to
continue to include our products in future versions of their
products.
Other Important Relationships. In addition to the
channels of distribution and strategic relationships described
above, we also maintain important relationships with various
technology partners. Over 150 established and emerging
companies, specializing in storage management, data protection
or utility computing infrastructure, participate in our
technology partner program and interoperability lab services,
which provide access to software development kits, special
purpose testing programs and protocols, as well as development
support services. We support a large and diverse number of
hardware and software technology vendors and, as a leader in
storage and infrastructure software, contribute to the
development and support of industry standards. Some technology
partners integrate and distribute our products under licensing
arrangements as bundled solutions for vertical markets such as
telecommunications, finance and healthcare. Under these
arrangements, technology partners are not obligated to sell our
products.
Customers
Our software solutions are used by customers in a wide variety
of industries, including many leading global corporations and
small and medium-sized enterprises around the world, as well as
by various governmental entities. In 2004, 2003 and 2002, no
end-user customer accounted for more than 10% of our net
revenue. In 2004 and 2003, no distributor accounted for more
than 10% of our net revenue. In 2002, a distributor that sells
our products and services through resellers accounted for
approximately 11% of our net revenue.
Competition
The principal markets in which we compete are data protection,
file system and volume management, clustering, replication,
storage resource management, storage area network management,
automated server provisioning, application performance
management and centralized service level management. These
markets are intensely competitive and rapidly changing. Our
future anticipated growth and success will depend on our ability
to develop superior products more rapidly and less expensively
than our competitors, to educate potential customers as to the
benefits of licensing our products rather than relying on
alternative products and technologies and to develop additional
channels to market.
Many of our strategic partners, including EMC Corporation,
Hewlett-Packard, IBM, Microsoft, Oracle and Sun Microsystems,
offer software products that compete with our products or have
announced their intention to focus on developing or acquiring
their own storage and enterprise management software products.
While we may compete with these companies for a share of the
market, some also resell our products, and in some cases
incorporate our technology into their products or solutions.
In addition, we compete with hardware and software vendors that
offer data protection products, file system and volume
management products, clustering and replication products,
storage area networking management solutions, automated server
provisioning solutions and centralized service level management
products. We compete with software vendors that offer
application performance management solutions and systems
management companies that are integrating storage resource
management functions into their platforms. Some of our products
also compete with enterprise management vendors, including BMC
Software, Inc., Computer Associates International, Inc., Mercury
Interactive Corporation and Quest Software, Inc.
The principal competitive factors in our industry include
product functionality, product integration, platform coverage,
price, ability to scale, worldwide sales and marketing
infrastructure and global technical support. Although some 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. We believe that
our unique position as an independent software provider,
strategy for utility computing infrastructure,
9
hardware independent solutions and proven data protection and
storage software market leadership, give us an advantaged
position in the market.
Our future anticipated growth and success will depend on our
ability to continue to develop products more rapidly than and
superior to those of our competitors, educate potential
customers as to the benefits of licensing our products rather
than purchasing or using competing technologies and develop
additional channels to market. 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 to compete with our products. 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 may
face additional competition from these companies in the future.
Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could
adversely affect our business and operating results.
Seasonality
As is typical for many large software companies, our business is
seasonal. Software license orders are generally higher in our
fourth fiscal quarter and lower in our first fiscal quarter,
with a significant decline in license orders in the first
quarter of a fiscal year when compared to license orders in the
fourth quarter of the prior fiscal year. In addition, we
generally receive a higher volume of software license orders in
the last month of a quarter, with orders concentrated in the
later part of that month. We believe that this seasonality
primarily reflects customer spending patterns and budget cycles,
as well as the impact of compensation incentive plans for our
sales personnel. Software license revenue generally reflects
similar seasonal patterns but to a lesser extent than license
orders because not all orders received during a quarter are
shipped during that quarter, and license revenue is not
recognized until an order is shipped and other revenue
recognition criteria are met.
Unfilled License Orders and Deferred Revenue
Unfilled license orders, which represent an unaudited operating
measure, were approximately $83.2 million and
$96.4 million at December 31, 2004 and 2003,
respectively. Unfilled license orders represent cancelable and
non-cancelable license orders that have been received from our
customers for the license of our software products but have not
been shipped as of the end of the applicable fiscal period. We
generally ship our software products within 30 days after
acceptance of customer orders. In some cases, we have discretion
over the timing of product shipments, which affects the timing
of revenue recognition for software license orders. In those
cases, we consider a number of factors, including: the effect of
the related license revenue on our business plan; the delivery
dates requested by customers and resellers; the amount of
software license orders received in the quarter; the amount of
software license orders shipped in the quarter; the degree to
which software license orders received are concentrated at the
end of the quarter; and our operational capacity to fulfill
software license orders at the end of the quarter. We do not
believe that unfilled license orders are a consistent or
reliable indicator of future results.
Deferred license revenue was approximately $13.8 million
and $11.6 million at December 31, 2004 and 2003,
respectively. Deferred license revenue represents license orders
for our software products that have been billed to and paid by
our customers and for which revenue will generally be earned
within the next year. Deferred license revenue excludes license
orders that have not been paid by our customers and that do not
otherwise satisfy our revenue recognition criteria; these
license orders were approximately $14.6 million and
$15.5 million at December 31, 2004 and 2003,
respectively.
Deferred services revenue was approximately $534.1 million
and $387.2 million at December 31, 2004 and 2003,
respectively. Maintenance and technical support is generally
recognized over the maintenance and support period of twelve
months. Education or consulting services are generally
recognized over the period the specific services are delivered.
The increase in deferred services revenue is the result of
significant growth in our installed base of customers under
software maintenance and technical support contracts and our
continued focus on maintenance and technical support contract
renewals.
10
Research and Development
Our research and development efforts have been directed toward
developing new products for Linux, NetWare, UNIX and Windows,
developing new features and functionality for existing products,
integrating products across our existing product lines, porting
new and existing products to different operating systems and
expanding our product portfolio into new markets such as e-mail
archiving, application performance management, server
provisioning and centralized service level management.
Our major research and development initiatives include:
|
|
|
| |
• |
Continued focus on operating system platform expansion.
We have successfully ported the majority of our traditional
storage software and enterprise data protection products to
Linux, NetWare, UNIX and Windows and are seeing increased
acceptance of new platform offerings in the marketplace. In
particular, we are increasing our investment in products for
servers based on Intel architecture that we believe will be
important to future data center architectures. |
| |
| |
• |
New utility computing infrastructure products, including
server provisioning, clustering, application performance
management and service level management. Our current product
offerings contain many best-of-class products that serve as
building blocks that enable customers to adopt a utility
computing model. These products are also unique in their level
of heterogeneous platform, application and database support.
Future investment is focused on both creating new best-in-class
building blocks as we better understand customer utility
computing requirements and increasingly integrating these
components to provide solution suites that automate IT
processes, enable dynamic reconfiguration of the data centers
and define, measure and enforce service level agreements. |
| |
| |
• |
Replication, storage resource management and next generation
virtualization technology. During 2004, we saw increased
acceptance of our replication and storage resource management
solutions. Our unique replication approach enables customers to
implement data recovery solutions at a much lower cost than
traditional array-based approaches and we are increasingly
integrating this function into our clustering and data
protection technologies to simplify customer deployments. Our
focus in storage resource management is to develop, acquire and
integrate technology into a single suite for both storage area
network management and business level reporting for data
centers, and to increase distribution of low-end solutions for
high volume servers in medium-sized businesses and remote
offices. |
| |
| |
• |
New data protection technologies for disk-based data
protection, regulatory compliance and disaster recovery.
VERITAS NetBackup 5.0, released in the fourth quarter of 2003,
added significant new capabilities that enable customers to
leverage increasingly inexpensive disk technology to protect
their data as a complement to traditional tape based
methodologies. With the acquisition of KVS in September 2004, we
acquired an e-mail archiving software product called Enterprise
Vault. VERITAS Enterprise Vault provides a flexible,
software-based archiving framework to enable the discovery of
content held within Microsoft Exchange, Microsoft SharePoint
Portal Server and Microsoft file system environments, while
reducing storage costs and simplifying management. |
| |
| |
• |
Local language support. We continue to focus on providing
local language support for our traditional storage software and
enterprise data protection products to increase the acceptance
of these products in international markets. |
We had research and development expenses, exclusive of
in-process research and development associated with
acquisitions, of $346.6 million in 2004,
$301.9 million in 2003 and $274.9 million in 2002. We
believe that technical leadership is essential to our success
and we expect to continue to commit substantial resources to
research and development. 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 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.
11
Intellectual Property Rights
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. Our intellectual property is an
important and valuable asset that helps enable us to gain
recognition for our products, services and technology and
enhance our competitive position.
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 license agreements are generally non-transferable and have
a perpetual term. We also educate our employees on trade secret
protection and employ measures to protect our facilities,
equipment and networks.
|
|
|
Trademarks, Patents and Copyrights |
VERITAS and the VERITAS logo are trademarks or registered
trademarks in the United States and other countries. In addition
to VERITAS and the VERITAS logo, we have used, registered and/or
applied to register other specific trademarks and service marks
to help distinguish our products, technologies and services from
those of our competitors in the U.S. and foreign countries and
jurisdictions. We enforce our trademark, service mark and trade
name rights in the U.S. and abroad. The duration of our
trademark registrations varies from country to country and in
the U.S., we generally are able to maintain our trademark rights
and renew any trademark registrations for as long as the
trademarks are in use.
We have a number of U.S. and foreign issued patents and pending
patent applications, including patents and rights to patent
applications acquired through strategic transactions, which
relate to various aspects of our products and technology. The
duration of our patents is determined by the laws of the country
of issuance and for the U.S. is typically 17 years
from the date of issuance of the patent or 20 years from
the date of filing of the patent application resulting in the
patent, which we believe is adequate relative to the expected
lives of our products.
Our products are protected under U.S. and international
copyright laws and laws related to the protection of
intellectual property and proprietary information. We generally
take measures to label such products with the appropriate
proprietary rights notices and actively are enforcing such
rights in the U.S. and abroad. However, these measures may not
provide sufficient protection, and our intellectual property
rights may not be of commercial benefit to us or the validity of
these rights may be challenged. While we believe that our
ability to maintain and protect our intellectual property rights
is important to our success, we also believe that our business
as a whole is not materially dependent on any particular patent,
trademark, license or other intellectual property right.
Employees
As of December 31, 2004, we had 7,587 employees, including
2,312 employees in research and development, 4,178 in sales,
marketing, consulting, customer support and strategic
initiatives and 1,097 in general and administrative services. We
have not entered into any collective bargaining agreements 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.
Other Information
Our Internet website is located at http://www.veritas.com. We
make available free of charge on our website our annual report
on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
Securities and
12
Exchange Commission, or SEC. Other than the information
expressly set forth in this annual report, the information
contained, or referred to, on our website is not a part of this
annual report.
The public may also read and copy any materials we file with the
SEC at the SEC’s Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an
Internet website at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding
issuers, such as us, that file electronically with the SEC.
Our properties consist primarily of leased office facilities for
sales, research and development, consulting and administrative
personnel. Our corporate headquarters consist of approximately
425,000 square feet located in Mountain View, California.
Most of our facilities are occupied under leases that expire at
various times through 2022. The table below shows the
approximate square footage of the facilities that we leased as
of December 31, 2004 in the U.S. and abroad, excluding
approximately 31 executive suites in North America, 17 in
Europe, and 13 in Asia.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Approximate Total | |
|
Leased Square | |
|
Owned Square | |
| Location |
|
Square Footage(1) | |
|
Footage | |
|
Footage | |
| |
|
| |
|
| |
|
| |
|
United States
|
|
|
2,038,674 |
|
|
|
942,579 |
|
|
|
1,096,095 |
|
|
Canada
|
|
|
43,090 |
|
|
|
43,090 |
|
|
|
0 |
|
|
Europe/ Middle East/ Africa
|
|
|
479,379 |
|
|
|
479,379 |
|
|
|
0 |
|
|
Asia/ Australia
|
|
|
406,443 |
|
|
|
401,281 |
|
|
|
5,162 |
|
|
South America
|
|
|
15,891 |
|
|
|
15,891 |
|
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
2,983,477 |
|
|
|
1,882,220 |
|
|
|
1,101,257 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Total square footage excludes approximately 138,090 square
feet of space in the U.S. and 28,815 square feet of space
in Europe that we sublease to third parties. |
We believe our existing and planned facilities will be suitable
for our needs. See Note 8, “Accrued Acquisition and
Restructuring Costs” of the Notes to Consolidated Financial
Statements for information regarding our facility restructuring
plan approved in the fourth quarter of 2002, Note 10,
“Long-Term Debt” of the Notes to Consolidated
Financial Statements for information regarding our three
build-to-suit lease agreements and Note 12,
“Commitments” of the Notes to Consolidated Financial
Statements for information regarding our operating lease
obligations.
In February 2005, our board of directors authorized the purchase
of the three properties subject to the build-to-suit lease
agreements. In March 2005, we acquired beneficial ownership of
the Mountain View, California, Milpitas, California and
Roseville, Minnesota properties, consisting of a total of
approximately 1,096,000 square feet, for an aggregate cash
purchase price of $384 million. As a result of these
transactions, we will continue to lease the properties from the
landlords, which are our wholly owned subsidiaries. We plan to
terminate the existing leases for each of these properties by
causing the landlords to transfer the properties to us for no
additional consideration.
|
|
| Item 3. |
Legal Proceedings |
SEC Related Matters
SEC Investigation. Since the third quarter of 2002, we
have received subpoenas issued by the Securities Exchange
Commission in the investigation entitled In the Matter of
AOL/ Time Warner. The SEC has requested information
concerning the facts and circumstances surrounding our
transactions with AOL Time Warner, or AOL, and related
accounting and disclosure matters. Our transactions with AOL,
entered into in September 2000, involved a software and services
purchase by AOL at a stated value of $50.0 million and the
purchase by us of advertising services from AOL at a stated
value of $20.0 million. In March 2003, we
13
restated our financial statements for 2001 and 2000 to reflect a
reduction in revenues and expenses of $20.0 million. The
restatement included an additional reduction in revenues and
expenses of $1.0 million related to two other
contemporaneous transactions with other parties entered into in
2000 that involved software licenses and the purchase of online
advertising services. In March 2005, the SEC charged AOL with
securities fraud pursuant to a complaint entitled Securities
and Exchange Commission v. Time Warner, Inc. In its
complaint, the SEC described certain transactions between AOL
and a “California-based software company that creates and
licenses data storage software” that appears to reference
our transactions with AOL as described above, and alleged that
AOL aided and abetted that California-based software company in
violating Section 10(b) of the Securities Exchange Act of
1934 and Exchange Act Rule 10b-5.
In March 2004, we announced our intention to restate our
financial statements for 2002 and 2001 and revise our previously
announced financial results for 2003. The decision resulted from
the findings of an investigation into past accounting practices
that concluded on March 12, 2004. The investigation
resulted from concerns raised by an employee in late 2003, which
led to a detailed review of the matter in accordance with our
corporate governance processes, including the reporting of the
matter to the audit committee of our board of directors, and to
KPMG LLP, our independent registered public accounting firm. The
audit committee retained independent counsel to investigate
issues relating to these past accounting practices, and the
audit committee’s counsel retained independent accountants
to assist with the investigation. In the first quarter of 2004,
we voluntarily disclosed to the staff of the SEC past accounting
practices applicable to our 2002 and 2001 financial statements
that were not in compliance with GAAP.
We and our audit committee continue to cooperate with the SEC in
its review of these matters. At this time, we cannot predict the
outcome of the SEC’s review.
Litigation
After we announced in January 2003 that we would restate our
financial results as a result of transactions entered into with
AOL in September 2000, numerous separate complaints purporting
to be class actions were filed in the United States District
Court for the Northern District of California alleging that we
and some of our officers and directors violated provisions of
the Securities Exchange Act of 1934. The complaints contain
varying allegations, including that we made materially false and
misleading statements with respect to our 2000, 2001 and 2002
financial results included in our filings with the SEC, press
releases and other public disclosures. On May 2, 2003, a
lead plaintiff and lead counsel were appointed. A consolidated
complaint entitled In Re VERITAS Software Corporation
Securities Litigation was filed by the lead plaintiff on
July 18, 2003. On February 18, 2005, the parties filed
a Stipulation of Settlement in the class action. On
March 18, 2005, the Court entered an order preliminarily
approving the class action settlement. Pursuant to the terms of
the settlement, a $35.0 million settlement fund was
established on March 25, 2005. Our insurance carriers
funded $24.9 million of the settlement fund, and we funded
$10.1 million of the settlement fund, which one of our insurance
companies is obligated to repay to us on or before
April 15, 2005.
In 2003, several complaints purporting to be derivative actions
were filed in California Superior Court against some of our
directors and officers. These complaints are generally based on
the same facts and circumstances alleged in In Re VERITAS
Software Corporation Securities Litigation, referenced
above, and allege that the named directors and officers breached
their fiduciary duties by failing to oversee adequately our
financial reporting. The state court complaints were
consolidated into the action In Re VERITAS Software
Corporation Derivative Litigation, which was filed on
May 8, 2003 in the Superior Court of Santa Clara
County. On January 26, 2005, the parties to the derivative
action filed a stipulation of settlement with the Superior Court
and the Court entered an order approving the stipulation of
settlement and dismissed the lawsuit with prejudice on
February 4, 2005.
On August 2, 2004, we received a copy of an amended
complaint in Stichting Pensioenfonds ABP v. AOL Time
Warner, et. al. in which we were named as a defendant. The
case was originally filed in the United States District Court
for the Southern District of New York in July 2003 against Time
Warner (formerly, AOL Time Warner), current and former officers
and directors of Time Warner and AOL, and Time Warner’s
outside auditor, Ernst & Young LLP. In adding us as a
defendant, the plaintiff alleges that we aided and
14
abetted AOL in alleged common law fraud and also alleges that we
engaged in common law fraud as part of a civil conspiracy. The
plaintiff seeks an unspecified amount of compensatory and
punitive damages. On November 22, 2004, we filed a motion
to dismiss in this action and the plaintiff filed its opposition
memoranda on March 4, 2005. The motion remains pending
before the Court.
On July 7, 2004, a purported class action complaint
entitled Paul Kuck, et al. v. VERITAS Software
Corporation, et al. was filed in the United States
District Court for the District of Delaware. The lawsuit alleges
violations of federal securities laws in connection with our
announcement on July 6, 2004 that we expected our results
of operations for the fiscal quarter ended June 30, 2004 to
fall below our earlier estimates. The complaint generally seeks
an unspecified amount of damages. Subsequently, additional
purported class action complaints have been filed in Delaware
federal court against the same defendants named in the Kuck
lawsuit. These complaints are based on the same facts and
circumstances as the Kuck lawsuit. On July 19, 2004,
defendants filed a motion to transfer venue from Delaware to the
Northern District of California. The Court denied the motion on
January 14, 2005, and denied our motion for reconsideration
of denial of transfer on March 2, 2005.
On December 17, 2004, a purported class action complaint
entitled Daniel Drotzman, et. al., v. Gary Bloom, et.
al., was filed in California Superior Court against the
VERITAS board of directors. The lawsuit alleged that defendants
breached their fiduciary duty by approving the merger agreement
VERITAS entered into with Symantec because they were allegedly
motivated to obtain indemnification agreements from Symantec in
connection with the Kuck securities class action described
above. The complaint generally sought an unspecified amount of
damages. Subsequently, an additional purported class action
complaint was filed in California state court against the same
defendants named in the Drotzman lawsuit. This complaint was
based on the same set of facts and circumstances as the Drotzman
lawsuit. On January 3, 2005, defendants filed demurrers to
both complaints requesting they be dismissed by the Court. On
February 15, 2005, plaintiffs filed a request for dismissal
without prejudice with the Court, which request was granted by
the Court on the same date.
The foregoing cases that have not been settled or dismissed are
still in the preliminary stages, and it is not possible for us
to quantify the extent of our potential liability, if any. An
unfavorable outcome in any of these matters could have a
material adverse effect on our business, financial condition,
results of operations and cash flow. In addition, defending any
litigation may be costly and divert management’s attention
from the day-to-day operations of our business.
In addition to the legal proceedings listed above, we are also
party to various other legal proceedings that have arisen in the
ordinary course of our business. While we currently believe that
the ultimate outcome of these proceedings, individually and in
the aggregate, will not have a material adverse effect on our
financial position or overall trends in results of operations,
litigation is subject to inherent uncertainties. Were an
unfavorable ruling to occur, there exists the possibility of a
material adverse impact on our results of operations and cash
flows for the period in which the ruling occurs. The estimate of
the potential impact on our financial position or overall
results of operations for the above discussed legal proceedings
could change in the future.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
During the fourth quarter of fiscal 2004, there were no
matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise.
15
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Price Range of Common Stock
Our common stock is currently listed on The Nasdaq National
Market under the symbol “VRTSE.” Prior to
April 5, 2005, our common stock was listed on The Nasdaq
National Market under the symbol “VRTS.”
Due to our inability to timely file this annual report on
Form 10-K, Nasdaq notified us on April 1, 2005 that
the trading symbol for our common stock would be changed from
“VRTS” to “VRTSE.” We delivered a written
submission to Nasdaq on March 31, 2005 detailing our plan
to remedy our noncompliance with Nasdaq requirements, and have
requested an exemption from the Nasdaq requirements until the
date of this filing. We believe that the trading symbol for our
common stock will be changed back to “VRTS” after
Nasdaq receives confirmation that we have remedied our filing
delinquency. However, there can be no assurance that Nasdaq will
grant our request for an exemption and continued listing on The
Nasdaq National Market.
The table below shows the range of high and low reported sale
prices on the Nasdaq National Market for our common stock for
the periods indicated.
| |
|
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
2005
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
29.28 |
|
|
$ |
21.88 |
|
|
2004
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
40.68 |
|
|
$ |
26.00 |
|
| |
Second Quarter
|
|
$ |
29.97 |
|
|
$ |
24.27 |
|
| |
Third Quarter
|
|
$ |
27.54 |
|
|
$ |
16.30 |
|
| |
Fourth Quarter
|
|
$ |
28.94 |
|
|
$ |
18.15 |
|
|
2003
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
20.45 |
|
|
$ |
15.55 |
|
| |
Second Quarter
|
|
$ |
30.71 |
|
|
$ |
17.40 |
|
| |
Third Quarter
|
|
$ |
36.96 |
|
|
$ |
26.51 |
|
| |
Fourth Quarter
|
|
$ |
39.40 |
|
|
$ |
31.32 |
|
As of March 31, 2005, there were approximately 3,862
holders of record of our common stock. Brokers and other
institutions hold many of our outstanding shares on behalf of
other stockholders.
Dividend Policy
We have never declared or paid any cash dividends on our capital
stock. We currently anticipate that we will retain any future
earnings to fund development and growth of our business and do
not anticipate paying any cash dividends in the foreseeable
future.
16
Issuer Purchases of Equity Securities
During 2004, we repurchased 13.0 million shares of our
common stock for an aggregate purchase price of
$250.0 million. The monthly repurchases of our common stock
during the fourth fiscal quarter of 2004 are set forth below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
(d) Maximum | |
| |
|
|
|
|
|
|
|
Number (or | |
| |
|
|
|
|
|
|
|
Approximate | |
| |
|
|
|
|
|
|
|
Dollar Value) | |
| |
|
|
|
|
|
(c) Total Number | |
|
of Shares that | |
| |
|
|
|
|
|
of Shares | |
|
May Yet Be | |
| |
|
(a) Total | |
|
|
|
Purchased as | |
|
Purchased | |
| |
|
Number of | |
|
(b) Average | |
|
Part of Publicly | |
|
Under the | |
| |
|
Shares | |
|
Price Paid | |
|
Announced Plans | |
|
Plans or | |
| Period |
|
Purchased | |
|
per Share | |
|
or Programs | |
|
Programs* | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Month 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1 through October 31, 2004
|
|
|
7,624 |
|
|
$ |
20.42 |
|
|
|
7,624 |
|
|
$ |
250,009 |
|
|
Month 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1 through November 30, 2004
|
|
|
— |
|
|
|
N/A |
|
|
|
— |
|
|
$ |
250,009 |
|
|
Month 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 through December 31, 2004
|
|
|
— |
|
|
|
N/A |
|
|
|
— |
|
|
$ |
250,009 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,624 |
|
|
$ |
20.42 |
|
|
|
7,624 |
|
|
$ |
250,009 |
|
|
|
| * |
On July 27, 2004, we issued a press release announcing that
in July 2004, our board of directors had approved a stock
repurchase program. Under the stock repurchase program, we are
authorized to repurchase up to $500 million of our common
stock over a 12 to 18 month period beginning July 2004. |
|
|
| Item 6. |
Selected Financial Data |
The following selected consolidated financial data has been
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, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
|
|
|
|
(Unaudited) | |
| |
|
(In thousands, except per share data) | |
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
|
$ |
2,041,874 |
|
|
$ |
1,747,087 |
|
|
$ |
1,505,998 |
|
|
$ |
1,489,225 |
|
|
$ |
1,190,114 |
|
|
Amortization of developed technology
|
|
|
19,583 |
|
|
|
35,267 |
|
|
|
66,917 |
|
|
|
63,086 |
|
|
|
62,054 |
|
|
Amortization of goodwill and other intangibles(1)
|
|
|
9,201 |
|
|
|
35,249 |
|
|
|
72,064 |
|
|
|
885,397 |
|
|
|
878,050 |
|
|
Stock-based compensation(2)
|
|
|
11,363 |
|
|
|
2,680 |
|
|
|
435 |
|
|
|
8,079 |
|
|
|
— |
|
|
Restructuring costs (reversals), net(3)
|
|
|
(9,648 |
) |
|
|
— |
|
|
|
99,308 |
|
|
|
— |
|
|
|
(4,440 |
) |
|
In-process research and development(4)
|
|
|
11,900 |
|
|
|
19,400 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Income (loss) from operations
|
|
|
551,357 |
|
|
|
386,985 |
|
|
|
129,369 |
|
|
|
(536,810 |
) |
|
|
(555,804 |
) |
|
Income (loss) before cumulative effect of change in accounting
principle(5)
|
|
|
411,411 |
|
|
|
353,722 |
|
|
|
58,266 |
|
|
|
(635,791 |
) |
|
|
(620,131 |
) |
17
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
|
|
|
|
(Unaudited) | |
| |
|
(In thousands, except per share data) | |
|
Cumulative effect of change in accounting principle, net of
tax(6)
|
|
|
— |
|
|
|
(6,249 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income (loss)
|
|
$ |
411,411 |
|
|
$ |
347,473 |
|
|
$ |
58,266 |
|
|
$ |
(635,791 |
) |
|
$ |
(620,131 |
) |
|
Income (loss) per share before cumulative effect of change in
accounting principle — basic
|
|
$ |
0.96 |
|
|
$ |
0.84 |
|
|
$ |
0.14 |
|
|
$ |
(1.59 |
) |
|
$ |
(1.55 |
) |
|
Income (loss) per share before cumulative effect of change in
accounting principle — diluted
|
|
$ |
0.94 |
|
|
$ |
0.81 |
|
|
$ |
0.14 |
|
|
$ |
(1.59 |
) |
|
$ |
(1.55 |
) |
|
Cumulative effect of change in accounting principle per
share — basic
|
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Cumulative effect of change in accounting principle per
share — diluted
|
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Net income (loss) per share — basic
|
|
$ |
0.96 |
|
|
$ |
0.83 |
|
|
$ |
0.14 |
|
|
$ |
(1.59 |
) |
|
$ |
(1.55 |
) |
|
Net income (loss) per share — diluted
|
|
$ |
0.94 |
|
|
$ |
0.80 |
|
|
$ |
0.14 |
|
|
$ |
(1.59 |
) |
|
$ |
(1.55 |
) |
|
Number of shares used in computing per share amounts —
basic
|
|
|
429,873 |
|
|
|
420,754 |
|
|
|
409,523 |
|
|
|
399,016 |
|
|
|
400,034 |
|
|
Number of shares used in computing per share amounts —
diluted
|
|
|
438,966 |
|
|
|
434,446 |
|
|
|
418,959 |
|
|
|
399,016 |
|
|
|
400,034 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
|
|
|
|
(Unaudited) | |
| |
|
(In thousands) | |
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and investments
|
|
$ |
2,553,200 |
|
|
$ |
2,503,015 |
|
|
$ |
2,241,321 |
|
|
$ |
1,687,936 |
|
|
$ |
1,255,109 |
|
|
Working capital
|
|
|
1,728,765 |
|
|
|
2,043,547 |
|
|
|
1,905,752 |
|
|
|
1,566,977 |
|
|
|
1,066,223 |
|
|
Total assets(6)
|
|
|
5,888,559 |
|
|
|
5,348,466 |
|
|
|
4,199,335 |
|
|
|
3,780,329 |
|
|
|
4,061,196 |
|
|
Long-term debt obligations(6)
|
|
|
524,141 |
|
|
|
905,209 |
|
|
|
465,252 |
|
|
|
444,408 |
|
|
|
429,176 |
|
|
Accumulated deficit
|
|
|
(966,665 |
) |
|
|
(1,378,076 |
) |
|
|
(1,725,549 |
) |
|
|
(1,783,815 |
) |
|
|
(1,148,024 |
) |
|
Stockholders’ equity
|
|
|
3,923,691 |
|
|
|
3,543,594 |
|
|
|
2,902,991 |
|
|
|
2,741,042 |
|
|
|
2,986,636 |
|
|
|
| (1) |
In 1999, we acquired three companies which we accounted for
using the purchase method of accounting, and accordingly, we
recorded developed technology, goodwill and other intangible
assets of $3,752.0 million. Until December 31, 2001,
these assets were being amortized over their estimated useful
life of four years, and resulted in amortization charges of
approximately $236 million per quarter. On January 1,
2002, upon adoption of newly issued Statement of Accounting
Standards, or SFAS, No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets, the total quarterly charges related to the
amortization of goodwill and other intangibles decreased as we
no longer amortize goodwill. |
| |
| (2) |
In 2004, we recorded $11.4 million of stock-based
compensation primarily related to grants of restricted stock
units, the modification of certain stock options and the
compensation expense associated with the 2004 acquisition of KVS
and 2003 acquisitions of Jareva and Precise. In 2003, we
recorded $2.7 million of stock- based compensation
primarily related to the January 2003 acquisition of Jareva and
the June |
18
|
|
|
2003 acquisition of Precise. In 2001, we recorded a stock-based
compensation charge of $8.1 million primarily related to
the acceleration of certain stock options held by our former
chief executive officer. |
| |
| (3) |
In 2004, we acquired KVS and, as a result, reversed
$9.6 million of net restructuring costs related to
previously restructured facilities to be occupied by KVS
personnel. In 2002, we recorded a restructuring charge of
approximately $99.3 million related primarily to our
facility restructuring plan to exit and consolidate certain of
our worldwide facilities. In 1999, we recorded a restructuring
charge of $11.0 million related primarily to costs for our
duplicative facilities that we planned to vacate, of which
$4.4 million was reversed in 2000 as a result of lower
actual exit costs than originally estimated with respect to our
duplicative facilities. |
| |
| (4) |
In 2004, we recorded non-cash charges of $11.9 million
related to the write-off of in-process research and development
for the acquisitions of KVS and Ejasent. In 2003, we recorded
non-cash charges of $19.4 million related to the write-off
of in-process research and development for two acquisitions. |
| |
| (5) |
Income before cumulative effect of change in accounting
principle for the year ended December 31, 2003 included an
adjustment for an income tax benefit of $95.1 million
related to the March 15, 2004 settlement of certain tax
audits associated with our 2000 acquisition of Seagate
Technology. |
| |
| (6) |
In July 2003, we adopted Financial Accounting Standards Board
Interpretation Number, or FIN, 46, Consolidation of Variable
Interest Entities, which required us to consolidate our
variable interest entities into our financial statements. As a
result of consolidating these entities in the third quarter of
2003, we reported a cumulative effect of change in accounting
principle in accordance with Accounting Principles Board, or
APB, Opinion No. 20, Accounting Changes, with a
charge of $6.2 million which equals the amount of
depreciation expense that would have been recorded had these
variable interest entities been consolidated from the date the
properties were available for occupancy, net of tax. In
addition, on July 1, 2003, we recorded property and
equipment, net of accumulated depreciation, equal to
$366.8 million, long-term debt in the amount of
$369.2 million and non-controlling interest of
$11.4 million for a total of $380.6 million of
long-term debt included on the balance sheet. In 2004, the
long-term debt was reclassified to short-term because the
remaining lease terms for the applicable properties became less
than one year. |
|
|
| 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 within the meaning of the Securities Exchange Act of
1934 and the Securities Act of 1933 that involve risks and
uncertainties. These forward-looking statements include
statements about our revenue, revenue mix, gross margin,
operating expense levels, financial outlook, commitments under
existing leases, research and development initiatives, sales and
marketing initiatives, competition and continued listing on
Nasdaq. In some cases, forward-looking statements are identified
by words such as “believe,” “anticipate,”
“expect,” “intend,” “plan,”
“will,” “may” and similar expressions. You
should not place undue reliance on these forward-looking
statements, which speak only as of the date of this annual
report. All of 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 captioned “Factors That May
Affect Future Results” below, and elsewhere in this annual
report. 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 filings with the Securities and Exchange
Commission, that attempt to advise you of the risks and factors
that may affect our future results.
Merger of VERITAS Software Corporation with Symantec
Corporation
On December 16, 2004, VERITAS Software Corporation and Symantec
Corporation announced that the companies had entered into a
definitive agreement to merge in an all-stock transaction. Under
the agreement, which has been unanimously approved by both
boards of directors, our stock will be converted into Symantec
stock at a fixed exchange ratio of 1.1242 shares of
Symantec common stock for each outstanding share of our common
stock. Upon closing, Symantec stockholders will own
approximately 60 percent and our stockholders will own
approximately 40 percent of the combined company.
Completion of the merger is subject to
19
customary closing conditions that include receipt of required
approvals from VERITAS and Symantec stockholders and receipt of
required regulatory approvals. The merger, which is expected to
close in the second calendar quarter of 2005, may not be
completed if any of the conditions are not satisfied or waived.
Under terms specified in the merger agreement, VERITAS or
Symantec may terminate the agreement, and, as a result, either
VERITAS or Symantec may be required to pay a $440 million
termination fee to the other party in certain circumstances.
Unless otherwise indicated, the discussions in this document
relate to VERITAS as a stand-alone entity and do not reflect the
impact of the proposed merger with Symantec. For additional
information regarding the proposed merger, please refer to the
Form S-4 (File No. 333-122724), containing a
preliminary joint proxy statement/ prospectus in connection with
the proposed merger, filed by Symantec on February 11, 2005.
Overview
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations, or MD&A, is
intended to help the reader understand our company’s
historical results and anticipated future outlook prior to the
close of the proposed merger with Symantec, which is expected to
occur in the second calendar quarter 2005. MD&A is provided
as a supplement to — and should be read in conjunction
with — our consolidated financial statements and
accompanying notes.
VERITAS is a leading independent supplier of storage and
infrastructure software products and services. Our software
products operate across a variety of computing environments,
from personal computers, or PCs, and workgroup servers to
enterprise servers and networking platforms in corporate data
centers to protect, archive and recover business-critical data,
provide high levels of application availability, enhance and
tune system and application performance to define and meet
service levels and enable recovery from disasters. Our solutions
enable businesses to reduce costs by efficiently and effectively
managing their information technology, or IT, infrastructure as
they seek to maximize value from their IT investments.
We generate revenues, income and cash flows by licensing
software products and selling related services to our customers,
which include many leading global corporations and small and
medium-sized enterprises around the world operating in a wide
variety of industries. We market our products and related
services both directly to end-users and through a variety of
indirect sales channels, which include value added resellers, or
VARs, distributors, system integrators, or SIs, and original
equipment manufacturers, or OEMs. Specifically, the channel mix
for 2004 was 58% from sales to end-users and through VARs, and
42% from other indirect sales channels, which includes 11%
from our OEM partners.
We invest significantly in research and development activities
and in 2004 we spent $346.6 million on research and
development. Our research and development efforts have been
directed toward developing new products for Linux, NetWare, UNIX
and Windows, developing new features and functionality for
existing products, integrating products across our existing
product lines, porting new and existing products to different
operating systems and expanding our product portfolio into new
markets such as email archiving, application performance
management, server provisioning and centralized service level
management.
Our strategy is to continue to compete in our current markets
while expanding and integrating our product portfolio in the
area of utility computing infrastructure, to continue to expand
our product offerings across key operating system platforms,
including Linux, NetWare, UNIX and Windows, and to continue to
invest for growth in international markets.
We have historically grown the company organically and through
acquisitions. In January 2004, we completed the acquisition of
Ejasent, Inc., which added application migration technology to
our utility computing infrastructure. In July 2004, we completed
the acquisition of Invio Software, Inc., which added IT process
automation technology to our Utility Computing Infrastructure
portfolio. Then in September 2004, we
20
completed the acquisition of KVault Software Limited, or KVS,
which added e-mail archiving software to our Data Protection
product line.
In 2004, revenue from international sales, consisting of sales
of license and services to customers located outside the United
States, was $852.9 million, up 35% from 2003, and
represented 42% of our total net revenue. In 2003, revenue from
international sales was $633.5 million, up 29% from 2002,
and represented 36% of our total revenue. This growth is
primarily the result of our increased sales investment in our
international geographies, market strength in the emerging
market areas in Europe and Asia and a favorable impact of
changes in foreign currency exchange rates related to the weaker
U.S. dollar. We expect to continue to grow international
revenue faster than total revenue by increasing the size and
breadth of our international operations.
In 2004, we experienced stronger IT spending in our customer
base internationally, resulting in stronger demand for our
products and growth in our user license fees compared to 2003.
The acquisitions of KVS and Precise and the integration of the
acquired products into our product offerings contributed to our
growth, as did our increased sales penetration in international
markets and the favorable impact of changes in foreign currency
exchange rates. Additionally, our services revenue grew
significantly due to new service contracts associated with user
license fees as well as our success in increasing support
contract renewals within our customer base. For fiscal 2004,
total revenue from sales in the U.S. increased 7% from 2003
and represented 58% of our total revenue for 2004 compared to
64% in 2003.
Net revenue and net income per share are key measurements of our
financial condition. For fiscal 2004, net revenue was
$2,041.9 million, an increase of 17% from 2003. Revenue
from user license fees was $1,191.1 million, an increase of
9% from 2003 and representing 58% of total revenue. Services
revenue in 2004 was $850.8 million, an increase of 30% from
2003, and representing 42% of total net revenue. Diluted net
income per share was $0.94 in 2004, up from $0.80 in 2003, as a
result of earnings leverage from revenue growth and also due to
the restructuring reversal in 2004, gains on strategic
investments in 2004, the loss on extinguishment of debt in 2003,
the cumulative effect of change in accounting principle in 2003
and a reduction in acquisition-related expenses, such as
amortization of intangibles and in-process research and
development in 2004 offset by the impact of the settlement in
2003 of tax audits relating to our 2000 acquisition of Seagate.
We continue to generate cash from operations and retain a
significant balance of cash, cash equivalents and short-term
investments. As of December 31, 2004, we had
$2,553.2 million in cash, cash equivalents and short-term
investments, which represented approximately 68% of our
tangible assets. We generated cash of approximately
$584.2 million from operating activities for the year ended
December 31, 2004. We utilize cash in ways that management
believes provides an optimal return on investment. Principal
uses of our cash for investing and financing activities include
acquisitions of businesses and technologies, repurchases of our
common stock and purchases of property and equipment.
Recent Acquisitions
In September 2004, we acquired KVS, a provider of e-mail
archiving products. We acquired KVS to expand our product
offerings in the storage software market to include products to
store, manage, backup and archive corporate e-mail and data. The
KVS acquisition included total purchase consideration of
$249.2 million. We have included the results of operations
of KVS in our consolidated financial statements beginning
September 21, 2004. In connection with the acquisition of
KVS, we allocated $11.5 million of the purchase price to
in-process research and development, or IPR&D, that had not
yet reached technological feasibility and had no alternative
future use. We have expensed this amount in our consolidated
statement of operations for the year ended December 31,
2004.
In July 2004, we acquired Invio Software, Inc., a privately held
supplier of IT process automation technology. We acquired Invio
to extend the capability of software products that enable
utility computing by offering customers a tool for standardizing
and automating IT service delivery in key areas such as storage
21
provisioning, server provisioning and data protection. The Invio
acquisition included purchase consideration of
$35.4 million. We have included the results of operations
of Invio in our consolidated financial statements beginning
July 15, 2004.
In January 2004, we acquired Ejasent, Inc., a privately held
provider of application virtualization technology for utility
computing. We acquired Ejasent to add important application
migration technology, which allows IT personnel to move an
application from one server to another without disrupting or
terminating the application. The Ejasent acquisition included
total purchase consideration of $61.2 million. We have
included the results of operations of Ejasent in our
consolidated financial statements beginning January 21,
2004. In connection with the acquisition of Ejasent, we
allocated $0.4 million of the purchase price to IPR&D
that had not yet reached technological feasibility and had no
alternative future use. We have expensed this amount in our
consolidated statement of operations for the year ended
December 31, 2004.
In June 2003, we acquired Precise Software Solutions Ltd., a
provider of application performance management products. We
acquired Precise to expand our product and service offerings
across storage, databases and application performance
management. The Precise acquisition included total purchase
consideration of $714.6 million. We have included the
results of operations of Precise in our consolidated financial
statements beginning July 1, 2003. In connection with the
acquisition of Precise, we allocated $15.3 million of the
purchase price to IPR&D that had not yet reached
technological feasibility and had no alternative future use. We
have expensed this amount in our consolidated statement of
operations for the year ended December 31, 2003.
In January 2003, we acquired Jareva Technologies, Inc., a
privately held provider of automated server provisioning
products that enable businesses to automatically deploy
additional servers without manual intervention. We acquired
Jareva to integrate its technology into our software products.
This technology enables our customers to optimize their
investments in server hardware by deploying new server resources
on demand. The Jareva acquisition included total purchase
consideration of $68.7 million. We have expensed the
acquired IPR&D of $4.1 million in our consolidated
statement of operations for the year ended December 31,
2003.
Critical Accounting Policies and Estimates
There are several accounting policies that are critical to
understanding our historical and future performance, because
these policies affect the reported amounts of revenue and other
significant areas in our reported financial statements and
involve management’s judgments and estimates. These
critical accounting policies and estimates include:
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• |
revenue recognition; |
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• |
restructuring expenses and related accruals; |
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• |
impairment of goodwill and long-lived assets; and |
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• |
accounting for income taxes. |
These policies and estimates and our procedures related to these
policies and estimates are described in detail below and under
specific areas within the discussion and analysis of our
financial condition and results of operations. Please refer to
Note 1, “Organization and Summary of Significant
Accounting Policies” in the Notes to Consolidated Financial
Statements for further discussion of our accounting policies and
estimates.
We make significant judgments related to revenue recognition.
For each arrangement, we make significant judgments regarding
the fair value of multiple elements contained in our
arrangements, judgments regarding whether our fees are fixed or
determinable and judgments regarding whether collection is
probable. We also make significant judgments when accounting for
concurrent transactions with our suppliers and in our accounting
for potential product returns. These judgments, and their effect
on revenue recognition, are discussed below.
22
|
|
|
Multiple Element Arrangements |
We typically enter into arrangements with customers that include
perpetual software licenses, maintenance and technical support.
Some arrangements may also include consulting and education
services. Software licenses are sold as site licenses or on a
per copy basis. Site licenses give customers the right to copy
licensed software on either a limited or unlimited basis during
a specified term. Per copy licenses give customers the right to
use a single copy of licensed software. We make judgments
regarding the fair value of each element in the arrangement and
generally account for each element separately.
Assuming all other revenue recognition criteria are met, license
revenue is recognized upon delivery using the residual method in
accordance with Statement of Position, or SOP, No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. Under the
residual method, we allocate and defer revenue for the
undelivered elements based on vendor-specific objective
evidence, or VSOE, of fair value, and recognize the difference
between the total arrangement fee and the amount deferred for
the undelivered elements as revenue. Undelivered elements
typically include maintenance and technical support, consulting
and education services. The determination of fair value of each
undelivered element in multiple element arrangements is based on
the price charged when the same element is sold separately. If
sufficient evidence of fair value cannot be determined for any
undelivered item, all revenue from the arrangement will be
deferred until VSOE of fair value can be established or until
all elements of the arrangement have been delivered. If the only
undelivered element is maintenance and technical support for
which we cannot establish VSOE, we will recognize the entire
arrangement fee ratably over the maintenance and support term.
Our VSOE of fair value for maintenance and technical support is
based upon stated renewal rates for site licenses and historical
renewal rates for per copy licenses. Maintenance and technical
support revenue is recognized ratably over the maintenance term.
Our VSOE of fair value for education services is based upon the
price charged when sold separately. Revenue is recognized when
the customer has completed the course. For annual education
passes, revenue is recognized ratably over the one-year term.
Our VSOE of fair value for consulting is based upon the price
charged when sold separately. Consulting revenue is recognized
as work is performed when reasonably dependable estimates can be
made of the extent of progress toward completion, contract
revenue and contract costs. Otherwise, consulting revenue is
recognized when the services are complete.
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The Fee is Fixed or Determinable |
We make judgments, at the outset of an arrangement, regarding
whether the fees are fixed or determinable. Our customary
payment terms are generally within 30 days after the
invoice date. Arrangements with payment terms extending beyond
90 days are not considered to be fixed or determinable, in
which case revenue is recognized as the fees become due and
payable.
We also make judgments at the outset of an arrangement regarding
whether collection is probable. Probability of collection is
assessed on a customer-by-customer basis. We typically sell to
customers with whom we have a history of successful collections.
New customers are subjected to a credit review process to
evaluate the customer’s financial position and ability to
pay. If it is determined at the outset of an arrangement that
collection is not probable, then revenue is recognized upon
receipt of payment.
We generally recognize revenue from licensing of software
products through our indirect sales channel upon sell-through or
when evidence of an end-user exists. For certain types of
customers, such as distributors, we recognize revenue upon
receipt of a point of sales report, which is our evidence that
the products have been sold through to an end-user. For
resellers, we recognize revenue when we obtain evidence that an
end-user exists, which is usually when the software is
delivered. For licensing of our software to original equipment
manufacturers, or OEMs, royalty revenue is recognized when the
OEM reports the sale of software to an end-
23
user customer, generally on a quarterly basis. In addition to
license royalties, some OEMs pay an annual flat fee and/or
support royalties for the right to sell maintenance and
technical support to the end-user. We recognize revenue from OEM
support royalties and fees ratably over the term of the support
agreement.
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|
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Transactions with our Suppliers |
Some of our customers are also our suppliers. Occasionally, in
the normal course of business, we purchase goods or services for
our operations from these suppliers at or about the same time we
license our software to them. We also have multi-year agreements
under which we receive sub-licensing royalty payments from OEMs
from whom we may also purchase goods or services. We identify
and review significant transactions to confirm that they are
separately negotiated at terms we consider to be arm’s
length. In cases where the transactions are not separately
negotiated, we apply the provisions of Accounting Principles
Board, or APB, Opinion No. Force Issue, or EITF, No. 01-02,
Interpretations of APB Opinion No. 29. If the fair
values are reasonably determinable, revenue is recorded at the
fair values of the products delivered or products or services
received, whichever is more readily determinable. If we cannot
determine fair value of either of the goods or services involved
within reasonable limits, we record the transaction on a net
basis. License revenue associated with software licenses entered
into with our suppliers at or about the same time that we
purchase goods or services from them is not material to our
consolidated financial statements.
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|
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Delivery of Software Products |
Our software may be physically delivered to our customers with
title transferred upon shipment to the customer. We may also
deliver our software electronically, by making it available for
download by our customers or by installation at the customer
site. We consider delivery complete when the software products
have been shipped and the customer has access to license keys.
If an arrangement includes an acceptance provision, we generally
defer the revenue and recognize it upon the earlier of receipt
of written customer acceptance or expiration of the acceptance
period.
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Product Returns and Exchanges |
Our license arrangements do not typically provide customers a
contractual right of return. Some of our sales programs allow
customers limited product exchange rights. We estimate potential
future product returns and exchanges and reduce current period
product revenue in accordance with SFAS No. 48,
Revenue Recognition When Right of Return Exists. Our
estimate is based on our analysis of historical returns and
exchanges. Actual returns may vary from estimates if we
experience a change in actual sales, returns or exchange
patterns due to unanticipated changes in products, competitive
or economic conditions.
Restructuring Expenses and
Related Accruals
We monitor and regularly evaluate our organizational structure
and associated operating expenses. Depending on events and
circumstances, we may decide to restructure our operations to
reduce operating costs.
We applied the provisions of EITF No. 94-3, Liability
Recognized for Certain Employee Termination Benefits and other
Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring), to all of our restructuring activities
initiated before January 1, 2003. For exit or disposal
activities initiated on or after January 1, 2003, we apply
the provisions of Statement of Financial Accounting Standards,
or SFAS, No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.
Our restructuring costs and any resulting accruals involve
significant estimates made by management using the best
information available at the time the estimates are made, some
of which may be provided by third parties. These estimates
include facility exit costs, such as lease termination costs,
and amount and timing of sublease income and related sublease
expense costs, such as brokerage fees.
We regularly evaluate a number of factors to determine the
appropriateness and reasonableness of our restructuring
accruals. These factors include, but are not limited to, our
ability to enter into sublease or lease
24
termination agreements and market data about lease rates, timing
and term of potential subleases and costs associated with
terminating certain leases on vacated facilities.
Our estimates involve a number of risks and uncertainties, some
of which are beyond our control, including future real estate
market conditions and our ability to successfully enter into
subleases or lease termination agreements upon terms as
favorable as those assumed under our restructuring plan. Actual
results may differ significantly from our estimates and may
require adjustments to our restructuring accruals and operating
results in future periods. For example, if the actual proceeds
from our sublease agreements were to differ by 10% from the
current estimate, our accrued acquisition and restructuring
costs balance as of December 31, 2004 would differ by
approximately $4 million.
Impairment of Goodwill and
Long-Lived Assets
In accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, we review our goodwill for impairment
annually or whenever events or changes in circumstances suggest
that the carrying amount may not be recoverable. We are required
to test our goodwill for impairment at the reporting unit level
and we have determined that we have only one reporting unit. The
test for goodwill impairment is a two-step process:
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|
| |
Step 1 — We compare the carrying amount of our
reporting unit, which is the book value of our entire company,
to the fair value of our reporting unit, which corresponds to
our market capitalization. If the carrying amount of our
reporting unit exceeds its fair value, we have to perform the
second step of the process. If not, no further work is required. |
| |
| |
Step 2 — We compare the implied fair value of our
reporting unit’s goodwill to its carrying amount. If the
carrying amount of our reporting unit’s goodwill exceeds
its fair value, an impairment loss will be recognized in an
amount equal to that excess. |
We completed this test during the fourth quarter of 2004 and
were not required to record an impairment loss on goodwill.
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets, we review our
long-lived assets, including property and equipment and other
intangibles, for impairment whenever events indicate that their
carrying amount may not be recoverable. When we determine that
one or more impairment indicators are present for an asset, we
compare the carrying amount of the asset to net future
undiscounted cash flows that the asset is expected to generate.
If the carrying amount of the asset is greater than the net
future undiscounted cash flows that the asset is expected to
generate, we would compare the fair value to the book value of
the asset. If the fair value is less than the book value, we
would recognize an impairment loss. The impairment loss would be
the excess of the carrying amount of the asset over its fair
value.
Some of the events that we consider as impairment indicators for
our long-lived assets, including goodwill, are:
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• |
significant under performance of our company relative to
expected operating results; |
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• |
our net book value compared to our market capitalization; |
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| |
• |
significant adverse economic and industry trends; |
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| |
• |
an adverse action or assessment by a regulator; |
| |
| |
• |
unanticipated competition; |
| |
| |
• |
a loss of key personnel; |
| |
| |
• |
significant decrease in the market value of the asset; |
| |
| |
• |
the extent to which we use an asset or changes in the manner
which we use it; and |
| |
| |
• |
significant changes to the asset since we acquired it. |
25
Significant assumptions and estimates are made when determining
if our goodwill or other long-lived assets have been impaired or
if there are indicators of impairment. We base our estimates on
assumptions that we believe to be reasonable, but actual future
results may differ from those estimates as our assumptions are
inherently unpredictable and uncertain. Our estimates include
estimates of future market growth and trends, forecasted revenue
and costs, expected periods of asset utilization, appropriate
discount rates and other variables.
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|
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Accounting for Income Taxes |
We are required to estimate our income taxes in each federal,
state and international jurisdiction in which we operate. This
process requires that we estimate the current tax exposure as
well as assess temporary differences between the accounting and
tax treatment of assets and liabilities, including items such as
accruals and allowances not currently deductible for tax
purposes. The income tax effects of the differences we identify
are classified as current or long-term deferred tax assets and
liabilities in our consolidated balance sheets. Our judgments,
assumptions and estimates relative to the current provision for
income tax take into account current tax laws, our
interpretation of current tax laws and possible outcomes of
current and future audits conducted by foreign and domestic tax
authorities. Changes in tax laws or our interpretation of tax
laws and the resolution of current and future tax audits could
significantly impact the amounts provided for income taxes in
our balance sheet and results of operations. We must also assess
the likelihood that deferred tax assets will be realized from
future taxable income and, based on this assessment, establish a
valuation allowance, if required. As of December 31, 2004,
we determined the valuation allowance to be $69.0 million
based upon uncertainties related to our ability to recover
certain deferred tax assets. These deferred tax assets are in
specific geographical or jurisdictional locations, are related
to losses on strategic investments that will only be realized
with the generation of future capital gains within a limited
time period or are net operating losses from acquired companies
that may be subject to significant annual limitation under
certain provisions of the Internal Revenue Code. Our
determination of our valuation allowance is based upon a number
of assumptions, judgments and estimates, including forecasted
earnings, future taxable income and the relative proportions of
revenue and income before taxes in the various domestic and
international jurisdictions in which we operate. Future results
may vary from these estimates, and at this time, we can not
determine if we will need to establish an additional valuation
allowance and if so, whether it would have a material impact on
our financial statements.
Results of Operations
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|
|
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|
2004 | |
|
2003 | |
|
2002 | |
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|
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|
| |
|
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|
(In millions, except percentages) | |
|
Net revenue
|
|
$ |
2,041.9 |
|
|
$ |
1,747.1 |
|
|
$ |
1,506.0 |
|
|
Percentage increase over prior period
|
|
|
17 |
% |
|
|
16 |
% |
|
|
|
|
In 2004, our total net revenue increased by $294.8 million
or 17% due primarily to the growth in user license fees which
grew by 9%, increased sales penetration of international markets
which grew by 35% and the continued growth of our services
businesses which grew by 30%. In 2003, our total net revenue
increased by $241.1 million or 16% due primarily to the
growth in user license fees which grew by 11%, increased sales
penetration of international markets which grew by 29% and the
continued growth of our services businesses which grew by 26%.
During 2004 and 2003, as part of our strategy to increase our
net revenue, we continued expanding our product portfolio and
offerings, expanded our capabilities across the multiple
platforms our software supports and continued to invest in sales
and service capacity internationally. In 2002, our total net
revenue was impacted by weak general economic and industry
conditions resulting in reduced capital spending by our
customers, which was partially offset by international growth in
user license fees and services revenue. While we believe that
the increase in total net revenue achieved in recent periods is
not necessarily indicative of future results, we expect total
net revenue to increase in 2005 assuming increased penetration
of international markets, the benefit of new product offerings
and continued growth of services revenue.
26
During 2004, we completed and recognized revenue for
77 direct transactions valued at over $1.0 million,
including related services, and 977 direct transactions
valued at over $100,000. During 2003 and 2002, we completed and
recognized revenue for 51 and 50 direct transactions valued
at over $1.0 million and 948 and 938 direct
transactions valued at over $100,000, respectively.
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International Sales and Operations |
We believe that a key component of our growth strategy is the
continued expansion of our international operations. We
currently have sales and services offices and resellers located
in Europe, Asia-Pacific and Japan, Latin America, Canada,
Africa and the Middle East, and research and development
centers in India, the United Kingdom, Israel, China and
Japan. Our international sales consist of sales of licenses and
services to customer locations outside the U.S. and are
generated primarily through our international sales
subsidiaries. International revenue, a majority of which is
collectible in foreign currencies, accounted for
approximately 42% of our total revenue in 2004, 36% of our
total revenue in 2003 and 32% of our total revenue in 2002. Our
international revenue increased 35% to $852.9 million
in 2004 from $633.5 million in 2003 and 29% in 2003 from
$489.3 million in 2002. During 2004 and 2003, we saw
continued strength in the emerging markets in Europe and
Asia-Pacific and Japan. Additionally, during 2004, our
international sales benefited from favorable foreign currency
exchange rate movements relative to the weaker U.S. dollar.
Excluding the benefit from foreign currency movement, the
increase in international sales would have been 26% from 2003 to
2004 and 20% from 2002 to 2003. We expect that our international
revenue will continue to increase in absolute dollars and as a
percent of total revenue in 2005 because of the continued
expansion of international markets and the focus and increased
investment by our company in these markets.
We market and distribute our software products both as
standalone software products and as integrated product suites.
We derive our user license fees from the licensing of our
technology, segregated into three product categories: Data
Protection, which includes our NetBackup, Backup Exec and
Enterprise Vault product families; Storage Management, which
includes our Storage Foundation, Replicator and storage resource
management product families; and Utility Computing
Infrastructure, which includes our Cluster Server,
CommandCentral, OpForce and
i3
product families.
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|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
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|
(In millions, except percentages) | |
|
User license fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Data protection
|
|
$ |
660.1 |
|
|
$ |
624.7 |
|
|
$ |
599.0 |
|
| |
Storage management
|
|
|
298.7 |
|
|
|
264.8 |
|
|
|
251.5 |
|
| |
Utility computing infrastructure
|
|
|
232.3 |
|
|
|
203.2 |
|
|
|
136.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total user license fees
|
|
$ |
1,191.1 |
|
|
$ |
1,092.7 |
|
|
$ |
986.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
As a percentage of user license fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Data protection
|
|
|
55 |
% |
|
|
57 |
% |
|
|
61 |
% |
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Storage management
|
|
|
25 |
|
|
|
24 |
|
|
|
25 |
|
| |
Utility computing infrastructure
|
|
|
20 |
|
|
|
19 |
|
|
|
14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total user license fees
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
|
As a percentage of total net revenue
|
|
|
58 |
% |
|
|
63 |
% |
|
|
66 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Percentage increase over prior period:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Data protection
|
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
| |
Storage management
|
|
|
13 |
|
|
|
5 |
|
|
|
|
|
| |
Utility computing infrastructure
|
|
|
14 |
|
|
|
49 |
|
|
|
|
|
| |
Total user license fees
|
|
|
9 |
|
|
|
11 |
|
|
|
|
|
27
During 2004, user license fees increased by $98.4 million
or 9% due primarily to increased user license fees in
Europe and international regions at 36% and 16%, respectively.
These increases were offset by a 5% decrease in
U.S. user license fees in 2004, primarily reflecting a
decrease in demand by the U.S. federal government, compared
to exceptional performance for that sector in 2003, and
weaker than expected license revenue in the U.S. enterprise
market in the second quarter of 2004. User license fees across
our data protection product category increased by
$35.4 million due primarily to increases in our core backup
family of products, including our NetBackup 5.0 which was
introduced during the fourth quarter of 2003. In addition, we
believe the anticipated announcement of our Backup Exec
10.0 product in January 2005 resulted in some purchase
delays for this product category in the fourth quarter. User
license fees across our storage management product category
increased $33.9 million due primarily to increases in
revenue related to our replication and storage resource
management products. User license fees across our utility
computing infrastructure product category increased by
$29.1 million due primarily to increases in revenue related
to clustering and Database Editions/ Advanced Cluster products.
During 2003, user license fees increased by $105.9 million
or 11% due to increases across each product category. User
license fees across our data protection product category
increased by $25.7 million due primarily to increases in
revenue related to our core backup family of products, including
our Backup Exec 9.0 which was introduced during the first
quarter of 2003 and NetBackup 5.0 which was introduced
during the fourth quarter of 2003. User license fees across our
storage management product category increased $13.3 million
due primarily to increases in revenue related to our replication
and storage resource management products. User license fees
across our utility computing infrastructure product category
increased by $66.9 million due primarily to the addition of
APM products as a result of our acquisition of Precise at
June 30, 2003 as well as from increases in revenue related
to clustering and Database Editions/ Advanced Cluster products.
User license fees from OEMs accounted for 12% of user license
fees for 2004 and 12% and 15% for 2003 and 2002, respectively.
The decreases in 2004 and 2003 compared to 2002 reflects reduced
hardware sales by OEMs as their customers reduced technology
spending as well as our focus on expanding direct and reseller
sales.
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|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Services revenue
|
|
$ |
850.8 |
|
|
$ |
654.4 |
|
|
$ |
519.2 |
|
|
As a percentage of total net revenue
|
|
|
42 |
% |
|
|
37 |
% |
|
|
34 |
% |
|
Percentage increase over prior period
|
|
|
30 |
% |
|
|
26 |
% |
|
|
|
|
We derive our services revenue primarily from contracts for
software maintenance and technical support and, to a lesser
extent, consulting and education services. The increase in 2004
and 2003 was due primarily to the increase in maintenance and
support contracts of 33% and 30%, respectively. During 2004, the
maintenance and support increase was primarily due to the
increase in renewals as result of a larger installed base of
customers and a greater focus on renewing customer support
contracts, particularly internationally. We expect our services
revenue to increase in absolute dollars and as a percentage of
net revenue as we continue to focus on increasing renewals of
maintenance and technical support contracts and on increasing
demand for our consulting and education and training services.
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|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Cost of revenue
|
|
$ |
327.0 |
|
|
$ |
313.6 |
|
|
$ |
305.6 |
|
|
As a percentage of total net revenue
|
|
|
16 |
% |
|
|
18 |
% |
|
|
20 |
% |
|
Percentage increase over prior period
|
|
|
4 |
% |
|
|
3 |
% |
|
|
|
|
Gross profit on user license fees, excluding amortization of
developed technology, is substantially higher than gross profit
on services revenue, reflecting the low materials, packaging and
other costs of software
28
products compared with the relatively high personnel costs
associated with providing maintenance and technical support,
consulting and education services. Cost of services varies
depending upon the mix of maintenance and technical support,
consulting and education services. We expect gross profit to
fluctuate in the future, reflecting changes in royalty rates on
licensed technologies, the mix of license and services revenue,
the timing of continued investment in our services organization
and the recognition of revenue that we expect as a result of
these investments.
|
|
|
Cost of User License Fees (including amortization of
developed technology) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Cost of user license fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
$ |
30.6 |
|
|
$ |
48.7 |
|
|
$ |
36.2 |
|
| |
Amortization of developed technology
|
|
|
19.6 |
|
|
|
35.3 |
|
|
|
66.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total cost of user license fees
|
|
$ |
50.2 |
|
|
$ |
84.0 |
|
|
$ |
103.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Percentage decrease over prior period
|
|
|
(40 |
)% |
|
|
(19 |
)% |
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees including amortization of developed technology
|
|
|
96 |
% |
|
|
92 |
% |
|
|
90 |
% |
Cost of user license fees consists primarily of amortization of
developed technology, royalties, media, manuals and distribution
costs. The amortization of developed technology is related
primarily to acquisitions completed during 1999, the first and
second quarters of 2003 and the first and third quarters of
2004. If we had excluded the amortization of developed
technology from the cost of user license fees, the gross profit
on user license fees would have been 97% in 2004 and 96% in 2003
and 2002. The gross profit on user license fees may vary from
period to period based on the license revenue mix because some
of our products carry higher royalty rates than others.
Excluding the amortization of developed technology, we expect
gross profit on user license fees to remain relatively constant
in 2005.
The decrease in amortization of developed technology in 2004 and
2003 from 2002 was primarily the result of the developed
technology related to our 1999 acquisitions reaching full
amortization in the second quarter of 2003. This decrease was
partially offset by the amortization of developed technology
related to the Ejasent, Invio and KVS acquisitions in 2004 and
the Jareva and Precise acquisitions in 2003. We expect
amortization of developed technology to be approximately
$7 million per quarter in 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Cost of services
|
|
$ |
276.9 |
|
|
$ |
229.5 |
|
|
$ |
202.5 |
|
|
Percentage increase over prior period
|
|
|
21 |
% |
|
|
13 |
% |
|
|
|
|
|
Gross profit
|
|
|
67 |
% |
|
|
65 |
% |
|
|
61 |
% |
Cost of services consists primarily of personnel-related costs
in providing maintenance and technical support, consulting and
education to customers. The gross profit improvement in 2004 and
2003 was primarily the result of the increase in maintenance and
support revenues of 33% and 30%, respectively, while related
expenses increased only 17% and 12%, respectively, as we
continued to take advantage of the economies of scale of the
larger installed customer base. We expect gross profit on
services revenue to remain stable or increase slightly in 2005.
29
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Selling and marketing
|
|
$ |
611.0 |
|
|
$ |
534.0 |
|
|
$ |
478.5 |
|
|
As a percentage of total net revenue
|
|
|
30 |
% |
|
|
31 |
% |
|
|
32 |
% |
|
Percentage increase over prior period
|
|
|
14 |
% |
|
|
12 |
% |
|
|
|
|
Selling and marketing expenses consist primarily of salaries,
related benefits, commissions, consultant fees and other costs
associated with our sales and marketing efforts. The increase in
2004 of $77.0 million was primarily the result of an
increase in sales commissions, compensation and benefit costs
due to an increase in sales and marketing personnel from 2,121
employees in 2003 to 2,364 employees in 2004 partially resulting
from our 2004 acquisitions, investments in sales capacity in our
international markets and higher sales commissions resulting
from the increase in total net revenues. The increase in 2003 of
$55.5 million was primarily the result of an increase in
sales commissions, compensation and benefit costs due to an
increase in sales and marketing personnel in 2003 partially
resulting from the Precise acquisition and higher sales
commissions resulting from the increase in user license
revenues. Our selling and marketing expenses remained relatively
consistent when measured as a percentage of net revenue. We
expect selling and marketing expenses to continue to grow in
absolute dollars, and to remain relatively constant as a
percentage of net revenue, for 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Research and development
|
|
$ |
346.6 |
|
|
$ |
301.9 |
|
|
$ |
274.9 |
|
|
As a percentage of total net revenue
|
|
|
17 |
% |
|
|
17 |
% |
|
|
18 |
% |
|
Percentage increase over prior period
|
|
|
15 |
% |
|
|
10 |
% |
|
|
|
|
Research and development expenses consist primarily of salaries,
related benefits, third-party consultant fees and other
engineering related costs. The increase of $44.7 million in
2004 was primarily the result of increases in compensation costs
from an increase in research and development personnel from
1,848 employees in 2003 to 2,312 employees in 2004. The 2003
increase of $27.0 million was due primarily to increased
compensation and benefits due to an increase in research and
development personnel and an increase in outside services used
to supplement engineering personnel. We believe that a
significant level of research and development investment is
required to remain competitive and we expect to continue to
invest in research and development in 2005 at current levels as
a percentage of net revenue.
|
|
|
General and Administrative |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
General and administrative
|
|
$ |
194.5 |
|
|
$ |
156.0 |
|
|
$ |
143.1 |
|
|
As a percentage of total net revenue
|
|
|
10 |
% |
|
|
9 |
% |
|
|
10 |
% |
|
Percentage increase over prior period
|
|
|
25 |
% |
|
|
9 |
% |
|
|
|
|
General and administrative expenses consist primarily of
salaries, related benefits and fees for professional services,
such as legal and accounting services. The increase of
$38.5 million in 2004 was primarily the result of an
increase in compensation and benefit costs due to an increase in
general and administrative personnel from 943 employees in 2003
to 1,097 employees in 2004, costs associated with our
restatement and compliance with our corporate governance
initiatives, including those required under the Sarbanes-Oxley
Act of 2002. The increase of $12.9 million in 2003 was
primarily the result of an increase in compensation and benefit
costs, depreciation expense as a result of consolidating certain
leased buildings (see “Liquidity and Capital
Resources” — “Long-Term Debt”), costs
associated with the SEC investigation (see Item 3.
“Legal Proceedings”) and compliance with our corporate
governance initiatives, including those requirements under
30
the Sarbanes-Oxley Act of 2002, partially offset by a decline in
bad debt expense. We expect general and administrative expenses
to decline slightly as a percentage of net revenue in 2005.
|
|
|
Amortization of Other Intangibles |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Amortization of other intangibles
|
|
$ |
9.2 |
|
|
$ |
35.2 |
|
|
$ |
72.1 |
|
|
As a percentage of total net revenue
|
|
|
— |
% |
|
|
2 |
% |
|
|
5 |
% |
|
Percentage decrease over prior period
|
|
|
(74 |
)% |
|
|
(51 |
)% |
|
|
|
|
Amortization of other intangibles principally represents
amortization of distribution channels, trademarks and other
intangibles related to acquisitions. The decrease in
amortization of other intangibles in 2004 and 2003 compared to
2002 was primarily due to other intangibles related to our 1999
acquisitions reaching full amortization during the second
quarter of 2003. The amortization of other intangibles includes
intangibles from the acquisitions of Jareva, Precise, Ejasent
and KVS which are being amortized over the estimated useful
lives of one to five years. We expect amortization of other
intangibles to be approximately $2 million per quarter in
2005.
|
|
|
In-Process Research and Development |
In connection with our acquisition of Ejasent in January 2004
and KVS in September 2004, we allocated $0.4 million and
$11.5 million, respectively, of the purchase price to
IPR&D, which represents technology we identified as having
not reached technological feasibility and having no alternative
future use. In connection with our acquisition of Jareva in
January 2003 and Precise in June 2003, we allocated
$4.1 million and $15.3 million, respectively, of the
purchase price to IPR&D.
|
|
|
Restructuring Costs (Reversals) |
In the third quarter of 2004, in connection with our acquisition
of KVS, we reversed $9.6 million of net accrued
restructuring costs related to previously restructured
facilities to be occupied by KVS personnel. In 2002, we recorded
a net facility restructuring charge to operating expenses of
$96.1 million under a plan, approved by our board of
directors, to exit and consolidate certain of our facilities
located in 17 metropolitan areas related to facilities that, as
of January 31, 2004, had all been vacated. We also recorded
net restructuring charges of $3.2 million related to
restructuring plans initiated prior to 2002.
|
|
|
Interest and Other Income, Net |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Interest and other income, net
|
|
$ |
52.8 |
|
|
$ |
43.6 |
|
|
$ |
41.7 |
|
|
As a percentage of total net revenue
|
|
|
3 |
% |
|
|
2 |
% |
|
|
3 |
% |
|
Percentage increase over prior period
|
|
|
21 |
% |
|
|
5 |
% |
|
|
|
|
Interest and other income, net, includes interest income and
realized gains and losses on our cash equivalents and
investments held and, to a lesser extent, foreign currency
exchange gains or losses. The increase in interest and other
income of $9.2 million in 2004 over 2003 was due primarily
to higher balances of cash, cash equivalents and short-term
investments held and higher interest rates in 2004. The increase
of $1.9 million in 2003 over 2002 was due primarily to
higher balances of cash, cash equivalents and short-term
investments held, partially offset by lower interest rates.
31
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Interest expense
|
|
$ |
24.4 |
|
|
$ |
30.4 |
|
|
$ |
30.3 |
|
|
As a percentage of total net revenue
|
|
|
1 |
% |
|
|
2 |
% |
|
|
2 |
% |
|
Percentage decrease over prior period
|
|
|
(20 |
)% |
|
|
— |
% |
|
|
|
|
Interest expense for 2004 consisted primarily of interest
recorded under the 0.25% convertible subordinated notes
issued in August 2003 and interest of approximately
$17 million per year, beginning in July 2003, as a result
of our adoption of FIN 46, Consolidation of Variable
Interest Entities, which required us to consolidate the
properties from our build-to-suit lease agreements and related
debt in our financial statements. Previously, interest on the
build-to-suit lease agreements was recorded as rent expense in
cost of revenue and operating expenses. Interest expense in 2003
also consisted of interest recorded under the
1.856% convertible subordinated notes issued in August 1999
that were partially redeemed for cash and partially converted to
common stock in August 2003, interest recorded under the
5.25% convertible subordinated notes issued in October 1997
that were converted to common stock in August 2003 and interest
on the build-to-suit lease agreements. We expect interest
expense in 2005 to be approximately $2 million per quarter
related to the interest on the 0.25% convertible
subordinated notes. In March 2005, we acquired beneficial
ownership of the Mountain View, California, Milpitas,
California, and Roseville, Minnesota properties for an aggregate
cash purchase price of approximately $384 million.
Accordingly, we expect interest expense in the first quarter of
2005 to be approximately $4 million for the debt related to
our build-to-suit properties.
|
|
|
Loss on Extinguishment of Debt |
In August 2003, we redeemed our outstanding
1.856% convertible subordinated notes for
$391.8 million in cash including $0.1 million of
accrued interest. In connection with this cash redemption, we
recorded a loss on extinguishment of debt of $4.7 million
representing the unamortized portion of debt issuance costs at
the time of redemption.
|
|
|
Gain (Loss) on Strategic Investments |
For 2004, we recognized a gain on strategic investments of
$9.5 million related to two of our investments. For 2003,
we recognized impairment losses of $3.5 million on our
strategic investments when we determined that there had been a
decline in the fair value of these investments that was
other-than-temporary. For 2002, we recognized impairment losses
of $14.8 million partially offset by a gain on strategic
investments of $3.0 million. The losses represented
write-downs of the carrying amount of our investments.
|
|
|
Provision for Income Taxes |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except percentages) | |
|
Provision for income taxes
|
|
$ |
177.9 |
|
|
$ |
38.2 |
|
|
$ |
70.8 |
|
|
Effective tax rate
|
|
|
30 |
% |
|
|
10 |
% |
|
|
55 |
% |
|
Percentage increase (decrease) over prior period
|
|
|
366 |
% |
|
|
(46 |
)% |
|
|
|
|
Our effective tax rate in 2004 and 2003 differed from the
combined federal and state statutory rates due primarily to the
tax effect of international operations. Income taxes in 2003
also includes a benefit of $95.1 million due to the
settlement of certain tax audits relating to our 2000
multi-party transaction with Seagate Technology, Inc. Excluding
the impact of the Seagate settlement, our effective tax rate
would have been approximately 34%. Our effective tax rate in
2002 differed from the combined federal and state statutory
rates due primarily to the tax effect of international
restructuring charges and losses on strategic investments for
which tax benefits were not realized, as well as the
amortization of intangible assets other than goodwill.
32
|
|
|
Cumulative Effect of Change in Accounting Principle, Net
of Tax |
As of December 31, 2004, we had three build-to-suit
operating leases, commonly referred to as synthetic leases,
which were entered into prior to February 1, 2003. Each
synthetic lease was owned by a trust that had no voting rights,
no employees, no financing activity other than the lease with
us, no ability to absorb losses and no right to participate in
gains realized on the sale of the related property. We have
determined that the trusts under the leasing structures
qualified as variable interest entities for purposes of
FIN 46, Consolidation of Variable Interest Entities.
Consequently, we were considered the primary beneficiary and
consolidated the trusts into our financial statements beginning
July 1, 2003. As a result of consolidating these entities
in the third quarter of 2003, we reported a cumulative effect of
change in accounting principle in accordance with APB Opinion
No. 20, Accounting Changes, with a charge of
$6.2 million which equals the amount of depreciation
expense that would have been recorded had these trusts been
consolidated from the date the properties were available for
occupancy, net of tax.
Accrued Acquisition and Restructuring Costs
In the fourth quarter of 2002, our board of directors approved a
facility restructuring plan to exit and consolidate certain of
our facilities located in 17 metropolitan areas worldwide. The
facility restructuring plan was adopted to address overcapacity
in our facilities as a result of lower than planned headcount
growth in these metropolitan areas. In connection with this
facility restructuring plan, we recorded a net restructuring
charge, or the 2002 Facility Accrual, to operating expenses of
$96.1 million in the fourth quarter of 2002. The 2002
Facility Accrual was originally comprised of
(i) $86.9 million associated with terminating and
satisfying remaining lease commitments, partially offset by
sublease income net of related sublease costs and
(ii) write-offs of $9.2 million for net assets.
In the third quarter of 2004, we acquired KVS and, as a result,
reversed $9.6 million of the 2002 Facility Accrual related
to previously restructured facilities to be occupied by KVS
personnel. In addition, cash outlays of $14.9 million and
the impact of foreign exchange rates of $1.1 million were
recognized in 2004. As of December 31, 2004, the remaining
balance of the 2002 Facility Accrual was $52.4 million.
Restructuring costs will be paid over the remaining lease terms,
ending at various dates through 2022, or over a shorter period
as we may negotiate with our lessors. The majority of costs are
expected to be paid by the year ending December 31, 2010.
We are in the process of seeking suitable subtenants for these
facilities. The estimates related to the 2002 Facility Accrual
may vary significantly depending, in part, on factors that are
beyond our control, including the commercial real estate market
in the applicable metropolitan areas, our ability to obtain
subleases related to these facilities and the time period to do
so, the sublease rental market rates and the outcome of
negotiations with lessors regarding terminations of some of the
leases. Adjustments to the 2002 Facility Accrual will be made if
actual lease exit costs or sublease income differ materially
from amounts currently expected. Because a portion of the 2002
Facility Accrual relates to international locations, the accrual
will be affected by exchange rate fluctuations.
As of December 31, 2004, accrued acquisition and
restructuring costs consisted of the 2002 Facility Accrual
discussed above, acquisition-related costs discussed in
Note 3 of the Notes to Consolidated Financial Statements
and other accrued acquisition and restructuring charges incurred
from 1999 through 2004, net of cash payments made.
33
The components of the accrued acquisition and restructuring
costs and movements within these components through
December 31, 2004 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Direct | |
|
Involuntary | |
|
|
|
|
|
|
| |
|
Transaction | |
|
Termination | |
|
Facility | |
|
Net Asset | |
|
|
| |
|
Costs | |
|
Benefits | |
|
Related Costs | |
|
Write-offs | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at December 31, 2002
|
|
$ |
1.0 |
|
|
$ |
— |
|
|
$ |
97.7 |
|
|
$ |
11.4 |
|
|
$ |
110.1 |
|
| |
Additions
|
|
|
9.5 |
|
|
|
0.4 |
|
|
|
6.1 |
|
|
|
— |
|
|
|
16.0 |
|
| |
Cash payments
|
|
|
(9.9 |
) |
|
|
(0.4 |
) |
|
|
(16.3 |
) |
|
|
— |
|
|
|
(26.6 |
) |
| |
Asset write-offs
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8.9 |
) |
|
|
(8.9 |
) |
| |
Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
0.8 |
|
|
|
(0.8 |
) |
|
|
— |
|
| |
Impact of exchange rates
|
|
|
— |
|
|
|
— |
|
|
|
3.1 |
|
|
|
0.4 |
|
|
|
3.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
0.6 |
|
|
|
— |
|
|
|
91.4 |
|
|
|
2.1 |
|
|
|
94.1 |
|
| |
Additions
|
|
|
6.0 |
|
|
|
11.3 |
|
|
|
2.1 |
|
|
|
— |
|
|
|
19.4 |
|
| |
Cash payments
|
|
|
(6.0 |
) |
|
|
(11.2 |
) |
|
|
(19.8 |
) |
|
|
— |
|
|
|
(37.0 |
) |
| |
Asset write-offs
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.1 |
) |
|
|
(2.1 |
) |
| |
Restructuring reversals, net
|
|
|
— |
|
|
|
— |
|
|
|
(9.6 |
) |
|
|
— |
|
|
|
(9.6 |
) |
| |
Adjustments
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
(0.6 |
) |
| |
Impact of exchange rates
|
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
|
|
— |
|
|
|
1.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
0.4 |
|
|
$ |
0.1 |
|
|
$ |
65.6 |
|
|
$ |
— |
|
|
$ |
66.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
See Note 1, “Organization and Summary of Significant
Accounting Policies” — “Recent Accounting
Pronouncements” in the Notes to Consolidated Financial
Statements for information regarding recent accounting
pronouncements.
Liquidity and Capital Resources
Our cash, cash equivalents and short-term investments totaled
$2,553.2 million at December 31, 2004 and represented
68% of our tangible assets. Our cash, cash equivalents and
short-term investments totaled $2,503.0 million at
December 31, 2003 and represented 71% of our tangible
assets. Cash and cash equivalents are highly liquid with
original maturities of 90 days or less. Short-term
investments consist mainly of commercial paper, auction market
securities, asset-backed securities, government securities
(taxable and non-taxable) and corporate notes.
Cash flows provided by operating activities decreased
$43.8 million for 2004 compared to 2003, due to higher net
income offset by lower non-cash charges in aggregate, including
amortization of developed technology and other intangibles and
write-off of in-process research and development in addition to
a significant increase in our accounts receivable balance. In
addition, there was a higher amount of cash paid for income
taxes for 2004 compared to 2003.
Cash flows provided by operating activities increased
$38.6 million for 2003 compared to 2002 due to
significantly higher net income offset by lower non-cash charges
such as amortization of developed technology and other
intangibles, a significant increase in our accounts receivable
balance and a decrease in our long-term deferred tax liability
related to the settlement of the federal tax liabilities
associated with the Seagate Technology transaction.
Cash flows used for investing activities included net purchases
of investments of $174.4 million for 2004 compared to
$87.6 million for 2003 and $321.7 million for 2002.
Purchases of property and equipment for 2004 increased by
$36.6 million over 2003 to $117.7 million and
decreased by $27.0 million over 2002 to
34
$81.2 million. In addition, purchases of businesses and
technology were $324.9 million for 2004, primarily related
to the acquisitions of Ejasent, Invio and KVS,
$400.2 million for 2003, primarily related to the
acquisitions of Jareva and Precise and $13.0 million for
2002 primarily related to the purchase of various technologies.
Cash flows from financing activities consisted primarily of
proceeds related to the issuance of common stock under our
employee stock plans of $122.3 million in 2004 compared to
$178.9 million in 2003 and $85.6 million in 2002
offset by $250.0 million for the repurchase of common stock
in 2004 and $316.2 million for the repurchase of common
stock in 2003. In addition, in 2003 we generated
$116.5 million of cash from the issuance of new convertible
subordinated notes, net of the redemption of the
then-outstanding convertible subordinated notes.
In July 2004, our board of directors authorized a program to
repurchase our common stock in an amount of up to
$500.0 million over the following 12 to 18 months. We
are authorized to purchase these shares of common stock from
time to time on the open market or in privately negotiated
transactions. Depending on market conditions and other factors,
these purchases may be commenced or suspended from time to time
without prior notice. The stock repurchase program is primarily
intended to reduce the dilution resulting from our employee
stock plans. Through December 31, 2004, we repurchased
13.0 million shares of common stock for an aggregate
purchase price of $250.0 million.
|
|
|
Convertible Subordinated Notes |
In August 2003, we issued $520.0 million of
0.25% convertible subordinated notes due August 1,
2013, or 0.25% Notes, for which we received net proceeds of
approximately $508.2 million, to several initial purchasers
in a private offering. The 0.25% Notes were issued at their
face value and provide for semi-annual interest payments of
$0.7 million each February 1 and August 1, beginning
February 1, 2004. Effective as of January 28, 2004,
the 0.25% Notes began accruing additional interest at a
rate of 0.25% per annum as a result of our registration
statement having not been declared effective by the SEC on or
before the 180th day following the original issuance of the
0.25% Notes and the 0.25% Notes continued to accrue
additional interest at that rate until April 27, 2004, the
90th day following such registration default. On April 27,
2004, the 0.25% Notes began to accrue additional interest
at a rate of 0.50% per annum and continued to accrue such
additional interest until November 24, 2004, the date on
which the registration statement was declared effective.
Effective as of January 30, 2005, the 0.25% Notes
began to accrue additional interest at a rate of 0.25% per
annum as a result of our registration statement having been
suspended by us beyond our permitted grace period. The
0.25% Notes will continue to accrue additional interest at
this rate until the suspension of our registration statement is
lifted and this rate will increase to 0.50% per annum if
the suspension has not been lifted by April 30, 2005. The
0.25% Notes are convertible, under specified circumstances,
into shares of our common stock at a conversion rate of
21.6802 shares per $1,000 principal amount of notes, which
is equivalent to a conversion price of approximately
$46.13 per share. Pursuant to the terms of a supplemental
indenture dated as of October 25, 2004, we will be required
to deliver cash to holders upon conversion, except to the extent
that our conversion obligation exceeds the principal amount of
the notes converted, in which case, we will have the option to
satisfy the excess (and only the excess) in cash and/or shares
of common stock. If our proposed merger with Symantec
Corporation is consummated, each $1,000 of notes will become
convertible, under specified circumstances, into
24.3729 shares of Symantec common stock. This amount is
equal to the current conversion rate of 21.6802 multiplied by
the exchange ratio in the proposed merger of 1.1242 shares
of Symantec common stock for each share of our common stock.
In August 2003, all of our outstanding 5.25% convertible
subordinated notes due 2004, or 5.25% Notes, converted into
6.7 million shares of common stock at a conversion price of
$9.56 per share. In August 2003, a portion of our
outstanding 1.856% convertible subordinated notes due 2006,
or 1.856% Notes, converted into 0.5 million shares of
common stock at an effective conversion price of $31.35 per
share. The remaining outstanding principal amount of the
1.856% Notes was redeemed in August 2003 for
$391.8 million in cash, including $0.1 million of
accrued interest. In connection with the redemption of the
1.856% Notes for cash, we recorded a loss on extinguishment
of debt of approximately $4.7 million in the third quarter
of 2003 related to
35
the unamortized portion of debt issuance costs. This charge is
classified as a non-operating expense in our consolidated
statement of operations.
At December 31, 2004, we had a ratio of long-term debt to
total capitalization of approximately 12%. The degree to which
we are 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 on our indebtedness, future capital expenditures and
any increased working capital requirements.
In 1999 and 2000, we entered into three build-to-suit lease
agreements for office buildings in Mountain View, California,
Roseville, Minnesota and Milpitas, California. We began
occupying the Roseville and Mountain View facilities in May and
June 2001, respectively, and began occupying the Milpitas
facility in April 2003. A syndicate of financial institutions
financed the acquisition and development of these properties.
Prior to July 1, 2003, we accounted for these properties as
operating leases in accordance with SFAS No. 13,
Accounting for Leases, as amended. On July 1, 2003,
we adopted FIN 46. Under FIN 46, the lessors of the
facilities are considered variable interest entities, and we are
considered the primary beneficiary. Accordingly, we began
consolidating the variable interest entities on July 1,
2003 and have included the property and equipment and long-term
debt on our balance sheet at December 31, 2004 and 2003 and
the results of their operations in our consolidated statement of
operations from July 1, 2003. As of December 31, 2004,
approximately $380.6 million of debt has been classified as
current as the lease terms for the Mountain View and Roseville
facilities expire in March 2005 and the lease term for the
Milpitas facilities expires in July 2005.
Interest only payments under our debt agreements relating to the
facilities are paid quarterly and are equal to the termination
value of the outstanding debt obligations multiplied by our cost
of funds, which is based on London Inter Bank Offered Rate, or
LIBOR, using 30-day to 180-day LIBOR contracts and adjusted for
our credit spread. The termination values of the debt agreements
are approximately $145.2 million, $41.2 million and
$194.2 million for the Mountain View, Roseville and
Milpitas leases, respectively. The terms of these debt
agreements are five years with an option to extend the lease
terms for two successive periods of one year each, if agreed to
by the financial institutions that financed the facilities. The
terms of these debt agreements began March 2000 for the Mountain
View and Roseville facilities and July 2000 for the Milpitas
facility. We have the option to purchase the three facilities
for the aggregate termination value of $380.6 million or,
at the end of the term, to arrange for the sale of the
properties to third parties while we retain an obligation to the
financial institutions that financed the facilities in an amount
equal to the difference between the sales price and the
guaranteed residual value up to an aggregate $344.6 million
if the sales price is less than this amount, subject to the
specific terms of the debt agreements. In addition, we are
entitled to any proceeds from a sale of the facilities in excess
of the termination values. Payment of the purchase price for
these properties would reduce the amount of cash, cash
equivalents and short-term investments available for funding our
research and development efforts, geographic expansion and
strategic acquisitions in the future.
In January 2002, we entered into two three-year pay fixed,
receive floating, interest rate swaps for the purpose of hedging
the cash payments related to the Mountain View and Roseville
agreements. Under the terms of these interest rate swaps, we
make payments based on the fixed rate and will receive interest
payments based on the 3-month LIBOR rate. For the year ended
December 31, 2004 and six months ended December 31,
2003, our aggregate payments on the debt agreements, including
the net payments on the interest rate swaps, were
$16.9 million and $8.5 million, respectively, and were
included in interest expense in the consolidated statement of
operations in accordance with FIN 46. For the six months
ended June 30, 2003 and the year ended December 31,
2002, our aggregate payments were $8.3 million and
$17.0 million, respectively, and were classified as rent
expense and included in cost of revenue and operating expenses
in the consolidated statement of operations, in accordance with
SFAS No. 13.
The agreements for each of the facilities described above
require that we maintain specified financial covenants, all of
which we were in compliance with as of December 31, 2004.
The specified financial covenants as of December 31, 2004
require us to maintain a minimum rolling four quarter earnings
before
36
interest, taxes, depreciation and amortization, or EBITDA, of
$500.0 million, a minimum ratio of cash, cash equivalents,
short-term investments and accounts receivable to current
liabilities plus the debt consolidated under the build-to-suit
lease agreements of 1.2 to 1, and a leverage ratio of total
funded indebtedness to rolling four quarter EBITDA of not more
than 2 to 1. For purposes of these financial covenants, EBITDA
represents our net income for the applicable period, plus
interest expense, taxes, depreciation and amortization and all
non-cash restructuring charges, less software development
expenses classified as capital expenditures. In February 2005,
we received a waiver from Bank of America, N.A. as agent for the
syndicate of banks that funded the development of the Mountain
View and Roseville facilities, and ABN AMRO Bank, N.V. as agent
for the syndicate of banks that funded the development of the
Milpitas facility, with regard to certain negative covenants
prohibiting a change in control and our proposed merger with
Symantec. In order to secure the obligations under each
agreement, each of the facilities is subject to a deed of trust
in favor of the financial institutions that financed the
acquisition and development of the respective facility. Bank of
America, N.A. was the agent for the syndicate of banks that
funded the development of the Mountain View and Roseville
facilities, and ABN AMRO Bank, N.V. was the agent for the
syndicate of banks that funded the development of the Milpitas
facility.
In February 2005, our board of directors authorized the purchase
of the properties subject to each of the build-to-suit lease
agreements. In March 2005, we acquired beneficial ownership of
the Mountain View, California, Milpitas, California, and
Roseville, Minnesota properties for an aggregate cash purchase
price of approximately $384 million. As a result, our cash
and debt balances will decrease by this amount.
During 2002, our Japanese subsidiary entered into a short-term
credit facility with a multinational Japanese bank in the amount
of 1.0 billion Japanese yen ($9.6 million USD). At
December 31, 2004, no amount was outstanding. The
short-term credit facility was renewed in March 2005 and is due
to expire in March 2006. Borrowings under the short-term credit
facility bear interest at Tokyo Inter Bank Offered Rate plus
0.5%. There are no covenants on the short-term credit facility
and the loan has been guaranteed by VERITAS Software Global LLC,
one of our wholly owned subsidiaries.
|
|
|
Acquired Technology Commitments |
On October 1, 2002, we acquired volume replicator software
technology for $6.0 million and contingent payments of up
to another $6.0 million based on future revenues generated
by the acquired technology. The contingent payments will be paid
quarterly over 40 quarters, in amounts between $150,000 and
$300,000. We issued a promissory note payable in the principal
amount of $5.0 million, representing the present value of
our minimum payment obligations under the purchase agreement for
the acquired technology, which are payable quarterly commencing
in the first quarter of 2003 and ending in the fourth quarter of
2012. The contingent payments in excess of the quarterly minimum
obligations will be paid as they may become due. The outstanding
balance of the note payable was $4.1 million as of
December 31, 2004 and $4.6 million as of
December 31, 2003 and is included in other long-term
liabilities.
37
The following table is a summary of the contractual commitments,
including principal and interest payments, associated with our
obligations as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating lease commitments
|
|
$ |
55,472 |
|
|
$ |
46,735 |
|
|
$ |
40,775 |
|
|
$ |
35,840 |
|
|
$ |
29,763 |
|
|
$ |
142,407 |
|
|
$ |
350,992 |
|
|
Current debt obligations
|
|
|
385,705 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
385,705 |
|
|
Convertible subordinated notes
|
|
|
1,300 |
|
|
|
1,300 |
|
|
|
1,300 |
|
|
|
1,300 |
|
|
|
1,300 |
|
|
|
525,200 |
|
|
|
531,700 |
|
|
Other long-term liabilities
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
600 |
|
|
|
1,800 |
|
|
|
4,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual commitments
|
|
$ |
443,077 |
|
|
$ |
48,635 |
|
|
$ |
42,675 |
|
|
$ |
37,740 |
|
|
$ |
31,663 |
|
|
$ |
669,407 |
|
|
$ |
1,273,197 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in current debt obligations is $5 million for 2005
associated with the actual lease payments, classified as
interest expense in the consolidated statement of operations, on
our three build-to-suit properties. We believe that our current
cash, cash equivalents and short-term investment balances and
cash flow from operations will be sufficient to meet our working
capital and capital expenditure requirements for at least the
next 12 months. After that time, we may require additional
funds to support our working capital requirements or for other
purposes and may seek to raise such additional funds through
public or private equity financing or from other sources. We
cannot assure you that additional financing will be available at
all or that if available, we will be able to obtain it on terms
favorable to us.
Factors That May Affect Future Results
In addition to the other information in this annual report, you
should consider carefully the following factors in evaluating
VERITAS and our business.
|
|
|
If we experience lower-than-anticipated revenue in any
particular quarter, or if we announce that we expect lower
revenue or earnings than previously forecasted, the market price
of our securities could decline. |
Our revenue is difficult to forecast and is likely to fluctuate
from quarter to quarter due to many factors outside of our
control. Any significant revenue shortfall or lowered revenue or
earnings forecast could cause the market price of our securities
to decline substantially. Factors that could lower our revenue
or affect our revenue and earnings forecast include:
|
|
|
| |
• |
the possibility that our customers may cancel, defer or limit
purchases as a result of reduced IT budgets or weak and
uncertain economic and industry conditions; |
| |
| |
• |
the possibility that our customers may defer purchases of our
products in anticipation of new products or product updates from
us or our competitors; |
| |
| |
• |
changes in the competitive landscape due to mergers,
acquisitions or strategic alliances that could allow our
competitors to gain market share; |
| |
| |
• |
the possibility that our strategic partners will introduce,
market and sell products that compete with our products; |
| |
| |
• |
the unpredictability of the timing and magnitude of our sales
through direct sales channels and indirect sales channels,
including value-added resellers, or VARs, and other
distributors, which tend to occur later in a quarter than
revenues received through our original equipment manufacturer,
or OEM, partners; |
| |
| |
• |
our operational capacity to fulfill software license orders
received at the end of a quarter; |
| |
| |
• |
the timing of new product introductions by us and the market
acceptance of new products, which may be delayed as a result of
weak and uncertain economic and industry conditions; |
38
|
|
|
| |
• |
the seasonal nature of our sales; |
| |
| |
• |
the rate of adoption and long sales cycles for new solutions
such as utility computing, storage resource management
technology and replication; |
| |
| |
• |
changes in our pricing and distribution terms or those of our
competitors; and |
| |
| |
• |
the possibility that our business will be adversely affected as
a result of the threat of terrorism, terrorism or military
actions taken by the United States or its allies. |
You should not rely on the results of prior periods as an
indication of our future performance. Our operating expense
levels are based, in significant part, on our expectations of
future revenue. If we have a shortfall in revenue or orders in
any given quarter, we may not be able to reduce our operating
expenses quickly in response. Therefore, any significant
shortfall in revenue or orders could have an immediate adverse
effect on our operating results for that quarter. In addition,
if we fail to manage our business effectively, we may experience
high operating expenses, and our operating results may fall
below the expectations of securities analysts or investors.
|
|
|
Failure to complete our proposed merger with Symantec
could adversely affect our stock price and future business and
operations. |
On December 16, 2004, we announced that we had entered into
a definitive agreement to merge with Symantec Corporation in an
all-stock transaction. The proposed merger with Symantec is
subject to the satisfaction of closing conditions, including the
approval by both Symantec and VERITAS stockholders and other
conditions described in the merger agreement. We cannot assure
you that these conditions will be satisfied or that the merger
will be successfully completed. In the event that the merger is
not completed:
|
|
|
| |
• |
we would not realize the potential benefits of the merger,
including the potentially enhanced financial and competitive
position of combining our company with Symantec; |
| |
| |
• |
management’s attention from our day-to-day business may be
diverted, we may lose key employees and our relationships with
customers and partners may be disrupted as a result of
uncertainties with regard to our business and prospects; |
| |
| |
• |
the market price of shares of our common stock may decline to
the extent that the current market price of those shares
reflects a market assumption that the merger will be
completed; and |
| |
| |
• |
we must pay significant costs related to the merger, such as
legal, accounting and advisory fees. |
Any such events could adversely affect our stock price and harm
our business and operating results.
|
|
|
Our business could suffer due to the announcement and
consummation of the proposed merger with Symantec. |
The announcement and consummation of the merger may have a
negative impact on our ability to sell our products and
services, attract and retain key management, technical, sales or
other personnel, maintain and attract new customers and maintain
strategic relationships with third parties. For example, we may
experience the deferral, cancellation or a decline in the size
or rate of orders for our products or services or a
deterioration in our customer relationships. Any such events
could harm our operating results and financial condition.
|
|
|
Because we derive a majority of our license revenue from
sales of a few product lines, any decline in demand for these
products could severely harm our ability to generate
revenue. |
We derive a majority of our revenue from a small number of
software products, including our NetBackup and Backup Exec data
protection products. In addition, our software products are
concentrated within the market for data storage. For example,
for the year ended December 31, 2004, we derived
approximately 54% of our user license fees from our NetBackup
and Backup Exec products. As a result, we are particularly
vulnerable to fluctuations in demand for these products, whether
as a result of competition, product
39
obsolescence, technological change, budget constraints of our
potential customers or other factors. If our revenue derived
from these software products were to decline significantly, our
business and operating results would be adversely affected. In
addition, because our software products are concentrated within
the market for data storage, a decline in the demand for storage
devices, storage software applications or storage capacity could
result in a significant reduction in our revenue and adversely
affect our business and operating results.
|
|
|
If we fail to manage our distribution channels
effectively, or if our partners choose not to market and sell
our products to their customers, our sales could decline. |
We market our products and related services both directly to
end-users and through a variety of indirect sales channels,
which include VARs, distributors, system integrators and OEMs.
Direct Sales. A significant portion of our revenue is
derived from sales by our direct sales force to end-users. This
sales channel involves special risks, including:
|
|
|
| |
• |
longer sales cycles associated with direct sales efforts; |
| |
| |
• |
difficulty in hiring, training, retaining and motivating our
direct sales force; and |
| |
| |
• |
the requirement of a substantial amount of training for sales
representatives to become productive, and training must be
updated to cover new and revised products. |
Indirect Sales Channels. A significant portion of our
revenue is also derived from sales through indirect sales
channels, including distributors that sell our products to
end-users and other resellers. This channel involves a number of
special risks, including:
|
|
|
| |
• |
our lack of control over the timing of delivery of our products
to end-users; |
| |
| |
• |
our resellers and distributors are not subject to minimum sales
requirements or any obligation to market our products to their
customers; |
| |
| |
• |
our resellers and distributors may terminate their relationships
with us at any time; and |
| |
| |
• |
our resellers and distributors may market and distribute
competing products. |
OEMs. A portion of our revenue is derived from sales
through our OEM partners that incorporate our products into
their products. Our reliance on this sales channel involves many
risks, including:
|
|
|
| |
• |
our lack of control over the shipping dates or volume of systems
shipped; |
| |
| |
• |
our OEM partners are not subject to minimum sales requirements
or any obligation to market our products to their customers; |
| |
| |
• |
our OEM partners may terminate or renegotiate their arrangements
with us and new terms may be less favorable in recognition of
our increasingly competitive relationship with certain partners; |
| |
| |
• |
the development work that we must generally undertake under our
agreements with our OEM partners may require us to invest
significant resources and incur significant costs with little or
no associated revenue; |
| |
| |
• |
the time and expense required for the sales and marketing
organizations of our OEM partners to become familiar with our
products may make it more difficult to introduce those products
to the market; |
| |
| |
• |
our OEM partners may develop, market and distribute their own
products and market and distribute products of our competitors,
which could reduce our sales; and |
| |
| |
• |
if we fail to manage our distribution channels successfully, our
distribution channels may conflict with one another or otherwise
fail to perform as we anticipate which could reduce our sales
and increase our expenses, as well as weaken our competitive
position. |
40
|
|
|
We face intense competition, and our competitors may gain
market share in the markets for our products, which could
adversely affect the growth of our business and cause our
revenues to decline. |
We have many competitors in the markets for our products. If
existing or new competitors gain market share in any of these
markets, we may experience a decline in revenues, which could
adversely affect our business and operating results. Our
competitors include the internal development groups of our
strategic partners. These groups develop storage management
software and utility computing infrastructure for the storage
and server hardware products marketed by the strategic partners.
We also face competition from software vendors that offer
products that directly compete with our products or bundle their
software products with storage software offered by another
vendor.
Many of our strategic partners and storage hardware vendors
offer software products that compete with our products or have
announced their intention to focus on developing or acquiring
their own storage software products. Storage hardware companies
may choose not to offer our products to their customers or limit
our access to their hardware platforms. End-user customers may
prefer to purchase storage software and hardware that is
manufactured by the same company because of greater product
breadth offered by the company, perceived advantages in price,
technical support, compatibility or other issues. In addition,
software vendors may choose to bundle their software, such as an
operating system, with their own or other vendors’ storage
software. They may also limit our access to standard product
interfaces for their software and inhibit our ability to develop
products for their platform.
Many of our competitors have greater financial, technical,
sales, marketing and other resources than we do and
consequentially may have an ability to influence customers to
purchase their products that compete with ours. 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 may
face additional sources of competition in the future. Any of the
foregoing effects could cause our revenues to decline, which
would harm our financial position and results of operations.
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If we are unable to develop new and enhanced products that
achieve widespread market acceptance, we may be unable to
recover product development costs, and our earnings and revenue
may decline. |
Our future success depends on our ability to address the rapidly
changing needs of our customers by developing, acquiring and
introducing new products, product updates and services on a
timely basis. We must also extend the operation of our products
to new platforms and keep pace with technological developments
and emerging industry standards. We intend to commit substantial
resources to developing new software products and services,
including software products and services for the utility
computing infrastructure, the storage area networking and the
storage resource management markets. Each of these markets is
new and unproven, and industry standards for these markets are
evolving and changing. They also may require development of new
channels. If these markets do not develop as anticipated, or if
demand for our products and services in these markets does not
materialize or occurs more slowly than we expect, we will have
expended substantial resources and capital without realizing
sufficient revenue, and our business and operating results could
be adversely affected.
We have provided standards-setting organizations and various
partners with access to our standard product interfaces through
our VERITAS Enabled Program. If these standards-setting
organizations or our partners do not accept our standard product
interfaces for use with other products, or if our partners are
able to use our standard product interfaces to improve their
competitive position against us, then our business and operating
results could be adversely affected.
41
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Our international sales and operations involve special
risks that could increase our expenses, adversely affect our
operating results and require increased time and attention of
our management. |
We derive a substantial portion of our revenue from customers
located outside of the U.S. and have significant operations
outside of the U.S., including engineering, sales, customer
support and production operations. We plan to expand our
international operations and our planned growth is contingent
upon the successful expansion of our international revenue. Our
international operations are subject to risks in addition to
those faced by our domestic operations, including:
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• |
potential loss of proprietary information due to piracy,
misappropriation or laws that may be less protective of our
intellectual property rights; |
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• |
imposition of foreign laws and other governmental controls,
including trade and employment restrictions; |
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• |
fluctuations in currency exchange rates and economic instability
such as higher interest rates and inflation, which could reduce
our customers’ ability to obtain financing for software
products or which could make our products more expensive in
those countries; |
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• |
limitations on future growth or inability to maintain current
levels of revenue from international sales if we do not invest
sufficiently in our international operations; |
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• |
difficulties in hedging foreign currency transaction exposures; |
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• |
longer payment cycles for sales in foreign countries and
difficulties in collecting accounts receivable; |
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• |
difficulties in staffing, managing and operating our
international operations, including difficulties related to
administering our stock plans in some foreign countries; |
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• |
difficulties in coordinating the activities of our
geographically dispersed and culturally diverse operations; |
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• |
seasonal reductions in business activity in the summer months in
Europe and in other periods in other countries; |
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• |
costs and delays associated with developing software in multiple
languages; and |
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• |
political unrest, war or terrorism, particularly in areas in
which we have facilities. |
In addition, we receive significant tax benefits from sales to
our non-U.S. customers. These benefits are contingent upon
existing tax regulations in both the U.S. and in the countries
in which our international operations are located. Future
changes in domestic or international tax regulations could
adversely affect our ability to continue to realize these tax
benefits.
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Our products may contain significant errors and failures,
which may subject us to liability for damages suffered by
end-users. |
Software products frequently contain errors or failures,
especially when first introduced or when new versions are
released. Our end-user customers use our products in
applications that are critical to their businesses, including
for data backup and recovery, and may have a greater sensitivity
to defects in our products than to defects in other, less
critical software products. If a customer loses critical data as
a result of an error in or failure of our software products or
as a result of the customer’s misuse of our software
products, the customer could suffer significant damages and seek
to recover those damages from us. Although our software licenses
generally contain protective provisions limiting our liability,
a court could rule that these provisions are unenforceable. If a
customer is successful in proving its damages and a court does
not enforce our protective provisions, we could be liable for
the damages suffered by our customers and other related
expenses, which could adversely affect our operating results.
In addition, product errors or failures could cause delays in
new product releases or product upgrades, or our products might
not work in combination with other hardware or software, which
could adversely affect
42
market acceptance of our products. If our customers were
dissatisfied with product functionality or performance, or if we
were to experience significant delays in the release of new
products or new versions of products, we could lose competitive
position and revenue and our business and operating results
could be adversely affected.
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If we lose key personnel or fail to integrate replacement
personnel successfully, our ability to manage our business could
be impaired. |
Our future success depends upon the continued service of our key
management, technical, sales and other critical personnel.
Whether we are able to execute effectively on our business
strategy will depend in large part on how well key management
and other personnel perform in their positions and are
integrated within our company. Our officers and other key
personnel are employees-at-will, and we cannot assure you that
we will be able to retain them. Key personnel have left our
company over the years, and there may be additional departures
of key personnel from time to time. The loss of any key employee
could result in significant disruptions to our operations,
including adversely affecting the timeliness of product
releases, the successful implementation and completion of
company initiatives and the results of our operations. In
addition, the integration of replacement personnel could be time
consuming, may cause additional disruptions to our operations
and may be unsuccessful.
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If we are unable to attract and retain qualified employees
and manage our employee base effectively, we may be unable to
develop new and enhanced products, expand our business or
increase our revenue. |
We believe that our success depends in part on our ability to
hire and retain qualified employees. As our company grows, and
our customers’ demand for our products and services
increase, we will need to hire additional management, technical,
sales and other personnel. However, competition for people with
the specific skills that we require is significant. If we are
unable to hire and retain qualified employees, or conversely, if
we fail to manage employee performance or reduce staffing levels
when required by market conditions, our business and operating
results could be adversely affected.
Historically, we have provided stock-based compensation, such as
stock option grants and the availability of discounted shares in
our Employee Stock Purchase Plan, as an important incentive for
our employees. The volatility in our stock price may from time
to time adversely affect our ability to retain or attract key
employees. In addition, we may be unable to obtain required
stockholder approvals of future increases in the number of
shares available for issuance under our equity compensation
plans and recent changes in accounting rules will require us to
treat the issuance of employee stock options and other forms of
equity compensation as compensation expense beginning in the
third quarter of 2005. As a result, we may decide to issue fewer
stock options and may be impaired in our efforts to attract and
retain necessary personnel. Reductions in our stock-based
compensation practices may make it more difficult for us to
attract and retain employees, which may negatively affect our
ability to manage and operate our business.
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We incur considerable expenses to develop products for
operating systems that are either owned by others or that are
part of the Open Source Community. If we do not receive
cooperation in our development efforts from others and access to
operating system technologies, we may face higher expenses or
fail to expand our product lines and revenues. |
Many of our products operate primarily on the Linux, NetWare,
UNIX and Windows computer operating systems. As part of our
efforts to develop products for operating systems that are part
of the Open Source Community, we may have to license portions of
our products on a royalty free basis or may have to expose our
source code. We continue to develop new products for these
operating systems. We may not accomplish our development efforts
quickly or cost-effectively, and it is not clear what the
relative growth rates of these operating systems will be. Our
development efforts require substantial capital investment, the
devotion of substantial employee resources and the cooperation
of the owners of the operating systems to or for which the
products are being ported or developed. If the market for a
particular operating system does not develop as anticipated, or
demand for our products and services in such market does not
materialize or occurs
43
more slowly than we expect, we may have expended substantial
resources and capital without realizing sufficient revenue, and
our business and operating results could be adversely affected.
In addition, for some operating systems, we must obtain from the
owner of the operating system a source code license to portions
of the operating system software to port some of our products to
or develop products for the operating system. Operating system
owners have no obligation to assist in these porting or
development efforts. If they do not grant us a license or if
they do not renew our license, we may not be able to expand our
product line into other areas.
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Cooperating with the SEC in its investigation of our
transactions with AOL Time Warner and its recent inquiries
regarding our past accounting practices has required, and may
continue to require, a large amount of management time and
attention, as well as accounting and legal expense, which may
reduce net income or interfere with our ability to manage our
business. |
Since the third quarter of 2002, we have received subpoenas and
other requests for information issued by the SEC in the
investigation entitled In the Matter of AOL/ Time Warner.
We continue to furnish information requested by the SEC and
otherwise cooperate with regard to this investigation. In
addition, in the first quarter of 2004, we voluntarily disclosed
to the staff of the SEC past accounting practices applicable to
our 2002 and 2001 financial statements that were not in
compliance with GAAP, and we subsequently restated our financial
statements for 2002 and 2001, the interim periods for 2002 and
2001 and the interim periods ended March, June and September
2003. We and our audit committee continue to cooperate with the
SEC in its review of these matters. The SEC’s investigation
and inquiries may continue to require significant management
attention and accounting and legal resources, which could
adversely affect our business, results of operations and cash
flows.
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We have been named as a party to several class action and
derivative action lawsuits, and we may be named in additional
litigation, all of which could require significant management
time and attention and result in significant legal expenses. An
unfavorable outcome in one or more of these lawsuits could have
a material adverse effect on our business, financial condition,
results of operations and cash flows. |
After we announced in January 2003 that we would restate our
financial results as a result of transactions entered into with
AOL Time Warner in September 2000, numerous separate complaints
purporting to be class actions were filed in federal court
alleging that we and some of our officers and directors violated
provisions of the Securities Exchange Act of 1934. In addition,
after we announced in July 2004 that we expected our results of
operations for the fiscal quarter ended June 30, 2004 to
fall below guidance earlier provided by us, several separate
complaints purporting to be class actions were filed in federal
court alleging that we and some of our officers violated federal
securities laws. The expense of defending such litigation may be
costly and divert management’s attention from the
day-to-day operations of our business, which could adversely
affect our business, results of operations and cash flows. In
addition, an unfavorable outcome in such litigation could have a
material adverse effect on our business, results of operations
and cash flows.
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We were delinquent in filing this annual report on Form
10-K and have previously received notification from Nasdaq that
our securities may be delisted if we are unable to timely file
all periodic reports for reporting periods through June 30,
2005, which delisting could materially and adversely affect the
liquidity and trading price of our common stock. |
On May 12, 2004, in response to the delinquent filing of
our 2003 Form 10-K, we received a written determination from The
Nasdaq Stock Market stating, among other things, that to
maintain continued listing on The Nasdaq National Market, we
must timely file all periodic reports with the SEC and Nasdaq
for all reporting periods ending on or before June 30,
2005. On March 31, 2005, we notified Nasdaq that we would
not be timely in filing this annual report on Form 10-K,
and on April 1, 2005, we received a notice from Nasdaq
indicating that we were in violation of a Nasdaq listing rule,
and that they would consider this late filing in rendering a
determination regarding our continued listing on The Nasdaq
National Market. We have delivered a written submission to
Nasdaq which detailed our plan to file this annual report,
requested a limited exemption from the Nasdaq listing rule which
we violated, and requested relief from the terms of the written
44
determination referenced above. However, there can be no
assurance that Nasdaq will grant our request for an exemption
and continued listing. If our securities are delisted from The
Nasdaq National Market, the liquidity and trading price of our
common stock would be materially and adversely affected.
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Our business strategy includes possible growth through
business acquisitions, which involve special risks that could
increase our expenses, cause our stock price to decline and
divert the time and attention of management. |
As part of our business strategy, we have in the past acquired
and expect in the future to acquire other businesses, business
units and technologies. Acquisitions involve a number of special
risks and challenges, including:
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• |
diversion of management’s attention from our business; |
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• |
integration of acquired business operations and employees into
our existing business, including coordination of geographically
dispersed operations, which in the past has taken longer and has
been more complex than initially expected; |
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| |
• |
incorporation of acquired products and business technology into
our existing product lines, including consolidating technology
with duplicative functionality or designed on different
technological architecture, and our ability to sell the acquired
products through our existing or acquired sales channels; |
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• |
loss or termination of employees, including costs associated
with the termination of those employees; |
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| |
• |
dilution of our then-current stockholders’ percentage
ownership; |
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| |
• |
dilution of earnings if synergies with the acquired business are
not achieved; |
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| |
• |
assumption of liabilities of the acquired business, including
costly litigation related to alleged liabilities of the acquired
business; |
| |
| |
• |
presentation of a unified corporate image to our customers and
our employees; |
| |
| |
• |
increased costs and efforts in connection with compliance with
Section 404 of the Sarbanes-Oxley Act; and |
| |
| |
• |
risk of impairment charges related to potential write-down of
acquired assets in future acquisitions. |
Acquisitions of businesses, business units and technologies are
inherently risky and create many challenges. We cannot provide
any assurance that our previous or any future acquisitions will
achieve the desired objectives.
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|
Our effective tax rate may increase or fluctuate, which
could increase our income tax expense and reduce our net
income. |
Our effective tax rate could be adversely affected by several
factors, many of which are outside of our control. Our effective
tax rate is directly affected by the relative proportions of
revenue and income before taxes in the various domestic and
international jurisdictions in which we operate. We are also
subject to changing tax laws, regulations and interpretations in
multiple jurisdictions in which we operate as well as the
requirements of certain tax rulings. We do not have a
substantial history of audit activity from various taxing
authorities, however, we are under audit or have been notified
that we will be audited in certain jurisdictions in which we
have significant operations, including the United States and the
United Kingdom. We believe we are in compliance with all
federal, state and international tax laws, however, there are
various interpretations of their application that could result
in additional tax assessments. Our effective tax rate is also
influenced by the tax effects of purchase accounting for
acquisitions, non-recurring charges and tax assessments against
acquired entities with respect to tax periods prior to the
acquisition. The aforementioned items may cause fluctuations
between reporting periods in which the acquisition, assessment
or settlement takes place.
45
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|
Changes to current accounting policies could have a
significant effect on our reported financial results or the way
in which we conduct our business. |
We prepare our financial statements in conformity with
accounting principles generally accepted in the United States,
which are subject to interpretation by the Financial Accounting
Standards Board, the American Institute of Certified Public
Accountants, the SEC and various other bodies formed to
interpret and create appropriate accounting policies. A change
in these policies could have a significant effect on our
reported results and may even retroactively affect previously
reported transactions. Our accounting policies that recently
have been or may in the future be affected by changes in the
accounting rules are as follows:
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• |
software revenue recognition; |
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• |
accounting for variable interest entities; |
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• |
accounting for goodwill and other intangible assets; and |
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| |
• |
accounting issues related to certain features of contingently
convertible debt instruments and their effect on diluted
earnings per share. |
Changes in these or other rules may have a significant adverse
effect on our reported financial results or in the way in which
we conduct our business. See our discussion under “Critical
Accounting Policies and Estimates” above and the Notes to
Consolidated Financial Statements, for additional information
about our critical accounting policies and estimates and
associated risks.
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If we do not protect our proprietary information and
prevent third parties from making unauthorized use of our
products and technology, our revenues could be harmed. |
We rely on a combination of copyright, patent, trademark and
trade secret laws, confidentiality procedures, contractual
provisions and other measures to protect our proprietary
information. All of these measures afford only limited
protection. These measures may be invalidated, circumvented or
challenged, and others may develop technologies or processes
that are similar or superior to our technology. We may not have
the proprietary information controls and procedures in place
that we need to protect our proprietary information adequately.
In addition, because we license the source code for some of our
products to third parties, there is a higher likelihood of
misappropriation or other misuse of our intellectual property.
We also license some of our products under shrink-wrap license
agreements that are not signed by licensees and therefore may be
unenforceable under the laws of some jurisdictions. Despite our
efforts to protect our proprietary rights, unauthorized parties
may attempt to copy our products or obtain or use information
that we regard as proprietary, which could harm our revenues.
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Third parties claiming that we infringe their proprietary
rights could cause us to incur significant legal expenses and
prevent us from selling our products. |
From time to time, we receive claims that we have infringed the
intellectual property rights of others. As the number of
products in the software industry increases and the
functionality of these products further overlap, we believe that
we may become increasingly subject to infringement claims,
including patent, copyright and trademark infringement claims.
We have received several trademark claims in the past and may
receive more claims in the future from third parties who may
also be using the VERITAS name or another name that may be
similar to one of our trademarks or service marks. We have also
received patent infringement claims in the past and may receive
more claims in the future based on allegations that our products
infringe upon patents held by third parties. In addition, former
employers of our former, current or future employees may assert
claims that such employees have improperly disclosed to us the
confidential or proprietary information of these former
employers. Any such claim, with or without merit, could:
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• |
be time consuming to defend; |
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• |
result in costly litigation; |
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• |
divert management’s attention from our core business; |
46
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• |
require us to stop selling, delay shipping or redesign our
product; and |
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• |
require us to pay monetary amounts as damages, for royalty or
licensing arrangements or to satisfy indemnification obligations
that we have with some of our customers. |
In addition, we license and use software from third parties in
our business. These third party software licenses may not
continue to be available to us on acceptable terms. Also, these
third parties may from time to time receive claims that they
have infringed the intellectual property rights of others,
including patent and copyright infringement claims, which may
affect our ability to continue licensing this software. Our
inability to use any of this third party software could result
in shipment delays or other disruptions in our business, which
could materially and adversely affect our operating results.
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Any disruption in our operations caused by a catastrophic
natural disaster or other events outside of our control could
have a material adverse effect on our business, resulting in a
loss of revenue or in higher expenses. |
Our business is highly automated and any disruptions or failures
in our operations due to a catastrophic natural disaster, such
as an earthquake or a flood, or to manmade problems, such as
inadvertent errors, malicious software programs or terrorism,
may result in a loss of revenue or in higher expenses, harming
our operating results. Most of our primary operations, which
include a significant portion of our research and development
activities and other critical business operations, are located
near San Francisco, California, an area known for seismic
activity. A catastrophic event, such as a major earthquake,
which results in the destruction or disruption of our primary
operations, could severely and adversely affect our business,
including both our primary data center and other internal
operations and our ability to communicate with our customers or
sell our products over the Internet.
In our highly automated environment, we have tightly integrated
systems that support our enterprise, including our financial
accounting and e-commerce systems. Maintaining the integrity and
security of this enterprise is an issue of critical importance
for VERITAS and our customers. Any hardware or software failure
or breach in security due to inadvertent error, malicious
software programs, such as viruses and worms, break-ins or
unauthorized tampering with our computer systems could, if
wide-spread and destructive, have a negative effect on our
internal operations and could adversely affect our business. We
take significant and costly measures which have been effective
in protecting our enterprise from such events, however, there is
no assurance that these measures will be equally as effective in
the future. In addition, other events outside of our control,
such as war or acts of terrorism, could have a material adverse
and potentially devastating effect on our business, operating
results and financial condition.
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Some provisions in our charter documents and our
stockholder rights plan may prevent or deter an acquisition of
VERITAS. |
Some of the provisions in our charter documents may deter or
prevent certain corporate actions, such as a merger, tender
offer or proxy contest, which could affect the market value of
our securities. These provisions include:
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• |
our board of directors is authorized to issue preferred stock
with any rights it may determine; |
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• |
our board of directors is classified into three groups, with
each group of directors to hold office for three years; |
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• |
our stockholders are not entitled to cumulate votes for
directors and may not take any action by written consent without
a meeting; and |
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• |
special meetings of our stockholders may be called only by our
board of directors, by the chairman of the board or by our chief
executive officer, and may not be called by our stockholders. |
We also have in place a stockholder rights plan that is designed
to discourage coercive takeover offers. In general, our
stockholder rights plan, as amended, provides our existing
stockholders (other than an existing stockholder that becomes an
acquiring person) with rights to acquire shares of our common
stock at 50% of its
47
trading price if a person or entity (other than Symantec)
acquires, or announces its intention to acquire, 15% or more of
the outstanding shares of our common stock, unless our board of
directors elects to redeem these rights.
Our board of directors could utilize the provisions of our
charter documents and stockholder rights plan to resist an offer
from a third party to acquire VERITAS, including an offer to
acquire our common stock at a premium to its trading price or an
offer that is otherwise considered favorable by our stockholders.
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Our stock price may be volatile in the future, and you
could lose the value of your investment. |
The market price of our common stock has experienced significant
fluctuations and may continue to fluctuate significantly, and
you could lose the value of your investment. The market price of
our common stock may be affected by a number of factors,
including:
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• |
announcements of our quarterly operating results and revenue and
earnings forecasts or those of our competitors or our customers; |
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• |
rumors, announcements or press articles regarding changes in our
management, organization, operations or prior financial
statements; |
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• |
inquiries by the SEC, NASDAQ, law enforcement or other
regulatory bodies; |
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• |
changes in revenues and earnings estimates by securities
analysts; |
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• |
announcements of planned acquisitions by us or by our
competitors; |
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• |
gain or loss of a significant customer; |
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• |
announcements of new products by us, our competitors or our OEM
customers; and |
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• |
acts of terrorism, the threat of war and economic slowdowns in
general. |
The stock market in general, and the market prices of stocks of
other technology companies in particular, have experienced
extreme price volatility, which has adversely affected and may
continue to adversely affect the market price of our common
stock for reasons unrelated to our business or operating results.
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| Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
We are subject to market risk associated with changes in foreign
currency exchange rates, interest rates and our equity
investments, as discussed more fully below. In order to manage
the volatility relating to our more significant market risks, we
enter into various hedging arrangements described below. We do
not execute transactions or hold derivative financial
instruments for speculative or trading purposes. We do not
anticipate any material changes in our primary market risk
exposures in fiscal 2005.
Foreign Currency Risk
We transact business in various foreign currencies and we have
established a foreign currency hedging program, utilizing
foreign currency forward exchange contracts, or forward
contracts, to hedge certain foreign currency transaction
exposures. Under this program, increases or decreases in our
foreign currency transactions are offset by gains and losses on
the forward contracts, so as to mitigate the possibility of
foreign currency transaction gains and losses. We do not use
forward contracts for speculative or trading purposes. All
foreign currency transactions and all outstanding forward
contracts are marked-to-market at the end of the period with
unrealized gains and losses included in other income (expense).
The unrealized gain (loss) on the outstanding forward contracts
at December 31, 2004 was immaterial to our consolidated
financial statements.
48
Our outstanding forward contracts as of December 31, 2004
are presented in the table below. All forward contract amounts
are representative of the expected payments to be made under
these instruments. As of December 31, 2004, all forward
contracts mature in 34 days or less:
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Fair Market Value at |
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Local Currency |
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December 31, 2004 |
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Contract Amount |
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Contract Amount |
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(USD) |
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(In thousands) |
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Contracts to Buy US $
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British pound
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1,690.0 GBP |
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3,233.0 USD |
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(8.6 |
) |
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Indian rupee
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227,000.0 INR |
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5,160.3 USD |
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(62.9 |
) |
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Brazilian real
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10,000.0 BRL |
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3,676.5 USD |
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(88.6 |
) |
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Argentine peso
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2,260.0 ARS |
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757.0 USD |
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(3.5 |
) |
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Canadian dollar
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8,335.0 CAD |
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6,853.6 USD |
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(81.3 |
) |
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Contracts to Sell US $
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Euro
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44,785.0 EUR |
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60,913.9 USD |
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|
|
(212.3 |
) |
| |
Japanese yen
|
|
|
109,670.0 JPY |
|
|
|
1,054.1 USD |
|
|
|
14.5 |
|
| |
Singapore dollar
|
|
|
21,195.0 SGD |
|
|
|
12,921.4 USD |
|
|
|
68.1 |
|
| |
Mexican peso
|
|
|
20,550.0 MXN |
|
|
|
1,817.3 USD |
|
|
|
26.2 |
|
| |
Israel shekel
|
|
|
10,850.0 ILS |
|
|
|
2,483.1 USD |
|
|
|
25.9 |
|
|
Contracts to Buy
Euro €
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
British pound
|
|
|
18,780.0 GBP |
|
|
|
26,454.0 EUR |
|
|
|
(164.5 |
) |
| |
Swiss franc
|
|
|
770.0 CHF |
|
|
|
499.4 EUR |
|
|
|
1.8 |
|
| |
Japanese yen
|
|
|
2,404,000.0 JPY |
|
|
|
17,029.1 EUR |
|
|
|
(333.2 |
) |
| |
Indian rupee
|
|
|
116,475.0 INR |
|
|
|
1,950.0 EUR |
|
|
|
(36.1 |
) |
|
Contracts to Sell
Euro €
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Swedish krona
|
|
|
12,220.0 SEK |
|
|
|
1,359.9 EUR |
|
|
|
(8.2 |
) |
| |
South African rand
|
|
|
2,630.0 ZAR |
|
|
|
336.9 EUR |
|
|
|
7.4 |
|
| |
UAE dirham
|
|
|
1,710.0 AED |
|
|
|
343.0 EUR |
|
|
|
(0.6 |
) |
| |
Norwegian krone
|
|
|
1,955.0 NOK |
|
|
|
236.2 EUR |
|
|
|
1.4 |
|
|
Contracts to Buy SGD $
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
New Zealand dollar
|
|
|
5,340.0 NZD |
|
|
|
6,219.0 SGD |
|
|
|
(23.4 |
) |
| |
Hong Kong dollar
|
|
|
26,465.0 HKD |
|
|
|
5,580.2 SGD |
|
|
|
14.8 |
|
|
Contracts to Sell SGD $
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Australian dollar
|
|
|
8,660.0 AUD |
|
|
|
10,933.3 SGD |
|
|
|
50.6 |
|
| |
Korean won
|
|
|
4,645,000.0 KRW |
|
|
|
7,294.9 SGD |
|
|
|
17.2 |
|
| |
Taiwanese dollar
|
|
|
13,510.0 TWD |
|
|
|
692.1 SGD |
|
|
|
1.5 |
|
| |
Indian rupee
|
|
|
56,220.0 INR |
|
|
|
2,097.8 SGD |
|
|
|
8.1 |
|
| |
Euro
|
|
|
2,230.0 EUR |
|
|
|
4,963.8 SGD |
|
|
|
(19.6 |
) |
|
Contracts to Buy GBP £
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Australian dollar
|
|
|
1,490.0 AUD |
|
|
|
600.0 GBP |
|
|
|
(10.8 |
) |
|
Contracts to Sell GBP £
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Danish krone
|
|
|
1,880.0 DKK |
|
|
|
179.5 GBP |
|
|
|
(1.7 |
) |
Interest Rate Risk
We are exposed to interest rate risk primarily on our investment
portfolio and the build-to-suit lease agreement for the facility
located in Milpitas, California. Our primary investment
objective is to preserve principal while at the same time
maximizing yields without significantly increasing risk. Our
portfolio
49
primarily includes money market funds, commercial paper,
corporate notes, government securities (taxable and
non-taxable), asset-backed securities and auction market
securities. The diversity of our portfolio helps us to achieve
our investment objective.
Debt obligations consist of $520.0 million of our
0.25% convertible subordinated notes, or 0.25% Notes,
due August 1, 2013 and $380.6 million of our debt
related to our build-to-suit lease agreements. The interest rate
on the 0.25% Notes is fixed and the notes provide for
semi-annual interest payments of approximately $0.7 million
each February 1 and August 1, beginning February 1,
2004. Effective as of January 28, 2004, the
0.25% Notes began accruing additional interest at a rate of
0.25% per annum as a result of our registration statement
having not been declared effective by the SEC on or before the
180th day following the original issuance of the
0.25% Notes and the 0.25% Notes continued to accrue
such additional interest until April 27, 2004, the 90th day
following such registration default. On April 27, 2004, the
0.25% Notes began to accrue additional interest at a rate
of 0.50% per annum and continued to accrue such additional
interest until November 24, 2004, the date on which the
registration statement was declared effective. Effective as of
January 30, 2005, the 0.25% Notes began to accrue
additional interest at a rate of 0.25% per annum as a
result of our registration statement having been suspended by us
beyond our permitted grace period. The 0.25% Notes will
continue to accrue additional interest at this rate until the
suspension of our registration statement is lifted, and this
rate will increase to 0.50% per annum if the suspension has
not been lifted by April 30, 2005. The 0.25% Notes are
convertible, under specified conditions, into shares of our
common stock unless previously redeemed or repurchased and the
conversion price is subject to adjustment under the terms of the
notes; provided that, as a result of a supplemental indenture we
entered into on October 25, 2004, we now have the
obligation to satisfy our conversion obligations under the notes
in cash, unless the value of our conversion obligation exceeds
the principal amount of the notes being converted by a holder,
in which case we shall have the option to deliver cash and/or
shares of common stock to the extent (and only to the extent) of
such excess. Long-term debt consists of the three build-to-suit
agreements. The interest rates on the build-to-suit agreements
are variable based on a 3-month LIBOR plus a credit spread and
provide for quarterly interest payments in January, April, July
and October (see “Management’s Discussion and Analysis
of Financial Condition and Results of
Operations” — “Long-Term Debt” for more
information regarding debt payout).
In January 2002, we entered into two three-year pay fixed,
receive floating, interest rate swaps for the purpose of hedging
cash flows on variable interest rate debt of two of our
build-to-suit agreements. Under the terms of these interest rate
swaps, we make payments based on the fixed rate and will receive
interest payments based on the 3-month London Inter Bank Offered
Rate, or LIBOR. The payments on our build-to-suit lease
agreements are based upon a 3-month LIBOR plus a credit spread.
If critical terms of the interest rate swaps or the hedged item
do not change, the interest rate swaps will be considered to be
highly effective with all changes in the fair value included in
other comprehensive income. If critical terms of the interest
rate swaps or the hedged item change, the hedge may become
partially or fully ineffective, which could result in all or a
portion of the changes in fair value of the derivative recorded
in the statement of operations. The interest rate swaps settle
the first day of January, April, July and October until
expiration. As of December 31, 2004, the fair value of the
interest rate swaps was $(1.7) million. As a result of
entering into the interest rate swaps, we have mitigated our
exposure to variable cash flows associated with interest rate
fluctuations. Because the rental payments on the leases are
based on the 3-month LIBOR and we receive 3-month LIBOR from the
interest rate swap counter-party, we have eliminated any impact
to raising interest rates related to our rent payments under the
build-to-suit lease agreements. This hedge was deemed to be
highly effective as of December 31, 2004. On July 1,
2003, we began accounting for our variable interest rate debt in
accordance with FIN 46. In accordance with
SFAS No. 133, we had designated the interest rate swap
as a cash flow hedge of the variability embedded in the rent
expense as it is based on the 3-month LIBOR. However, with the
adoption of FIN 46, we redesignated the interest rate swap
as a cash flow hedge of variability in interest expense and it
remains highly effective with all changes in the fair value
included in other comprehensive income.
50
The following table presents the amounts of our cash
equivalents, short-term investments and debt obligations,
according to maturity date, that may be subject to interest rate
risk and the average interest rates as of December 31, 2004
by year of maturity:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized Cost | |
|
|
|
|
| |
|
| |
|
|
|
Amortized | |
| |
|
Due in | |
|
Due in 2006 | |
|
|
|
Fair Value | |
|
Cost | |
| |
|
2005 | |
|
and Thereafter | |
|
Total | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except percentages) | |
|
Cash equivalents and short-term investments(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed rate
|
|
$ |
481,386 |
|
|
$ |
1,053,827 |
|
|
$ |
1,535,213 |
|
|
$ |
1,522,859 |
|
|
$ |
1,235,767 |
|
| |
Average fixed rate
|
|
|
2.25 |
% |
|
|
2.85 |
% |
|
|
2.66 |
% |
|
|
2.66 |
% |
|
|
2.11 |
% |
| |
Variable rate
|
|
$ |
273,538 |
|
|
$ |
87,047 |
|
|
$ |
360,585 |
|
|
$ |
360,584 |
|
|
$ |
509,727 |
|
| |
Average variable rate
|
|
|
2.36 |
% |
|
|
2.17 |
% |
|
|
2.32 |
% |
|
|
2.32 |
% |
|
|
1.40 |
% |
| |
Total cash equivalents and short-term investments
|
|
$ |
754,924 |
|
|
$ |
1,140,874 |
|
|
$ |
1,895,798 |
|
|
$ |
1,883,443 |
|
|
$ |
1,745,494 |
|
| |
Average rate
|
|
|
2.29 |
% |
|
|
2.80 |
% |
|
|
2.60 |
% |
|
|
2.60 |
% |
|
|
1.90 |
% |
|
Debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fixed rate
|
|
$ |
454 |
|
|
$ |
523,687 |
|
|
$ |
524,141 |
|
|
$ |
— |
|
|
$ |
524,578 |
|
| |
Average fixed rate(2)
|
|
|
3.68 |
% |
|
|
0.27 |
% |
|
|
0.28 |
% |
|
|
— |
|
|
|
0.28 |
% |
| |
Variable rate(3)
|
|
$ |
380,630 |
|
|
$ |
— |
|
|
$ |
380,630 |
|
|
$ |
380,630 |
|
|
$ |
380,630 |
|
| |
Average variable rate
|
|
|
2.45 |
% |
|
|
— |
|
|
|
2.45 |
% |
|
|
2.45 |
% |
|
|
2.45 |
% |
|
|
| (1) |
For purposes of the above table, cash equivalents consist of
commercial paper and government securities. |
| |
| (2) |
Not included in the average fixed rate is the amortization of
the underwriting and issuance costs for the $520.0 million
convertible subordinated notes. If this was included, our
average fixed rate for these notes would be 1.04% for 2005 and
thereafter. |
| |
| (3) |
$186.4 million of the variable rate long-term debt is, in
effect, a fixed rate as the result of the interest rate swaps
(see Note 13, “Derivative Financial Instruments”
in the Notes to Consolidated Financial Statements) entered into
by VERITAS. Including the effect of these interest rate swaps,
the average fixed rate would be 6.14%. |
Equity Price Risk
We have made investments in development-stage companies that we
believe provide strategic opportunities for us. We intend that
these investments will provide access to new technologies and
emerging markets, and create opportunities for additional sales
of our products and services. We recognize impairment losses on
our strategic investments when we determine that there has been
a decline in the fair value of the investment that is
other-than-temporary. In 2003, we recognized impairment losses
of $3.5 million on our strategic investments when we
determined that there had been a decline in the fair value of
the investments that was other-than-temporary. The losses
represented other-than-temporary declines in the fair value of
our investments and were determined based on the value of the
investee’s stock, its inability to obtain additional
private financing, its cash position and current burn rate, the
status and competitive position of the investee’s products
and the uncertainty of its financial condition among other
factors. As of December 31, 2004, our strategic investments
had a carrying value of $2.7 million, and we have
determined that there was no further impairment in these
investments at that date. We cannot assure you that our
investments will have the above-mentioned results, or even that
we will not lose all or any part of these investments.
51
|
|
| Item 8. |
Financial Statements and Supplementary Data |
Annual Financial Statements
Our financial statements required by this Item are submitted as
a separate section of this Form 10-K. See
Item 15(a)(1) for a listing of consolidated financial
statements provided in the section titled “Financial
Statements.”
Selected Quarterly Results of Operations
The following selected quarterly data should be read in
conjunction with the Consolidated Financial Statements and Notes
and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this
Form 10-K. This information has been derived from our
unaudited consolidated financial statements that, in our
opinion, reflect all recurring adjustments necessary to fairly
present our financial information when read in conjunction with
our Consolidated Financial Statements and Notes. The results of
operations for any quarter are not necessarily indicative of the
results to be expected for any future period.
52
Quarterly Consolidated Statements of Operations for 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2004 | |
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Unaudited) | |
|
|
|
|
| |
|
(In thousands, except per share amounts) | |
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
$ |
302,409 |
|
|
$ |
269,916 |
|
|
$ |
287,352 |
|
|
$ |
331,392 |
|
|
$ |
1,191,069 |
|
| |
Services
|
|
|
183,338 |
|
|
|
215,118 |
|
|
|
209,306 |
|
|
|
243,043 |
|
|
|
850,805 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total net revenue
|
|
|
485,747 |
|
|
|
485,034 |
|
|
|
496,658 |
|
|
|
574,435 |
|
|
|
2,041,874 |
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
|
9,519 |
|
|
|
8,878 |
|
|
|
5,103 |
|
|
|
7,053 |
|
|
|
30,553 |
|
| |
Services
|
|
|
65,843 |
|
|
|
66,812 |
|
|
|
68,793 |
|
|
|
75,420 |
|
|
|
276,868 |
|
| |
Amortization of developed technology
|
|
|
3,824 |
|
|
|
4,055 |
|
|
|
4,376 |
|
|
|
7,328 |
|
|
|
19,583 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cost of revenue
|
|
|
79,186 |
|
|
|
79,745 |
|
|
|
78,272 |
|
|
|
89,801 |
|
|
|
327,004 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
406,561 |
|
|
|
405,289 |
|
|
|
418,386 |
|
|
|
484,634 |
|
|
|
1,714,870 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and marketing
|
|
|
143,038 |
|
|
|
151,580 |
|
|
|
153,037 |
|
|
|
163,307 |
|
|
|
610,962 |
|
| |
Research and development
|
|
|
79,924 |
|
|
|
83,580 |
|
|
|
87,196 |
|
|
|
95,944 |
|
|
|
346,644 |
|
| |
General and administrative
|
|
|
47,749 |
|
|
|
46,389 |
|
|
|
49,541 |
|
|
|
50,775 |
|
|
|
194,454 |
|
| |
Amortization of other intangibles
|
|
|
2,394 |
|
|
|
2,409 |
|
|
|
1,389 |
|
|
|
3,009 |
|
|
|
9,201 |
|
| |
In-process research and development(1)
|
|
|
400 |
|
|
|
— |
|
|
|
11,500 |
|
|
|
— |
|
|
|
11,900 |
|
| |
Restructuring reversals, net(2)
|
|
|
— |
|
|
|
— |
|
|
|
(9,648 |
) |
|
|
— |
|
|
|
(9,648 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total operating expenses
|
|
|
273,505 |
|
|
|
283,958 |
|
|
|
293,015 |
|
|
|
313,035 |
|
|
|
1,163,513 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income from operations
|
|
|
133,056 |
|
|
|
121,331 |
|
|
|
125,371 |
|
|
|
171,599 |
|
|
|
551,357 |
|
|
Interest and other income, net
|
|
|
11,326 |
|
|
|
10,438 |
|
|
|
13,661 |
|
|
|
17,421 |
|
|
|
52,846 |
|
|
Interest expense
|
|
|
(5,702 |
) |
|
|
(6,000 |
) |
|
|
(6,455 |
) |
|
|
(6,242 |
) |
|
|
(24,399 |
) |
|
Gain on strategic investments(3)
|
|
|
7,496 |
|
|
|
— |
|
|
|
— |
|
|
|
2,009 |
|
|
|
9,505 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income before income taxes
|
|
|
146,176 |
|
|
|
125,769 |
|
|
|
132,577 |
|
|
|
184,787 |
|
|
|
589,309 |
|
|
Provision for income taxes
|
|
|
46,128 |
|
|
|
39,299 |
|
|
|
36,378 |
|
|
|
56,093 |
|
|
|
177,898 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
100,048 |
|
|
$ |
86,470 |
|
|
$ |
96,199 |
|
|
$ |
128,694 |
|
|
$ |
411,411 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.23 |
|
|
$ |
0.20 |
|
|
$ |
0.22 |
|
|
$ |
0.30 |
|
|
$ |
0.96 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.22 |
|
|
$ |
0.20 |
|
|
$ |
0.22 |
|
|
$ |
0.30 |
|
|
$ |
0.94 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing per share amounts —
basic
|
|
|
430,714 |
|
|
|
431,943 |
|
|
|
433,126 |
|
|
|
423,765 |
|
|
|
429,873 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing per share amounts —
diluted
|
|
|
444,921 |
|
|
|
442,361 |
|
|
|
437,697 |
|
|
|
430,989 |
|
|
|
438,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
In the first and third quarters of 2004, we recorded non-cash
charges of $0.4 million and $11.5 million,
respectively, related to the write-off of in-process research
and development for the acquisitions of Ejasent and KVS,
respectively. |
| |
| (2) |
In the third quarter of 2004, we acquired KVS and, as a result,
reversed $9.6 million of net restructuring costs related to
previously restructured facilities to be occupied by KVS
personnel. |
| |
| (3) |
In the first and fourth quarters of 2004, we recorded gains on
strategic investments of $7.5 million and
$2.0 million, respectively. |
53
Quarterly Consolidated Statements of Operations for 2003
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2003 | |
| |
|
| |
| |
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
|
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
(Unaudited) | |
|
|
|
|
| |
|
(In thousands, except per share amounts) | |
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
$ |
247,455 |
|
|
$ |
252,801 |
|
|
$ |
281,814 |
|
|
$ |
310,661 |
|
|
$ |
1,092,731 |
|
| |
Services
|
|
|
142,681 |
|
|
|
155,567 |
|
|
|
164,811 |
|
|
|
191,297 |
|
|
|
654,356 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total net revenue
|
|
|
390,136 |
|
|
|
408,368 |
|
|
|
446,625 |
|
|
|
501,958 |
|
|
|
1,747,087 |
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
|
11,917 |
|
|
|
11,716 |
|
|
|
11,483 |
|
|
|
13,631 |
|
|
|
48,747 |
|
| |
Services
|
|
|
52,302 |
|
|
|
54,807 |
|
|
|
58,948 |
|
|
|
63,484 |
|
|
|
229,541 |
|
| |
Amortization of developed technology(1)
|
|
|
14,782 |
|
|
|
10,554 |
|
|
|
5,043 |
|
|
|
4,888 |
|
|
|
35,267 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cost of revenue
|
|
|
79,001 |
|
|
|
77,077 |
|
|
|
75,474 |
|
|
|
82,003 |
|
|
|
313,555 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross profit
|
|
|
311,135 |
|
|
|
331,291 |
|
|
|
371,151 |
|
|
|
419,955 |
|
|
|
1,433,532 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and marketing
|
|
|
115,298 |
|
|
|
121,843 |
|
|
|
136,184 |
|
|
|
160,649 |
|
|
|
533,974 |
|
| |
Research and development
|
|
|
70,588 |
|
|
|
71,468 |
|
|
|
77,377 |
|
|
|
82,447 |
|
|
|
301,880 |
|
| |
General and administrative
|
|
|
38,179 |
|
|
|
39,638 |
|
|
|
39,209 |
|
|
|
39,018 |
|
|
|
156,044 |
|
| |
Amortization of other intangibles(1)
|
|
|
18,191 |
|
|
|
12,250 |
|
|
|
2,454 |
|
|
|
2,354 |
|
|
|
35,249 |
|
| |
In-process research and development(2)
|
|
|
4,100 |
|
|
|
15,300 |
|
|
|
— |
|
|
|
— |
|
|
|
19,400 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total operating expenses
|
|
|
246,356 |
|
|
|
260,499 |
|
|
|
255,224 |
|
|
|
284,468 |
|
|
|
1,046,547 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income from operations
|
|
|
64,779 |
|
|
|
70,792 |
|
|
|
115,927 |
|
|
|
135,487 |
|
|
|
386,985 |
|
|
Interest and other income, net
|
|
|
11,012 |
|
|
|
13,891 |
|
|
|
8,653 |
|
|
|
10,057 |
|
|
|
43,613 |
|
|
Interest expense(3)
|
|
|
(7,738 |
) |
|
|
(7,798 |
) |
|
|
(9,249 |
) |
|
|
(5,616 |
) |
|
|
(30,401 |
) |
|
Loss on extinguishment of debt(4)
|
|
|
— |
|
|
|
— |
|
|
|
(4,714 |
) |
|
|
— |
|
|
|
(4,714 |
) |
|
Loss on strategic investments(5)
|
|
|
(3,518 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,518 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income before income taxes
|
|
|
64,535 |
|
|
|
76,885 |
|
|
|
110,617 |
|
|
|
139,928 |
|
|
|
391,965 |
|
|
Provision (benefit) for income taxes
|
|
|
21,431 |
|
|
|
31,251 |
|
|
|
36,250 |
|
|
|
(50,689 |
) |
|
|
38,243 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income before cumulative effect of change in accounting principle
|
|
|
43,104 |
|
|
|
45,634 |
|
|
|
74,367 |
|
|
|
190,617 |
|
|
|
353,722 |
|
|
Cumulative effect of change in accounting principle, net of
tax(6)
|
|
|
— |
|
|
|
— |
|
|
|
(6,249 |
) |
|
|
— |
|
|
|
(6,249 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Income
|
|
$ |
43,104 |
|
|
$ |
45,634 |
|
|
$ |
68,118 |
|
|
$ |
190,617 |
|
|
$ |
347,473 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share before cumulative effect of change in
accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.17 |
|
|
$ |
0.45 |
|
|
$ |
0.84 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.17 |
|
|
$ |
0.43 |
|
|
$ |
0.81 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
— |
|
|
|
— |
|
|
$ |
(0.01 |
) |
|
|
— |
|
|
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
— |
|
|
|
— |
|
|
$ |
(0.02 |
) |
|
|
— |
|
|
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.16 |
|
|
$ |
0.45 |
|
|
$ |
0.83 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.15 |
|
|
$ |
0.43 |
|
|
$ |
0.80 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing per share amounts —
basic
|
|
|
412,916 |
|
|
|
415,621 |
|
|
|
425,153 |
|
|
|
428,010 |
|
|
|
420,754 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing per share amounts —
diluted
|
|
|
419,380 |
|
|
|
427,939 |
|
|
|
440,815 |
|
|
|
444,914 |
|
|
|
434,446 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
| (1) |
The decrease in amortization of developed technology and other
intangibles from the second to third quarter of 2003 was
primarily due to the intangibles associated with our 1999
acquisitions reaching full amortization during the second
quarter of 2003 offset by the additional intangibles recorded as
a result of the acquisition of Precise in the second quarter of
2003. |
| |
| (2) |
In the first and second quarters of 2003, we recorded non-cash
charges of $4.1 million and $15.3 million,
respectively, related to the write-off of in-process research
and development for the acquisitions of Jareva and Precise,
respectively. |
| |
| (3) |
The decrease in interest expense in the fourth quarter of 2003
is due to the conversion and redemption of our 1.856% and 5.25%
convertible notes in August 2003 offset by the issuance of the
0.25% convertible subordinated notes the same month. |
| |
| (4) |
In connection with the August 2003 redemption of our 1.856%
convertible subordinated notes, we recorded a loss on
extinguishment of debt representing the unamortized portion of
debt issuance costs at the time of redemption. |
| |
| (5) |
In the first quarter of 2003, we recorded a loss on strategic
investments of $3.5 million when we determined that there
had been a decline in the fair value of certain investments that
was other-than-temporary. |
| |
| (6) |
As a result of the adoption of FIN 46 in the third quarter
of 2003, we recorded a cumulative effect of change in accounting
principle, net of tax, representing the amount of depreciation
expense that would have been recorded had our variable interest
entities been consolidated from the date the applicable
properties were available for occupancy. |
55
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Appearing as exhibits to this Form 10-K are the
certifications of our chief executive officer and chief
financial officer required in accordance with Section 302
of the Sarbanes-Oxley Act of 2002. This Item 9A includes
information concerning the controls, and controls evaluation,
referred to in the certifications. In addition, Part IV,
Item 15 of this Form 10-K sets forth the report of
KPMG LLP, our independent registered public accounting firm,
regarding its audit of our internal control over financial
reporting, and of management’s assessment of internal
control over financial reporting as set forth below in this
section. This section should be read in conjunction with the
certifications and the KPMG LLP report for a more complete
understanding of the topics presented.
|
|
| (a) |
Evaluation of Disclosure Controls and Procedures |
Our disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed
in our reports filed or submitted under the Securities Exchange
Act of 1934, such as this annual report on Form 10-K, is
recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms. Our disclosure
controls and procedures are also designed to ensure that such
information is accumulated and communicated to our management,
including our chief executive officer and chief financial
officer, to allow timely decisions regarding required disclosure.
Our chief executive officer and chief financial officer, with
the assistance of our disclosure committee, have conducted an
evaluation of the effectiveness of our disclosure controls and
procedures as of December 31, 2004. We perform this
evaluation on a quarterly basis so that the conclusions
concerning the effectiveness of our disclosure controls and
procedures can be reported in our annual report on
Form 10-K and quarterly reports on Form 10-Q. Based on
this evaluation, our chief executive officer and chief financial
officer have concluded that, as a result of the material
weakness in internal control over financial reporting discussed
below, our disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15(e)) were not effective as of
December 31, 2004.
We believe our financial statements fairly present in all
material respects the financial position, results of operations
and cash flows for the interim and annual periods presented in
our annual report on Form 10-K and quarterly reports on
Form 10-Q. The unqualified opinion of our independent
registered public accounting firm on our financial statements is
included in Part IV, Item 15 of this Form 10-K.
|
|
| (b) |
Management’s Report on Internal Control Over
Financial Reporting |
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company, to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Any
controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the
desired control objectives. In addition, controls may become
inadequate
56
because of changes to the sources of our financial reporting
risk or due to changes in our ability to design and effectively
operate controls commensurate with our areas of risk.
Our management has made an assessment of the effectiveness of
our internal control over financial reporting as of
December 31, 2004. Management based its assessment on
criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on this assessment, our management has identified
deficiencies in the Company’s internal control over
financial reporting that resulted in errors in accounting for
software revenue recognition and concluded that, in the
aggregate, these deficiencies constitute a material weakness in
internal control over financial reporting as of
December 31, 2004, as described below. A material weakness
is a significant deficiency, as defined in Public Company
Accounting Oversight Board Auditing Standard No. 2 or a
combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the
Company’s annual or interim financial statements would not
be prevented or detected by company personnel in the normal
course of performing their assigned functions.
Manual Order Entry Processes. As of December 31,
2004, we did not maintain adequate review procedures requiring
validation by qualified personnel of information included in
manual customer orders for software products and services to
ensure that this information was accurately entered into our
order processing system and to ensure revenue recognition in
accordance with generally accepted accounting principles.
Software Revenue Recognition Review. As of
December 31, 2004, we did not maintain adequate review
procedures to ensure that multiple-element software arrangements
and other related software revenue recognition requirements were
accounted for in accordance with generally accepted accounting
principles.
Because of the material weakness described above, management has
concluded the Company did not maintain effective internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control —
Integrated Framework issued by the COSO.
Our independent registered public accounting firm, KPMG LLP,
audited management’s assessment of the effectiveness of the
Company’s internal control over financial reporting. KPMG
LLP has issued an attestation report thereon, which is included
in Part IV, Item 15 of this Form 10-K.
|
|
| (c) |
Remediation Steps to Address Material Weakness |
The Company will conduct remediation activity in 2005 to enhance
our internal control over financial reporting, as follows:
|
|
|
| |
• |
Increasing the number of experienced accounting personnel to
implement additional internal review, including the
establishment of a “compliance desk,” whose function
is to identify non-standard transactions and defer processing
until the appropriate review is conducted; |
| |
| |
• |
Implementing additional automated controls in our order
processing system; |
| |
| |
• |
Promoting the use of standard terms and conditions and the use
of review templates to help ensure accuracy. |
|
|
|
(d) Changes in Internal Control Over Financial
Reporting |
We regularly implement improvements to our internal control over
financial reporting. However, during our most recent quarter
ended December 31, 2004, there have been no changes in our
internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other Information
If we complete our merger with Symantec, we will not conduct a
2005 annual stockholders’ meeting. If the merger fails to
occur, then we will set a date for our 2005 annual
stockholders’ meeting and provide notice
57
to stockholders of such date. In such event, a
stockholders’ notice, to be timely filed, must be delivered
to the Secretary at our principal executive office at
350 Ellis Street, Mountain View, California 94043 not later
than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first
anniversary of the 2004 annual meeting; provided, however, that
in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be
delivered not earlier than the close of business on the
90th day prior to the annual meeting and not later than the
close of business on the later of the 60th day prior to the
annual meeting or the close of business on the 10th day
following the first day on which we make a public announcement
of the date of the meeting.
PART III
The following Items include information with regard to our
directors and executive officers, and do not include information
regarding agreements executed by our executive officers with
Symantec Corporation in anticipation of the closing of the
proposed merger with Symantec, which is expected to occur in the
second calendar quarter of 2005. For additional information
regarding the proposed merger, including the agreements of our
executive officers with Symantec, please refer to the
Form S-4 (File No. 333-122724), containing a
preliminary joint proxy statement/prospectus in connection with
the proposed merger, filed by Symantec on February 11, 2005.
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Directors
Our board of directors currently consists of eight directors and
is divided into three classes serving staggered three-year
terms. Directors for each class will be elected at the annual
meeting of stockholders held in the year in which the term for
that class expires and will serve for three years. There are no
family relationships among our executive officers or directors.
Our board of directors believes that a majority of its members
should be independent directors. Currently, six of the eight
members of our board of directors are independent, including:
Michael Brown, Kurt Lauk, William Pade, David Roux, Carolyn
Ticknor and V. Paul Unruh. All committees of our board of
directors are comprised entirely of independent directors.
The names of our current directors, their ages as of
March 31, 2005, and other information about them are shown
below. The dates given for time of service as a director
include, when applicable, time served by each individual as a
director of a predecessor company.
58
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VERITAS Director | |
| Name of Director |
|
Age | |
|
Principal Occupation |
|
Since | |
| |
|
| |
|
|
|
| |
|
Gary L. Bloom
|
|
|
44 |
|
|
Chairman of the Board, President and Chief Executive Officer |
|
|
2000 |
|
|
Michael Brown
|
|
|
46 |
|
|
Director of Quantum Corporation, Digital Impact, Inc., Nektar
Therapeutics, and former Chairman of the Board of Quantum
Corporation |
|
|
2003 |
|
|
Kurt Lauk
|
|
|
58 |
|
|
President of Globe CP GmbH |
|
|
2004 |
|
|
William Pade
|
|
|
54 |
|
|
Partner of Oak Hill Capital Management |
|
|
2004 |
|
|
David J. Roux
|
|
|
48 |
|
|
Managing Director and Co-Founder of Silver Lake Partners |
|
|
2002 |
|
|
Geoffrey W. Squire
|
|
|
58 |
|
|
Vice-Chairman of the Board |
|
|
1997 |
|
|
Carolyn Ticknor
|
|
|
57 |
|
|
Director of OfficeMax, Inc. and The Clorox Company and former
President of Imaging and Printing at Hewlett-Packard Company |
|
|
2003 |
|
|
V. Paul Unruh
|
|
|
56 |
|
|
Director of Homestore, Inc. and Heidrick and Struggles
International Inc. |
|
|
2003 |
|
Mr. Bloom has served as our President and Chief
Executive Officer since November 2000 and as the Chairman of our
board of directors since January 2002. Mr. Bloom joined us
after a 14-year career with Oracle Corporation, an enterprise
software company, 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 systems 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 and Chevron Corporation.
Mr. Brown has been a director of Quantum
Corporation, a provider of data back-up and archiving solutions,
since September 1995, serving as its chairman until July 2003.
Mr. Brown held various senior management positions at
Quantum since joining the company in 1984, most recently as
Chief Executive Officer from September 1995 to September 2002.
Mr. Brown serves on the board of directors of Digital
Impact, Inc., an Internet-based marketing company, Nektar
Therapeutics, a provider of drug delivery solutions for the
development of pharmaceutical products and a number of private
companies.
Prof. Dr. Lauk has served as Founding Partner
and President of Globe CP GmbH, an investment and investment
advisory firm located in Stuttgart, Germany, since November
2000. Prior to Globe CP GmbH, Prof. Dr. Lauk served as the
Head of the Commercial Vehicle Division at DaimlerChrysler AG, a
motor vehicle manufacturer, from August 1996 to December 1999.
From 1992 to 1996, Prof. Dr. Lauk served as the Head of
Finance and Controlling at E.ON AG. Prof. Dr. Lauk serves
on the board of directors of Corus UK Limited, a global metals
company, Business Objects S.A., a business solutions provider,
and a number of private companies. Prof. Dr. Lauk was
elected President of the Economic Council to the Christian
Democratic Party E.V., Berlin in 2000.
Mr. Pade is currently a partner of Oak Hill Capital
Management and has responsibility for investments in the
technology sector. Prior to joining Oak Hill in January 2004,
Mr. Pade spent 26 years at McKinsey &
Company, where he was most recently a Director and the Managing
Partner of McKinsey’s Silicon Valley office, which is the
center of the McKinsey global high technology sector. Prior to
that, Mr. Pade was based in London, U.K., where he led
McKinsey’s high technology and telecom practice in Europe.
Throughout his
59
career at McKinsey, Mr. Pade worked with a number of
leading enterprise software, computer hardware and communication
companies. Mr. Pade serves on the boards of directors of
SAVVIS Communications (as an observer) and Varsity Group, Inc.
Mr. Roux is a Managing Director and co-founder of
Silver Lake Partners, a private equity firm, which was formed in
1999. Mr. Roux has extensive operating and acquisition
experience in the technology sector. Prior to founding Silver
Lake Partners, Mr. Roux served as the Chief Executive
Officer and President of Liberate Technologies, a software
platform provider. From 1994 to 1998, Mr. Roux served as
Executive Vice President, Corporate Development, at Oracle
Corporation. Mr. Roux was responsible for business
development, mergers and acquisitions, technology licensing, and
equity investments and served on Oracle’s Executive
Committee and Product Management Committee. Mr. Roux served
as a director of Gartner, Inc. until October 2004 and serves as
a director of Thompson S.A., Business Objects S.A. and a number
of private companies. Mr. Roux was previously Chairman of
Seagate Technology.
Mr. Squire has served as our Vice Chairman of the
Board since 1997, when we merged with OpenVision Technologies,
Inc. Mr. Squire also served as our Executive Vice President
from April 1997 to May 2003. 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 serves as the chairman of the board of directors
of The Innovation Group PLC, a provider of software solutions to
the insurance industry.
Ms. Ticknor retired as president of Hewlett-Packard
Company’s Imaging and Printing business in 2001. During her
24-year tenure at HP, a technology solutions provider,
Ms. Ticknor held various management positions including
president of Imaging and Printing. Ms. Ticknor served on
the board of directors for AT&T Wireless Services Inc. until
October 2004 and serves on the board of directors of OfficeMax,
Inc. and The Clorox Company.
Mr. Unruh retired as Vice Chairman of the Bechtel
Group, Inc., an engineering company, in June 2003. During his
25-year tenure with Bechtel, Mr. Unruh held various
positions in management including Treasurer from 1983-1986,
Controller from 1987-1991 and CFO from 1992-1996. Mr. Unruh
also served as President of Bechtel Enterprises, Bechtel’s
finance, development and ownership arm from 1997-2001.
Mr. Unruh serves on the boards of directors of Homestore,
Inc., a provider of real estate media and technology solutions,
and Heidrick & Struggles International, Inc., a
provider of executive search and leadership consulting services.
Mr. Unruh is a Certified Public Accountant.
60
Executive Officers of the Registrant
The names of our current executive officers, their ages as of
March 31, 2005 and their positions are shown below. The
dates given for time of service with us include, when
applicable, time served by each individual with a predecessor
company.
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position with VERITAS |
| |
|
| |
|
|
|
Gary Bloom
|
|
|
44 |
|
|
Chairman of the Board, President and Chief Executive Officer |
|
Mark Bregman
|
|
|
47 |
|
|
Executive Vice President, Chief Technology Officer and Acting
Manager of the Application and Service Management Group |
|
John Brigden
|
|
|
40 |
|
|
Senior Vice President, General Counsel and Secretary |
|
Jeremy Burton
|
|
|
37 |
|
|
Executive Vice President, Data Management Group |
|
Edwin Gillis
|
|
|
56 |
|
|
Executive Vice President, Finance and Chief Financial Officer |
|
Kristof Hagerman
|
|
|
41 |
|
|
Executive Vice President, Storage and Server Management Group |
|
Gregory Hughes
|
|
|
42 |
|
|
Executive Vice President, Global Services |
|
Arthur Matin
|
|
|
48 |
|
|
Executive Vice President, Worldwide Sales |
Mr. Bloom has served as our President and Chief
Executive Officer since November 2000 and as Chairman of our
board of directors since January 2002. Mr. Bloom’s
biographical information is set forth above under
“— Directors.”
Dr. Bregman has served as our Executive Vice
President, Chief Technology Officer and acting manager of the
Application and Service Management Group since September 2004.
Dr. Bregman served as our Executive Vice President, Product
Operations from February 2002 to September 2004. From August
2000 to October 2001, Dr. Bregman served as the Chief
Executive Officer of AirMedia, Inc., a wireless Internet
company. Prior to joining AirMedia, Dr. Bregman served a
16-year career with IBM, most recently as general manager of
IBM’s RS/6000 and pervasive computing divisions from 1995
to August 2000.
Mr. Brigden has served as our Senior Vice President,
General Counsel and Secretary since May 2003. He served as our
Vice President, General Counsel and Secretary from November 2001
to May 2003 and as Vice President and General Counsel from May
2001 to November 2001. Before joining us, Mr. Brigden was
Vice President of Business Development and General Counsel at
Shutterfly, Inc., an Internet-based digital photo service
company, from January 2000 to April 2001. Prior to Shutterfly,
Mr. Brigden served as director of intellectual property for
Silicon Graphics, Inc. from February 1997 to January 2000.
Mr. Brigden is a member of the California Bar Association
and is also licensed to practice law in Virginia,
Washington, D.C., and before the United States Patent and
Trademark Office.
Mr. Burton has served as our Executive Vice
President, Data Management Group since September 2004.
Mr. Burton served as our Senior Vice President, Chief
Marketing Officer from April 2002 to September 2004. Prior to
joining us, Mr. Burton served as Senior Vice President of
Product and Services Marketing at Oracle Corporation, an
enterprise software company, and held positions in customer
support, presales, product management and engineering, including
leading the development of Oracle’s Java development tools,
from October 1995 to April 2002.
Mr. Gillis has served as our Executive Vice
President, Finance and Chief Financial Officer since November
2002. Before joining us, Mr. Gillis served as Chief
Financial Officer of Parametric Technology Corporation, a
software company, from October 1995 to October 2002. Prior to
Parametric, Mr. Gillis served for four years as chief
financial officer of Lotus Development Corp., a software
company. Before joining Lotus, Mr. Gillis spent
15 years with Coopers & Lybrand, an accounting
firm, as a certified public accountant and general practice
partner.
61
Mr. Hagerman has served as our Executive Vice
President, Storage and Server Management Group since September
2004. Mr. Hagerman served as our Executive Vice President,
Strategic Operations from February 2003 to September 2004, and
has led our Strategic Operations organization since joining us
in 2001. Before joining us, Mr. Hagerman served as founder
and chief executive officer at Affinia Inc., an online affiliate
marketing network, from September 1998 to September 2000 and as
founder and chief executive officer of BigBook, Inc., an
Internet yellow pages service, from 1995 until its acquisition
by GTE in 1998. Before BigBook, Mr. Hagerman held various
management positions in consulting, sales and marketing,
business development and finance.
Mr. Hughes has served as our Executive Vice
President, Global Services since October 2003. Mr. Hughes
joined us after a 10-year career at McKinsey & Co., a
global management consulting service provider, where he most
recently served as a Partner.
Mr. Matin has served as our Executive Vice
President, Worldwide Sales since March 2004. Mr. Matin
joined us from Network Associates, Inc., a supplier of network
security and management software, where he served as President
of McAfee Security from December 2001 to March 2004. Prior to
joining Network Associates, Mr. Matin was Senior Vice
President of Worldwide Sales and Marketing at CrossWorlds
Software, Inc., a provider of enterprise application integration
software, from January 2000 to November 2001. Prior to joining
CrossWorlds, Mr. Matin spent 19 years at IBM managing
U.S. and international sales operations, most recently as Vice
President of the Industrial Sector for the Americas.
Audit Committee of the Board of Directors
We have a separately designated standing audit committee of the
board of directors, established in accordance with
Section 3(a)(58)(A) of the Exchange Act. Our audit
committee consists of Michael Brown, David J. Roux and
V. Paul Unruh. Mr. Brown joined the audit committee in
August 2004, and Mr. Roux joined the audit committee in
November 2003. Mr. Unruh joined the committee in May 2003
and was appointed chair in November 2003. Each member is an
independent director as defined by current NASDAQ Stock Market
listing standards for audit committee membership and by the
Exchange Act.
Our board of directors has unanimously determined that all audit
committee members are financially literate under current NASDAQ
listing standards, and at least one member has financial
sophistication under NASDAQ listing standards. In addition, our
board has unanimously determined that Mr. Unruh qualifies
as an “audit committee financial expert” under SEC
rules and regulations.
Code of Ethics
We are committed to conducting business in a fair, ethical and
legal manner at every level of our organization and at every
location where we do business. In an effort to clearly define
our standards of excellence, we have established the VERITAS
Software Standards of Business Conduct. These standards apply to
all of our directors, officers and employees. A copy of our
Standards of Business Conduct is available on our Internet
website, which is located at http://www.veritas.com, in
the “Investors” section of “About VERITAS.”
In addition, we are dedicated to ensuring compliance with the
highest standards of financial accounting and reporting and have
the utmost confidence in our financial reporting, underlying
systems of internal controls and our financial employees. Our
financial employees operate under the highest level of ethical
standards, which are embodied in our Financial Code of Ethics.
Our Financial Code of Ethics applies to our chief executive
officer, chief financial officer and other members of our
finance department. A copy of our Financial Code of Ethics is
available on our Internet website, which is located at
http://www.veritas.com, in the “Investors”
section of “About VERITAS.”
We intend to disclose any amendments or waivers to our Standards
of Business Conduct and Financial Code of Ethics on our Internet
website, which is located at http://www.veritas.com,
promptly following the date of any such amendment or waiver.
62
Section 16(a) Beneficial Ownership Reporting
Compliance
In accordance with Section 16(a) of the Exchange Act and
the regulations of the SEC, our directors, executive officers
and holders of more than 10% of our common stock are required to
file reports of ownership and changes in ownership with the SEC
and the NASDAQ Stock Market and to furnish us with copies of all
of the reports they file. Based solely on our review of the
copies of the forms furnished to us and written representations
from the reporting persons, we are not aware of any failures
during 2004 to file any Forms 3, 4 or 5 and any failures to
file such forms on a timely basis.
|
|
| Item 11. |
Executive Compensation |
The following table sets forth all compensation awarded to,
earned by or paid for services rendered to us in all capacities
during 2004, 2003 and 2002 by our chief executive officer and
our four other most highly compensated executive officers for
the year ended December 31, 2004. The information in the
table includes the dollar value of base salaries, commissions
and bonus awards, certain reimbursements, the number of shares
subject to stock options granted and certain other compensation,
whether paid or deferred. Bonuses for our executive officers
with respect to services rendered for 2004 have been determined
based on financial targets and performance criteria set forth in
our 2004 Executive Incentive Compensation Plan. As part of our
annual executive compensation program for 2005, annual stock
option grants for our executive officers were made in the first
quarter of 2005 with respect to services to be performed during
2005. We do not grant stock appreciation rights and provide no
long-term compensation benefits other than stock options and
restricted stock units under our 2003 Stock Incentive Plan, as
amended.
Summary Compensation Table
| |
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| |
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Long-Term Compensation Awards | |
| |
|
|
|
Annual Compensation | |
|
| |
| |
|
|
|
| |
|
Restricted | |
|
Securities | |
|
|
| |
|
|
|
|
|
Other Annual | |
|
Stock | |
|
Underlying | |
|
All Other | |
| Name and Principal Position |
|
Year | |
|
Salary | |
|
Bonus(1) | |
|
Compensation | |
|
Awards(2) | |
|
Options | |
|
Compensation(3) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Gary L. Bloom
|
|
|
2004 |
|
|
$ |
1,000,000 |
|
|
$ |
1,750,000 |
|
|
$ |
* |
|
|
$ |
— |
|
|
|
— |
(4) |
|
$ |
2,500 |
|
| |
President, Chief Executive |
|
|
2003 |
|
|
|
1,000,000 |
|
|
|
1,852,000 |
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
(5) |
|
|
2,500 |
|
| |
Officer, and Chairman of |
|
|
2002 |
|
|
|
1,000,000 |
|
|
|
1,150,000 |
|
|
|
* |
|
|
|
— |
|
|
|
800,000 |
|
|
|
2,500 |
|
| |
the Board |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Bregman(6)
|
|
|
2004 |
|
|
|
430,000 |
|
|
|
375,000 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
(4) |
|
|
2,500 |
|
| |
Executive Vice President, |
|
|
2003 |
|
|
|
390,000 |
|
|
|
412,000 |
|
|
|
102,144 |
(7) |
|
|
— |
|
|
|
200,000 |
(5) |
|
|
2,500 |
|
| |
Chief Technology Officer |
|
|
2002 |
|
|
|
331,000 |
|
|
|
300,000 |
|
|
|
59,949 |
(8) |
|
|
— |
|
|
|
825,000 |
|
|
|
2,500 |
|
| |
and Acting Manager of the Application and Service Management
Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin J. Gillis(9)
|
|
|
2004 |
|
|
|
435,000 |
|
|
|
440,000 |
|
|
|
274,629 |
(10) |
|
|
— |
|
|
|
— |
(4) |
|
|
2,500 |
|
| |
Executive Vice President, |
|
|
2003 |
|
|
|
435,000 |
|
|
|
460,000 |
|
|
|
* |
|
|
|
— |
|
|
|
200,000 |
(5) |
|
|
2,500 |
|
| |
Finance and Chief Financial |
|
|
2002 |
|
|
|
52,981 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
700,000 |
|
|
|
— |
|
| |
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kristof Hagerman(11)
|
|
|
2004 |
|
|
|
385,000 |
|
|
|
385,000 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
(4) |
|
|
— |
|
| |
Executive Vice President, |
|
|
2003 |
|
|
|
346,354 |
|
|
|
400,000 |
|
|
|
* |
|
|
|
— |
|
|
|
200,000 |
(5) |
|
|
2,500 |
|
| |
Storage and Server |
|
|
2002 |
|
|
|
315,000 |
|
|
|
260,000 |
|
|
|
* |
|
|
|
— |
|
|
|
300,000 |
|
|
|
2,500 |
|
| |
Management Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur Matin(12)
|
|
|
2004 |
|
|
|
486,538 |
|
|
|
451,000 |
|
|
|
— |
|
|
|
5,254,000 |
(13) |
|
|
600,000 |
(4),(14) |
|
|
412,500 |
(15) |
| |
Executive Vice President, |
|
|
2003 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Worldwide Sales |
|
|
2002 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
| |
* |
Did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for the above-named executive officers. |
|
|
|
| |
(1) |
Performance-based bonuses for services rendered in 2004 were
paid in the first quarter of 2005. Performance-based bonuses for
services rendered in 2003 and 2002 were paid in the following
year. |
| |
| |
(2) |
Consists of the dollar value of grants of restricted stock units
to purchase shares of our common stock (calculated by
multiplying the closing market price of our common stock on the
date of grant by the |
63
|
|
|
| |
|
number of shares that will be received upon settlement of such
restricted stock units). The restricted stock units are not
entitled to dividends. |
| |
| |
(3) |
Except where otherwise noted, consists of the $2,500 matching
contributions made by us on behalf of the named officers to our
401(k) plan. |
| |
| |
(4) |
Annual stock option grants were made on February 15, 2005
to the above-named executive officers with respect to services
to be performed during 2005 in the following amounts:
Mr. Bloom received options to
purchase 553,000 shares; Dr. Bregman received
options to purchase 180,000 shares; Mr. Gillis
received options to purchase 170,000 shares;
Mr. Hagerman received options to
purchase 180,000 shares; and Mr. Matin received
options to purchase 170,000 shares. Annual stock
option awards were not granted to the above-named executive
officers for services rendered in 2004. |
| |
| |
(5) |
Consists of stock options granted in February 2004 with respect
to services rendered in 2003. |
| |
| |
(6) |
Dr. Bregman joined VERITAS in March 2002. |
| |
| |
(7) |
Consists of $43,605 in relocation expenses and $58,539 for
reimbursement of Dr. Bregman’s income tax liability
for the 2002 tax year related to relocation expenses paid by us
in 2002. |
| |
| |
(8) |
Consists of relocation expenses. |
| |
| |
(9) |
Mr. Gillis joined VERITAS in November 2002. |
|
|
| (10) |
Consists of relocation expenses. |
| |
| (11) |
Mr. Hagerman was promoted from Senior Vice President to
Executive Vice President in February 2003. |
| |
| (12) |
Mr. Matin joined VERITAS in March 2004. |
| |
| (13) |
Represents the dollar value of 200,000 restricted stock units
granted in April 2004, of which $1,313,500 had vested as of
December 31, 2004. The unvested restricted stock units held
by Mr. Matin will vest upon his continuation in our employ
through March 9, 2007, but as of December 31, 2004,
were subject to accelerated vesting in a series of nine
remaining quarterly installments upon the attainment of the
designated performance goals for each such quarter. |
| |
| (14) |
Consists of stock options granted to Mr. Matin in April
2004 in connection with the commencement of his employment. |
| |
| (15) |
Includes $200,000 paid to Mr. Matin upon commencement of
his employment in March 2004, and an additional $200,000 paid to
Mr. Matin after he had been employed by us for six months.
Also includes $10,000 paid to Mr. Matin for legal related
expenses. |
The compensation committee of our board of directors is
responsible for the review of all cash and equity compensation
for our executive officers. The cash and equity compensation for
our chief executive officer is approved by a majority of our
independent directors, and the cash and equity compensation for
all other executive officers is approved by the compensation
committee. The compensation committee has the sole and exclusive
authority to issue stock options and other stock or stock-based
awards under our 2003 Stock Incentive Plan to our executive
officers, and is composed entirely of independent, non-employee
directors. For 2004 and 2005, the compensation committee engaged
an independent executive compensation consultant to advise it on
matters related to executive compensation.
Option Grants for 2004
The following table sets forth information regarding stock
options granted to Mr. Matin upon commencement of his
employment with us in March 2004. There were no other stock
option grants made to the above-named executive officers for
services rendered in 2004. Annual stock option grants were made
on February 15, 2005 to the above-named executive officers
with respect to services to be performed during 2005 in the
following amounts: Mr. Bloom received options to
purchase 553,000 shares; Dr. Bregman received
options to purchase 180,000 shares; Mr. Gillis
received options to purchase 170,000 shares;
Mr. Hagerman received options to
purchase 180,000 shares; and Mr. Matin received
options to purchase 170,000 shares.
64
During 2004, we granted to our employees options to purchase an
aggregate of 10,342,259 shares of our common stock. The
exercise price of all stock options was equal to the fair market
value of our common stock on the date of grant. The stock
options listed below vest at the rate of 1/48th per month and
have a term of 10 years, subject to earlier termination
upon termination of employment. For a discussion of the impact
of the pending merger with Symantec on the options held by the
above-named executive officers, see “The Merger —
Interests of Certain VERITAS Persons in the Merger” in the
Registration Statement on Form S-4 filed by Symantec on
February 11, 2005.
The potential realizable value table illustrates the
hypothetical gains that would exist for the options at the end
of the 10-year term of the option based on assumed annualized
rates of compound stock price appreciation of 5% and 10% from
the dates the options were granted to the end of the term. The
5% and 10% assumed rates of annual compound stock price
appreciation are mandated by SEC rules and do not represent our
estimate or projection of future common stock prices. Actual
gains, if any, on option exercises will depend on the future
performance of our common stock and overall market conditions.
The potential realizable values shown in this table may never be
achieved.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Percent of | |
|
|
|
|
|
Potential Realizable Value | |
| |
|
Number of | |
|
Total Options | |
|
|
|
|
|
at Assumed Rates of | |
| |
|
Securities | |
|
Granted to | |
|
|
|
|
|
Stock Price Appreciation | |
| |
|
Underlying | |
|
Employees in | |
|
|
|
|
|
for Option Term | |
| |
|
Options | |
|
Fiscal Year | |
|
Exercise | |
|
Expiration | |
|
| |
| Name |
|
Granted | |
|
2004 | |
|
Price | |
|
Date | |
|
5% | |
|
10% | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Arthur Matin
|
|
|
600,000 |
|
|
|
5.8 |
% |
|
$ |
26.27 |
|
|
|
04/12/14 |
|
|
$ |
9,912,637 |
|
|
$ |
25,120,569 |
|
Aggregate Option Exercises in 2004 and Year-End Option
Values
The following table sets forth information concerning stock
option exercises during 2004 by each of the above-named
executive officers, including the aggregate amount of gains on
the date of exercise. The value realized for option exercises is
the aggregate fair market value of our common stock on the date
of exercise less the exercise price. In addition, the table
includes the number of shares covered by both exercisable and
unexercisable stock options held on December 31, 2004 by
each of those officers. Also reported are values for
“in-the-money” stock options that represent the
positive spread between the respective exercise prices of
outstanding stock options and the fair market value of our
common stock as of December 31, 2004. The values for
unexercised in-the-money options have not been, and may never
be, realized. The fair market value is determined by the closing
price of our common stock on December 31, 2004, as reported
on the Nasdaq National Market, which was $28.55 per share.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
|
Value of Unexercised | |
| |
|
Shares | |
|
|
|
Underlying Unexercised | |
|
In-the-Money Options | |
| |
|
Acquired | |
|
|
|
Options at Fiscal Year-End | |
|
at Fiscal Year-End | |
| |
|
Upon | |
|
Value | |
|
| |
|
| |
| Name |
|
Exercise | |
|
Realized | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Gary L. Bloom
|
|
|
35,500 |
|
|
$ |
739,414 |
|
|
|
4,897,605 |
|
|
|
986,895 |
|
|
$ |
14,858,835 |
|
|
$ |
6,968,170 |
|
|
Mark Bregman
|
|
|
— |
|
|
|
— |
|
|
|
247,646 |
|
|
|
227,354 |
|
|
$ |
1,094,584 |
|
|
$ |
1,209,791 |
|
|
Edwin J. Gillis
|
|
|
50,000 |
|
|
$ |
935,577 |
|
|
|
328,750 |
|
|
|
481,250 |
|
|
$ |
3,374,625 |
|
|
$ |
4,122,275 |
|
|
Kristof Hagerman
|
|
|
— |
|
|
|
— |
|
|
|
392,188 |
|
|
|
307,812 |
|
|
$ |
1,152,188 |
|
|
$ |
1,613,063 |
|
|
Arthur Matin
|
|
|
— |
|
|
|
— |
|
|
|
112,500 |
|
|
|
487,500 |
|
|
$ |
256,500 |
|
|
$ |
1,111,500 |
|
Compensation of Directors
Base Compensation and Expense Reimbursement. In May 2004,
our board of directors modified its cash compensation program
for non-employee directors effective as of January 1, 2004.
Under this program, each non-employee director receives an
annual retainer of $35,000 for serving on our board of
directors, and an annual committee fee for serving on any
committee of the board. The annual committee fee is $10,000 for
each member of the compensation committee and the corporate
governance and nominating committee, and $20,000 for each member
of the audit committee. Committee chairs receive an annual
committee chair fee in addition to the fee for being a committee
member. The annual committee chair fee is $5,000 for the chair
of the compensation committee and corporate governance and
nominating committee, and $10,000 for the chair
65
of the audit committee. Directors receive an additional $2,000
for attendance at any special board and committee meeting that
is duly noticed, consists of a quorum and is approved by the
chairman of the board and corporate secretary. Cash compensation
is paid on a quarterly basis and is subject to proration based
on period of service as a non-employee director. Directors who
are employees of VERITAS do not receive any compensation for
attending board or committee meetings. All of our directors are
reimbursed for actual expenses that they incur to attend
meetings and for other expenses related to service as a
director, such as the cost of attendance at director-related
educational programs.
Options. In May 2002, our stockholders approved the
2002 Directors Stock Option Plan as a successor to the
1993 Directors Stock Option Plan. Outstanding options
granted under the 1993 Directors Stock Option Plan will
continue to be governed by that plan, which has terms that are
substantially the same as those of the 2002 Directors Stock
Option Plan. No option grants have been made under the
1993 Directors Stock Option Plan since stockholder approval
of the 2002 Directors Stock Option Plan, and no additional
option grants will be made under the 1993 Directors Stock
Option Plan in the future.
Under the 2002 Directors Stock Option Plan, on the date
each non-employee director is elected to our board of directors,
he or she receives an automatic initial option grant to purchase
between 50,000 and 100,000 shares of common stock. The
number of shares covered by this initial grant is currently set
at 100,000 shares, but may be changed from time to time by
the board of directors.
Non-employee directors who were employed by us at any time prior
to their becoming a director are not eligible to receive this
initial grant. Upon the conclusion of our annual meeting of
stockholders each year, each non-employee director who will
continue serving as a member of our board of directors
thereafter will receive an automatic annual option grant to
purchase between 10,000 and 50,000 shares of common stock.
The number of shares covered by this annual grant is currently
set at 25,000 shares, but may be changed from time to time
by the board of directors. No such annual grant will be awarded
to a non-employee director who received an initial grant earlier
in the same calendar year. In addition, upon the conclusion of
our annual meeting of stockholders each year, each non-employee
director who serves on a committee of our board of directors
will receive an automatic annual option grant to
purchase 10,000 shares of common stock for the first
committee on which such director serves and 5,000 shares of
common stock for each additional committee on which such
director serves. In the event of a stock dividend, stock split
or similar capital change, the number of shares available under
this plan and available for the automatic initial and annual
grants will be automatically adjusted.
We have reserved 1,900,258 shares of common stock for
issuance under the 2002 Directors Stock Option Plan. In the
event that any outstanding option under this plan expires or
terminates for any reason, the shares of common stock allocable
to the unexercised portion of the option will be available again
for subsequent grant under this plan. The exercise price of all
stock options granted under the 2002 Directors Plan will
equal 100% of the fair market value of a share of our common
stock on the date of grant of the option. Options granted under
this plan are immediately exercisable. Once exercised, we will
have a right to repurchase unvested shares, with the repurchase
right lapsing as the shares vest. Each option vests in equal
monthly installments over four years beginning on the date of
grant, so long as the non-employee director serves as a member
of our board of directors. Each option has a ten-year term
unless earlier terminated. The options remain exercisable as to
vested shares for up to six months following the optionee’s
termination of service as a director, unless such termination is
a result of death or of total and permanent disability, in which
case the options remain exercisable for up to a one-year period.
The plan also provides for accelerated vesting of a specified
portion of each outstanding option in the event of an
optionee’s death and as to all of the shares if we undergo
a change in control. For a discussion of the impact of the
pending merger with Symantec on the options held by our
directors, see “The Merger — Interests of Certain
VERITAS Persons in the Merger” in the Registration
Statement on Form S-4 filed by Symantec on
February 11, 2005.
During the year ended December 31, 2004, under our
2002 Directors Stock Option Plan, each of Mr. Brown,
Mr. Roux, Mr. Squire, Ms. Ticknor and
Mr. Unruh received an automatic annual option grant for
25,000 shares on August 25, 2004, the date of the 2004
annual meeting of stockholders, with an exercise price of
$18.08 per share. Also on August 25, 2004, the
following non-employee directors received automatic option
66
grants for serving on the committees of our board of directors
in the following share amounts with an exercise price of
$18.08 per share: each of Mr. Brown and Mr. Unruh
received a grant for 15,000 shares, and each of
Prof. Dr. Lauk, Mr. Pade, Mr. Roux and
Ms. Ticknor received a grant for 10,000 shares. In
addition, Prof. Dr. Lauk received his initial option
grant on May 13, 2004 for 100,000 shares with an
exercise price of $26.40 per share and Mr. Pade
received his initial option grant for 100,000 shares on
August 25, 2004 with an exercise price of $18.08 per
share.
As of December 31, 2004, options to
purchase 206,240 shares were outstanding under the
1993 Directors Stock Option Plan, 75,000 shares had
been issued upon the exercise of options and no shares were
available for future grant. As of December 31, 2004,
options to purchase 888,756 shares were outstanding
under the 2002 Directors Stock Option Plan, no shares had
been issued upon the exercise of options and
1,002,335 shares were available for future grant.
In the past, our employee directors have received options under
the 1993 Stock Option Plan for their services as both employees
and directors. Following termination of employment, the portion
of these options commensurate with grants to non-employee
directors under our director stock option plans will remain
exercisable until the 90th day following the cessation of
service as a director pursuant to the terms of our 1993 Stock
Option Plan.
Employment Agreements and Change-of-Control Agreements
|
|
|
Employment Agreement with Mr. Bloom |
The employment of Mr. Bloom, our chief executive officer
and president, is at-will and may be terminated by him or by us
at any time for any reason. Mr. Bloom’s salary and
bonus are recommended by the compensation committee and approved
by our board of directors on an annual basis. Under the terms of
Mr. Bloom’s employment contract, which expired in
2002, Mr. Bloom’s employment with us at the time of
such expiration is to be treated no less favorably than the
policies in effect at the time for our other senior executives.
Mr. Bloom entered into a change of control agreement with
us effective March 15, 2004, the terms of which are
described below under “Change of Control Agreement with
Mr. Bloom”.
|
|
|
Change of Control Agreement with Mr. Bloom |
Mr. Bloom entered into a change in control agreement with
us effective March 15, 2004. Under the terms of the
agreement, in the event we undergo a change of control,
Mr. Bloom is entitled to accelerated vesting of his
outstanding stock options as follows:
|
|
| |
(1) If the acquiring or successor company assumes the
outstanding options, issues comparable substitute options, or
provides a cash incentive program that preserves the existing
spread under the options, then each of Mr. Bloom’s
outstanding options will vest and become exercisable immediately
upon the consummation of the change of control with respect to
50% of the unvested shares under each option; or |
| |
| |
(2) If the acquiring or successor company does not assume
the outstanding options, issue comparable substitute options or
provide a cash incentive program that preserves the existing
spread under the options, then each of Mr. Bloom’s
outstanding options will vest and become exercisable immediately
upon the consummation of the change of control with respect to
100% of the unvested shares under each option. |
In addition, if Mr. Bloom’s employment with us
terminates without cause, or if Mr. Bloom resigns with good
reason within 12 months after consummation of a change of
control of VERITAS, Mr. Bloom will be entitled to receive
the following severance benefits: (1) continuation of base
salary for a period of 18 months from the date of
termination; (2) 100% of his target bonus, plus a pro-rated
percentage of his target bonus based upon the number of days
that have passed in the fiscal year as of the termination date;
(3) acceleration of 100% of his unvested stock options; and
(4) payment of COBRA premiums for health insurance for
18 months after termination.
In order to receive these severance benefits, Mr. Bloom
must comply with the terms of a restrictive covenant which
includes, among other conditions: signing a confidentiality and
intellectual property agreement, executing a release and being
available to provide consulting services to us during the
18-month period
67
during which he receives severance benefits and not performing
functions similar to the functions he performed for us for any
competing business during that 18-month period.
Pursuant to the terms of the merger agreement with Symantec,
unvested options and restricted stock units granted on or after
December 15, 2004 through the term of the merger agreement
shall not be subject to the accelerated vesting described above.
|
|
|
Employment Agreements with Named Executive Officers |
Mr. Gillis, our Chief Financial Officer and Executive Vice
President, entered into an employment agreement effective
November 18, 2002. Under the terms of his employment
agreement, Mr. Gillis is paid an annual base salary of
$435,000, which may be increased from time to time as determined
by our chief executive officer, subject to approval of the
compensation committee. In addition, Mr. Gillis’
employment agreement provides for a guaranteed target bonus of
$290,000 in each of 2002 and 2003, with the bonus for 2002 paid
on a pro-rated basis for the portion of 2002 that he was
employed by us. After 2003, Mr. Gillis became entitled to
receive a performance bonus in accordance with our executive
officer bonus plan. In addition, pursuant to the terms of his
employment agreement, Mr. Gillis received a one-time grant
of options to purchase 700,000 shares of our common
stock and $274,629 for his relocation costs and expenses.
Mr. Gillis’ employment is at-will and may be
terminated by him or by us at any time for any reason. To the
extent that we provide to similarly situated employees any
severance or other benefits, Mr. Gillis is entitled to such
benefits to the extent such benefits exceed the benefits granted
in his employment agreement.
Mr. Matin joined us as Executive Vice President, Worldwide
Sales, in March of 2004. Under the terms of his employment
agreement, Mr. Matin will be paid an annual base salary of
$600,000 and is eligible to participate in our executive officer
bonus plan with a target annual bonus of $400,000. The bonus
plan will be pro-rated in 2004 for the portion of 2004 that
Mr. Matin was employed by us. Mr. Matin received a
sign-on bonus of $200,000 and an additional bonus of $200,000
after he had been employed by us for 6 months. In addition,
Mr. Matin received a one-time grant of options to
purchase 600,000 shares of our common stock and
200,000 restricted stock units. Mr. Matin is also entitled
to receive a one-time payment for legal expenses incurred in
connection with commencing employment with us, as well as
reimbursement for his relocation costs and expenses.
Mr. Matin’s employment is at-will and may be
terminated by him or by us at any time for any reason.
Dr. Bregman and Messrs. Gillis, Hagerman and Matin
each entered into a change of control agreement with us
effective March 15, 2004, the terms of which are described
below under “Change of Control Agreements with Named
Executive Officers.”
|
|
|
Change of Control Agreements with Named Executive
Officers |
Our other above-named executive officers have entered into
change in control agreements with us effective March 15,
2004. Under the terms of these agreements, in the event of a
change of control of VERITAS, the executive officer is entitled
to accelerated vesting of the executive officer’s
outstanding stock options as follows:
|
|
| |
(1) If the acquiring or successor company assumes the
outstanding options, issues comparable substitute options or
provides a cash incentive program that preserves the existing
spread under the options, then each of the executive
officer’s outstanding options will vest and become
exercisable immediately upon the consummation of the change of
control with respect to 50% of the unvested shares under each
option; or |
| |
| |
(2) If the acquiring or successor company does not assume
the outstanding options, issue comparable substitute options or
provide a cash incentive program that preserves the existing
spread under the options, then each of the executive
officer’s outstanding options will vest and become
exercisable immediately upon the consummation of the change of
control with respect to 100% of the unvested shares under each
option. |
In addition, if the executive officer’s employment with us
terminates without cause, or if the executive officer resigns
with good reason within 12 months after consummation of a
change of control of VERITAS, the executive officer will be
entitled to receive the following severance benefits:
(1) continuation of base salary for a period of
12 months from the date of termination; (2) 100% of
the executive officer’s target bonus, plus a pro-rated
percentage of their target bonus based upon the number of days
that have passed in the fiscal year as
68
of the termination date; (3) acceleration of 100% of the
executive officer’s unvested stock options; and
(4) payment of COBRA premiums for health insurance for
12 months after termination.
In order to receive these severance benefits, an executive
officer must comply with the terms of a restrictive covenant
which includes, among other conditions: signing a
confidentiality and intellectual property agreement, executing a
release and being available to provide consulting services to us
during the 12-month period during which the executive officer
receives severance benefits and not performing functions similar
to the functions the executive officer performed for us for any
competing business during that 12-month period.
Pursuant to the terms of the merger agreement with Symantec,
unvested options and restricted stock units granted on or after
December 15, 2004 through the term of the merger agreement
shall not be subject to the accelerated vesting described above.
In addition to the benefits described above, our benefits plans
entitle employees to continue to receive health, dental and life
insurance coverage for a specified period of time after
termination of employment.
Compensation Committee Interlocks and Insider
Participation
We have a separately designated compensation committee of the
board of directors, which consists of Mr. Pade,
Mr. Unruh and Ms. Ticknor, who serves as chair of the
compensation committee. Mr. Pade and Mr. Unruh joined
the committee in August 2004. Joseph D. Rizzi served as a member
of the committee until his retirement from the board of
directors in August 2004 and Michael Brown served as a member of
the committee until February 2005. Each member of the
compensation committee is an independent director as defined by
current Nasdaq National Market listing standards. None of the
persons who served on our compensation committee during any part
of 2004 had any interlocking relationship as defined by the SEC.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The following table shows how much of our common stock was
beneficially owned as of March 31, 2005 by each director
and executive officer, all executive officers and directors as a
group and by each holder of 5% or more of our common stock. To
our knowledge and except as set forth in the footnotes to this
table, the persons named in this table have sole voting and
investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws
where applicable. Unless we indicate otherwise, each
holder’s address is c/o VERITAS Software Corporation,
350 Ellis Street, Mountain View, CA 94043.
The option column below reflects shares of our common stock that
are subject to options that are currently exercisable or will
become exercisable within 60 days after March 31,
2005, including those that have not yet vested. Those shares are
deemed outstanding for the purpose of computing the percentage
ownership of the person holding these options, but are not
deemed outstanding for the purpose of computing the beneficial
ownership of any other person. All options granted to
non-employee directors, and some of the options granted to
Mr. Bloom, are exercisable in full, but any shares
purchased under these options will be subject to rights of
repurchase by us that lapse at a rate of 1/48 of the shares per
month over four years from the date of grant. Percentage
ownership is based on 427,229,966 shares outstanding on
March 31, 2005.
As described elsewhere in this annual report, we have entered
into a definitive agreement to merge with Symantec Corporation
in an all-stock transaction. Under the terms of the merger
agreement, our common stock will be converted into Symantec
common stock at a fixed exchange ratio of 1.1242 shares of
Symantec common stock for each outstanding share of our common
stock. Upon closing, Symantec stockholders will own
approximately 60 percent and our stockholders will own
approximately 40 percent of the combined company.
Completion of the merger is subject to customary closing
conditions that include receipt of required approvals from
stockholders of both companies and receipt of required
regulatory approvals.
69
Amount and Nature of Beneficial Ownership
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Percent of | |
| Beneficial Owner |
|
Shares(7) | |
|
Options(7) | |
|
Total | |
|
Class | |
| |
|
| |
|
| |
|
| |
|
| |
|
FMR Corp.(1)
|
|
|
28,230,871 |
|
|
|
— |
|
|
|
28,230,871 |
|
|
|
6.6 |
% |
|
Private Capital Management(2)
|
|
|
22,090,950 |
|
|
|
— |
|
|
|
22,090,950 |
|
|
|
5.2 |
% |
|
Gary Bloom(3)
|
|
|
5,237 |
|
|
|
5,306,750 |
|
|
|
5,311,987 |
|
|
|
1.2 |
% |
|
Mark Bregman
|
|
|
3,973 |
|
|
|
323,280 |
|
|
|
327,253 |
|
|
|
* |
|
|
John Brigden(4)
|
|
|
5,428 |
|
|
|
443,333 |
|
|
|
448,761 |
|
|
|
* |
|
|
Michael Brown
|
|
|
— |
|
|
|
66,667 |
|
|
|
66,667 |
|
|
|
* |
|
|
Jeremy Burton
|
|
|
5,502 |
|
|
|
297,501 |
|
|
|
303,003 |
|
|
|
* |
|
|
Edwin Gillis
|
|
|
3,192 |
|
|
|
443,750 |
|
|
|
446,942 |
|
|
|
* |
|
|
Kristof Hagerman
|
|
|
1,085 |
|
|
|
485,000 |
|
|
|
486,085 |
|
|
|
* |
|
|
Greg Hughes(5)
|
|
|
4,688 |
|
|
|
226,042 |
|
|
|
230,730 |
|
|
|
* |
|
|
Kurt Lauk
|
|
|
— |
|
|
|
26,875 |
|
|
|
26,875 |
|
|
|
* |
|
|
Arthur Matin(6)
|
|
|
50,945 |
|
|
|
196,250 |
|
|
|
247,195 |
|
|
|
* |
|
|
William Pade
|
|
|
— |
|
|
|
20,625 |
|
|
|
20,625 |
|
|
|
* |
|
|
David Roux
|
|
|
— |
|
|
|
129,480 |
|
|
|
129,480 |
|
|
|
* |
|
|
Geoffrey Squire
|
|
|
75,500 |
|
|
|
438,933 |
|
|
|
514,433 |
|
|
|
* |
|
|
Carolyn Ticknor
|
|
|
— |
|
|
|
50,313 |
|
|
|
50,313 |
|
|
|
* |
|
|
Paul Unruh
|
|
|
— |
|
|
|
62,500 |
|
|
|
62,500 |
|
|
|
* |
|
|
All executive officers and directors as a group (15 persons)
|
|
|
155,550 |
|
|
|
8,517,299 |
|
|
|
8,672,849 |
|
|
|
2.0 |
% |
|
|
| (1) |
Based solely on information provided by FMR Corp. in a
Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2005. Beneficial ownership
represents 28,230,871 shares beneficially owned by FMR
Corp., as a parent holding company, representing sole
dispositive power with respect to 28,230,871 shares and
sole voting power with respect to 1,650,331 shares. The
address of FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109. |
| |
| (2) |
Based solely on information provided by Private Capital
Management (“PCM”), Bruce S. Sherman and Gregg J.
Powers in a Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2005. Beneficial
ownership represents 22,090,950 shares beneficially owned
by PCM, an Investment Adviser; 22,264,525 shares
beneficially owned by Bruce S. Sherman, CEO of PCM, consisting
of 22,116,825 shares over which Mr. Sherman has shared
voting and dispositive power and 147,700 shares over which
Mr. Sherman has sole voting and dispositive power; and
22,190,950 shares beneficially owned by Gregg J. Powers,
President of PCM, consisting of 22,090,950 shares over
which Mr. Sherman has shared voting and dispositive power
and 100,000 shares over which Mr. Sherman has sole
voting and dispositive power. Messrs. Sherman and Powers
disclaim beneficial ownership for the shares held by PCM’s
clients and disclaim the existence of a group. The address of
PCM and Messrs. Sherman and Powers is 8889 Pelican Bay
Blvd., Naples, FL 34108. |
| |
| (3) |
Includes 5,237 shares held of record by Bloom Family Trust. |
| |
| (4) |
Includes 938 shares of common stock expected to be issued
within 60 days of March 31, 2005 pursuant to the terms
of restricted stock units held by Mr. Brigden. |
| |
| (5) |
Includes 4,688 shares of common stock expected to be issued
within 60 days of March 31, 2005 pursuant to the terms
of restricted stock units held by Mr. Hughes. |
| |
| (6) |
Includes 16,667 shares of common stock expected to be
issued within 60 days of March 31, 2005 pursuant to
the terms of restricted stock units held by Mr. Matin. |
| |
| (7) |
Some executive officers and directors who hold stock options to
purchase shares of VERITAS common stock and shares subject to
the right of repurchase by VERITAS will be entitled to full or
partial acceleration of vesting of such stock options and shares
upon the closing of the pending merger with Symantec and the
balance will be subject to accelerated vesting if that
officer’s employment terminates |
70
|
|
|
under certain circumstances following the closing. For a
discussion of the impact of the pending merger with Symantec on
the options held by the persons in the above table, see
“The Merger — Interests of Certain VERITAS
Persons in the Merger” in the Registration Statement on
Form S-4 filed by Symantec on February 11, 2005 and
the discussion above under “Employment Agreements and
Change of Control Agreements — Change of Control
Agreement with Mr. Bloom” and “Employment
Agreements and Change of Control Agreements — Change
of Control Agreements with Named Executive Officers.” |
In addition to the beneficial ownership reported above, as of
March 31, 2005, Messrs. Brigden, Hughes and Matin
held, respectively, unvested restricted stock units to receive
6,562, 32,812 and 133,332 shares of our common stock. The
restricted stock units held by Messrs. Brigden and Hughes
will each vest in a series of semi-annual installments over a
four-year period measured from the award date, provided the
officer continues in our employ through each applicable vesting
date. The restricted stock units held by Mr. Matin will
vest upon his continuation in our employ through March 9,
2007, but will be subject to accelerated vesting in a series of
eight remaining quarterly installments during his period of
continued employment with us upon the attainment of designated
performance goals for each such quarter. Fifty percent of the
unvested restricted stock units held by each of
Messrs. Brigden, Hughes and Matin will vest on an
accelerated basis upon the closing of our proposed merger with
Symantec, and the balance will be subject to accelerated vesting
if that officer’s employment terminates under certain
circumstances following the closing of the proposed merger.
Securities Authorized for Issuance under Equity Compensation
Plans
The following table summarizes information about our equity
compensation plans as of December 31, 2004. All outstanding
awards under our plans relate to options to purchase shares of
our common stock and stock awards.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
| |
|
|
|
|
|
Remaining Available for | |
| |
|
Number of Securities | |
|
|
|
Future Issuance under | |
| |
|
to Be Issued upon | |
|
Weighted Average | |
|
Equity Compensation | |
| |
|
Exercise of | |
|
Exercise Price of | |
|
Plans (Excluding | |
| |
|
Outstanding Options, | |
|
Outstanding Options, | |
|
Securities Reflected | |
| Plan Category |
|
Warrants and Rights | |
|
Warrants and Rights | |
|
in Column (a)) | |
| |
|
| |
|
| |
|
| |
| |
|
(a) | |
|
(b) | |
|
(c) | |
|
Equity compensation plans approved by security holders(1)
|
|
|
57,908,802 |
(2) |
|
$ |
36.58 |
|
|
|
37,206,806 |
(3) |
|
Equity compensation plans not approved by security holders(4)
|
|
|
2,500,000 |
|
|
$ |
88.00 |
|
|
|
— |
|
|
Total(5)
|
|
|
60,408,802 |
|
|
$ |
38.70 |
|
|
|
37,206,806 |
|
|
|
| (1) |
Includes the VERITAS Software Corporation 2002 Directors
Stock Option Plan, 1993 Directors Stock Option Plan, 2003
Stock Incentive Plan, 2002 Employee Stock Purchase Plan and 1993
Equity Incentive Plan, as each plan may be amended or restated. |
| |
| (2) |
Excludes purchase rights that had accrued under the 2002
Employee Stock Purchase Plan during the offering period that was
ongoing at December 31, 2004. Under this plan, each
eligible employee may purchase shares of common stock with
accumulated payroll deductions (in an amount not to exceed 10%
of the employee’s eligible compensation) on February 15 and
August 15 of each year at a purchase price per share equal to
85% of the lower of (i) the closing sale price per share of
our common stock on the employee’s entry date into the
two-year offering period in which that semi-annual purchase date
occurs or (ii) the closing sale price per share on the
semi-annual purchase date. |
| |
| (3) |
Includes 17,639,323 shares of common stock that were
available for issuance under the 2002 Employee Stock Purchase
Plan as of December 31, 2004. The 2002 Employee Stock
Purchase Plan contains an automatic share increase provision
and, accordingly, the number of shares of common stock reserved
for issuance under the 2002 Employee Stock Purchase Plan will
automatically increase on January 1 of each year by an amount
equal to one percent (1%) of the total number of shares
outstanding as of December 31 of the preceding year, but in
no event will any such annual increase exceed
600,000 shares. |
| |
| (4) |
Includes the VERITAS Stock Option Agreement with Gary L. Bloom,
our Chairman, President and Chief Executive Officer, dated
November 29, 2000. The option under this agreement was
fully exercisable on the grant date for all of the 2,500,000
option shares at an exercise price of $88.00. |
71
|
|
|
However, any unvested shares purchased under the option were
subject to repurchase by us at the option exercise price paid
per share should Mr. Bloom have left our employ prior to
vesting in those shares. The option shares vested over a
four-year period, in 48 equal monthly installments, beginning on
December 17, 2000 and ending on December 17, 2004, at
which time the option shares were fully vested. |
|
|
| (5) |
Does not include equity compensation plans assumed by us in
connection with acquisition transactions. As of
December 31, 2004, options to purchase an aggregate of
4,517,031 shares of our common stock, at a weighted average
exercise price of $12.36 per share, were outstanding under
those assumed plans. No additional options may be granted under
those assumed plans. |
|
|
| Item 13. |
Certain Relationships and Related Transactions |
From January 1, 2004 to the date of this annual report,
there have not been any transactions, and there are currently no
proposed transactions, in which the amount involved exceeded
$60,000 to which VERITAS or any of its subsidiaries were or are
to be a party and in which any VERITAS executive officer or
director, or any member of their immediate family, had or will
have a direct or indirect material interest, except as described
below. There are no business relationships between VERITAS and
any entity of which a director of VERITAS is an executive
officer or of which such a director owns an equity interest in
excess of 10%, involving payments for property or services in
excess of 5% of VERITAS consolidated gross revenues for 2003.
|
|
| Item 14. |
Principal Accountant Fees and Services |
KPMG LLP has served as our independent registered public
accounting firm since April 2001. The following table sets forth
the aggregate fees billed by KPMG for professional services
during fiscal 2004 and 2003 on behalf of VERITAS and our
subsidiaries, as well as out-of-pocket costs incurred in
connection with these services:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Audit Fees
|
|
$ |
8,295,632 |
|
|
$ |
4,693,380 |
|
|
Audit-Related Fees(1)
|
|
|
191,885 |
|
|
|
416,774 |
|
|
Tax Fees(2)
|
|
|
105,721 |
|
|
|
284,815 |
|
|
All Other Fees
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
8,593,238 |
|
|
$ |
5,394,969 |
|
| |
|
|
|
|
|
|
|
|
| (1) |
Audit-Related Fees were comprised of services related to
acquisitions and restatement activities not included in audit
fees. |
| |
| (2) |
Tax Fees were comprised of services rendered in connection with
various tax returns and compliance. |
All services provided by KPMG in 2004 and 2003 were approved by
the audit committee.
Pre-Approval of Services Required
Under the policies and procedures established by our audit
committee, all engagements for audit and permissible non-audit
services to be provided by our independent registered public
accounting firm must be pre-approved by the audit committee. The
chair of the audit committee may pre-approve engagements of up
to $250,000 pursuant to the following procedures:
|
|
| |
1. Prior to commencing an engagement, our chief financial
officer or corporate controller must notify the chair of the
audit committee of: (a) the nature and scope of services,
(b) the estimated engagement fee, and (c) a
description of similar engagements performed during the current
year, together with estimated fees paid or to be paid. |
| |
| |
2. The nature and scope of services to be provided must
relate to tax services, compliance review of international stock
plans, statutory audit services, merger and acquisition
diligence services, audit services related to corporate
divestitures or general accounting advice. |
72
|
|
| |
3. Based on the information provided, the audit committee
chair will determine whether or not the services contemplated
will meaningfully impact the independence of the independent
registered public accounting firm. |
| |
| |
4. The chief financial officer or corporate controller will
obtain a written consent from the audit committee chair
pre-approving the engagement and provide a copy of the consent
to the independent registered public accounting firm and our
legal services department. |
| |
| |
5. The audit committee will be informed of the pre-approved
engagement at its next regularly scheduled committee meeting. |
The pre-approval policy prohibits the independent registered
public accounting firm from providing the following services:
bookkeeping or other services related to our accounting records
or financial statements; financial information systems design
and implementation; appraisal or valuation services; fairness
opinions or contribution-in-kind reports; actuarial services;
internal audit outsourcing services; management function
services; human resource services; broker-dealer, investment
adviser or investment banking services; legal services; and
expert services unrelated to the audit.
The audit committee has determined that the non-audit services
provided by KPMG LLP are compatible with maintaining the
independence of KPMG LLP.
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedule |
(a) The following documents are filed as part of this
report:
1. Financial Statements
The following are included in Item 8 and are filed as part
of this Annual Report on Form 10-K:
|
|
|
| |
• |
Reports of Independent Registered Public Accounting Firm |
| |
| |
• |
Consolidated Balance Sheets as of December 31, 2004 and 2003 |
| |
| |
• |
Consolidated Statements of Operations — Years Ended
December 31, 2004, 2003 and 2002 |
| |
| |
• |
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income — Years Ended December 31,
2004, 2003 and 2002 |
| |
| |
• |
Consolidated Statements of Cash Flows — Years Ended
December 31, 2004, 2003 and 2002 |
| |
| |
• |
Notes to Consolidated Financial Statements |
2. Financial Statement Schedule
The following financial statement schedule for the years ended
December 31, 2004, 2003 and 2002 should be read in
conjunction with the consolidated financial statements of
VERITAS Software Corporation filed as part of this Annual Report
on Form 10-K:
|
|
|
| |
• |
Schedule II — Valuation and Qualifying Accounts |
Schedules other than that listed above have been omitted since
they are either not required, not applicable, or because the
information required is included in the consolidated financial
statements or the notes thereto.
73
3. Exhibits
EXHIBIT INDEX
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
2.01 |
|
|
Agreement and Plan of Merger and Reorganization, dated
March 29, 2000, among VERITAS Software Corporation
(“VERITAS”), Victory Merger Sub, Inc. and Seagate
Technology, Inc. (“Seagate”) |
|
|
8-K |
|
|
|
04/05/00 |
|
|
|
2.1 |
|
|
|
|
|
| |
2.02 |
|
|
Stock Purchase Agreement, dated March 29, 2000, among Suez
Acquisition Company (Cayman) Limited (“Suez”), Seagate
and Seagate Software Holdings, Inc. |
|
|
8-K |
|
|
|
04/05/00 |
|
|
|
2.2 |
|
|
|
|
|
| |
2.03 |
|
|
Consolidated Amendment to Stock Purchase Agreement, Agreement
and Plan of Merger and Reorganization and Indemnification
Agreement, and Consent, dated August 29, 2000, among
VERITAS, Victory Merger Sub, Inc., Seagate, Seagate Software
Holdings, Inc. and Suez |
|
|
S-4/A |
|
|
|
08/30/00 |
|
|
|
2.05 |
|
|
|
|
|
| |
2.04 |
|
|
Consolidated Amendment No. 2 to Stock Purchase Agreement,
Agreement and Plan of Merger and Reorganization and
Indemnification Agreement, and Consent, dated October 18,
2000, among VERITAS, Victory Merger Sub, Inc., Seagate, Seagate
Software Holdings, Inc. and Suez |
|
|
S-4/A |
|
|
|
10/19/00 |
|
|
|
2.03 |
|
|
|
|
|
| |
2.05 |
|
|
Amended and Restated Agreement and Plan of Reorganization, dated
April 15, 1999, among VERITAS, VERITAS Operating
Corporation (“VOC”), Seagate, Seagate Software, Inc.
(“Seagate Software”) and Seagate Software
Network & Storage Management Group, Inc. (included as
Appendix A to the prospectus which is a part of the
registration statement on Form S-4 filed April 19,
1999) |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
2.01 |
|
|
|
|
|
| |
2.06 |
|
|
Amended and Restated Combination Agreement, dated April 12,
1999, between VERITAS, VERITAS Holding Corporation, and
TeleBackup Systems, Inc. (included as Appendix G to the
proxy statement/ prospectus which is a part of the registration
statement on Form S-4 filed April 19, 1999) |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
2.02 |
|
|
|
|
|
| |
2.07 |
|
|
Agreement and Plan of Merger, dated December 19, 2002,
among VERITAS, Argon Merger Sub Ltd. (“Argon”), and
Precise Software Solutions Ltd. (“Precise”) |
|
|
8-K |
|
|
|
12/24/02 |
|
|
|
2.1 |
|
|
|
|
|
| |
2.08 |
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated
May 23, 2003, among VERITAS, Argon and Precise (included as
Annex AA to the proxy statement/ prospectus which is a part
of the registration statement amendment on Form S-4 filed
May 27, 2003) |
|
|
S-4/A |
|
|
|
05/27/03 |
|
|
|
2.2 |
|
|
|
|
|
74
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
2.09 |
|
|
Share Purchase Agreement, dated as of August 30, 2004, by
and among VERITAS, KVault Software Limited (“kVault”)
and certain shareholders named therein |
|
|
10-Q |
|
|
|
11/05/04 |
|
|
|
2.01 |
|
|
|
|
|
| |
2.10 |
|
|
Agreement and Plan of Reorganization, dated as of
December 15, 2004, by and among Symantec Corporation,
Carmel Acquisition Corp., a Delaware corporation and a direct
wholly owned subsidiary of Symantec Corporation, and VERITAS
Software Corporation (“Reorganization Agreement”) |
|
|
8-K |
|
|
|
12/20/04 |
|
|
|
2.01 |
|
|
|
|
|
| |
3.01 |
|
|
Amended and Restated Certificate of Incorporation of VERITAS
Holding Corporation |
|
|
8-A |
|
|
|
06/02/99 |
|
|
|
3.01 |
|
|
|
|
|
| |
3.02 |
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of VERITAS Holding Corporation (changing name of
corporation to VERITAS Software Corporation) |
|
|
8-A |
|
|
|
06/02/99 |
|
|
|
3.02 |
|
|
|
|
|
| |
3.03 |
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of VERITAS |
|
|
S-8 |
|
|
|
06/02/00 |
|
|
|
4.03 |
|
|
|
|
|
| |
3.04 |
|
|
Amended and Restated Bylaws of VERITAS |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
3.04 |
|
|
|
|
|
| |
4.01 |
|
|
Form of Rights Agreement between VERITAS Holding Corporation and
the Rights Agent, which includes as Exhibit A the forms of
Certificate of Designations of Series A Junior
Participating Preferred Stock, as Exhibit B the Form of
Right Certificate, and as Exhibit C the Summary of Rights
to Purchase Preferred Shares |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
4.06 |
|
|
|
|
|
| |
4.02 |
|
|
Form of Registration Rights Agreement between VERITAS and
Seagate Software |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
4.07 |
|
|
|
|
|
| |
4.03 |
|
|
Form of Stockholder Agreement between VERITAS, VOC, Seagate
Software and Seagate |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
4.08 |
|
|
|
|
|
| |
4.04 |
|
|
Form of Specimen Stock Certificate |
|
|
S-1 |
|
|
|
10/22/93 |
|
|
|
4.01 |
|
|
|
|
|
| |
4.05 |
|
|
Indenture dated August 1, 2003 between VERITAS and
U.S. Bank National Association (the “Trustee”)
relating to VERITAS 0.25% Convertible Subordinated Notes
Due 2013 |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
4.01 |
|
|
|
|
|
| |
4.06 |
|
|
Registration Rights Agreement, dated August 1, 2003, among
VERITAS, Goldman Sachs & Co., ABN AMRO Rothschild LLC,
and McDonald Investments Inc. |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
4.02 |
|
|
|
|
|
| |
4.07 |
|
|
First Supplemental Indenture, dated as of October 25, 2004,
by and between VERITAS and U.S. Bank National Association |
|
|
8-K |
|
|
|
10/27/04 |
|
|
|
4.1 |
|
|
|
|
|
| |
4.08 |
|
|
Amendment, dated December 15, 2004, to the Rights
Agreement, dated as of June 16, 1999, by and between
VERITAS and Mellon Investor Services LLC f/k/a ChaseMellon
Shareholder Services, L.L.C., as Rights Agent |
|
|
8-K |
|
|
|
12/20/04 |
|
|
|
4.01 |
|
|
|
|
|
75
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.01 |
|
|
Indemnification Agreement, dated March 29, 2000, among
VERITAS, Seagate, Suez, and certain other parties |
|
|
8-K |
|
|
|
04/05/00 |
|
|
|
2.3 |
|
|
|
|
|
| |
10.02† |
|
|
Development and License Agreement between Seagate and VERITAS |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.03† |
|
|
Cross License Agreement and OEM Agreement between Seagate
Software Information Management Group, Inc. and VERITAS |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.04* |
|
|
VERITAS 1993 Equity Incentive Plan, as amended |
|
|
S-8 |
|
|
|
05/28/02 |
(2) |
|
|
4.01 |
|
|
|
|
|
| |
10.05* |
|
|
VERITAS 1993 Employee Stock Purchase Plan, as amended |
|
|
S-8 |
|
|
|
03/29/01 |
|
|
|
4.02 |
|
|
|
|
|
| |
10.06* |
|
|
VERITAS 1993 Directors Stock Option Plan, as amended |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.05 |
|
|
|
|
|
| |
10.07* |
|
|
Form of Key Employee Agreement |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.11 |
|
|
|
|
|
| |
10.08* |
|
|
Form of Indemnification Agreement entered into between VERITAS
and each of its directors and executive officers |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.15 |
|
|
|
|
|
| |
10.09 |
|
|
Amendment No. 1, dated April 16, 1999, to
Cross-License and OEM Agreement between Seagate Software
Information Management Group, Inc. and VERITAS |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.16 |
|
|
|
|
|
| |
10.10 |
|
|
Participation Agreement, dated April 23, 1999, among VOC,
First Security Bank, N.A. (“First Security”), various
banks and other lending institutions, NationsBank, N.A
(“NationsBank), and various other parties (“Mountain
View Participation Agreement”) |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.17 |
|
|
|
|
|
| |
10.11 |
|
|
Security Agreement, dated April 23, 1999, between
FirstSecurity, National Bank, and NationsBank |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.26 |
|
|
|
|
|
| |
10.12 |
|
|
Master Lease Agreement, dated April 23, 1999, between First
Security and VOC |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.30 |
|
|
|
|
|
| |
10.13 |
|
|
Form of Environmental Indemnity Agreement, dated April 23,
1999, between VERITAS and Fairchild Semiconductor Corporation,
included as Exhibit C to that certain Agreement of Purchase
and Sale, dated March 29, 1999, between VERITAS and
Fairchild Semiconductor of California |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.27 |
|
|
|
|
|
| |
10.14 |
|
|
First Amendment and Restatement of Certain Operative Agreements
and Other Agreements, dated March 3, 2000, among VOC and
the various parties to the Mountain View Participation Agreement
and other operative agreements, and Bank of America, N.A.
(“Bank of America”), as successor to NationsBank |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.29 |
|
|
|
|
|
76
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.15 |
|
|
Second Amendment, Assignment and Assumption and Restatement of
Certain Operative Agreements and Other Agreements, dated
July 28, 2000, among VOC, VERITAS Software Global
Corporation (“VSGC”), the various parties to the
Mountain View Participation Agreement and other operative
agreements, and Bank of America |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.41 |
|
|
|
|
|
| |
10.16 |
|
|
Third Amendment and Restatement of Certain Operative Agreements
and Other Agreements, dated April 5, 2001, among VSGC, the
various parties to the Mountain View Participation Agreement and
other operative agreements, and Bank of America |
|
|
10-Q |
|
|
|
05/11/01 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.17 |
|
|
Fourth Amendment and Restatement of Certain Operative
Agreements, dated September 26, 2001, among VSGC, the
various parties to the Mountain View Participation Agreement and
other operative agreements, Wells Fargo Bank Northwest, National
Association (“Wells Fargo”), and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.18 |
|
|
Fifth Amendment and Restatement of Certain Operative Agreements,
dated November 2, 2001, among VSGC, the various parties to
the Mountain View Participation Agreement and other operative
agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.05 |
|
|
|
|
|
| |
10.19 |
|
|
Sixth Amendment and Restatement of Certain Operative Agreements,
dated September 24, 2002, among VSGC, the various parties
to the Mountain View Participation Agreement and other operative
agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.20 |
|
|
Consent and Seventh Amendment Agreement, dated June 6,
2003, among VSGC, the various parties to the Mountain View
Participation Agreement and other operative agreements, Wells
Fargo, and Bank of America |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.21 |
|
|
Participation Agreement, dated March 9, 2000, among VOC,
First Security, various banks and other lending institutions,
Bank of America, and various other parties (“Roseville
Participation Agreement”) |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.33 |
|
|
|
|
|
| |
10.22 |
|
|
Master Lease Agreement, dated March 9, 2000, between First
Security and VOC |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.34 |
|
|
|
|
|
| |
10.23 |
|
|
Trust Agreement, dated March 9, 2000, between First
Security and various other parties |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.36 |
|
|
|
|
|
| |
10.24 |
|
|
Credit Agreement, dated March 9, 2000, among First
Security, the several lenders from time to time as parties
thereto, and Bank of America |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.37 |
|
|
|
|
|
| |
10.25 |
|
|
Security Agreement, dated March 9, 2000, between First
Security and Bank of America, and accepted and agreed to by VOC |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.38 |
|
|
|
|
|
77
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.26 |
|
|
First Amendment, Assignment and Assumption and Restatement of
Certain Operative Agreements and Other Agreements, dated
July 28, 2000, among VOC, VSGC, the various parties to the
Roseville Participation Agreement and other operative
agreements, First Security, and Bank of America |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.42 |
|
|
|
|
|
| |
10.27 |
|
|
Second Amendment and Restatement of Certain Operative Agreements
and Other Agreements, dated April 5, 2001, among VSGC, the
various parties to the Roseville Participation Agreement and
other operative agreements, First Security, and Bank of America |
|
|
10-Q |
|
|
|
05/11/01 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.28 |
|
|
Third Amendment and Restatement of Certain Operative Agreements,
dated September 26, 2001, among VSGC, the various parties
to the Roseville Participation Agreement and other operative
Agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.29 |
|
|
Fourth Amendment and Restatement of Certain Operative
Agreements, dated November 2, 2001, among VSGC, the various
parties to the Roseville Participation Agreement and other
operative agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.6 |
|
|
|
|
|
| |
10.30 |
|
|
Fifth Amendment and Restatement of Certain Operative Agreements,
dated September 24, 2002, among VSGC, the various parties
to the Roseville Participation Agreement and other operative
agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.31 |
|
|
Consent and Sixth Amendment Agreement, dated June 6, 2003,
among VSGC, the various parties to the Roseville Participation
Agreement and other operative agreements, Wells Fargo, and Bank
of America |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.32 |
|
|
Lease Supplement No. 3, dated February 27, 2002,
between Wells Fargo and VERITAS regarding Roseville, Minnesota
facility |
|
|
10-Q |
|
|
|
05/14/02 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.33 |
|
|
Consent Letter Agreement regarding Roseville, Minnesota
facility, dated March 1, 2002, among Bank of America,
VERITAS, VSGC, VOC, VERITAS Software Technology Corporation, and
VERITAS Software Technology Holding Corporation |
|
|
10-Q |
|
|
|
08/14/02 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.34 |
|
|
First Amendment to Credit Agreement and Other Intercreditor
Agreements, dated March 1, 2002, among Bank of America,
various banks and other lending institutions, and Wells Fargo,
related to Roseville, Minnesota facility |
|
|
10-Q |
|
|
|
08/14/02 |
|
|
|
10.02 |
|
|
|
|
|
78
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.35 |
|
|
Participation Agreement, dated July 28, 2000, among VSGC,
First Security, various banks and other lending institutions,
ABN AMRO Bank N.V. (“ABN”), Credit Suisse First Boston
(“CSFB”) and Credit Lyonnais Los Angeles Branch
(“Credit Lyonnais”)(“Milpitas Participation
Agreement”) |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.43 |
|
|
|
|
|
| |
10.36 |
|
|
Credit Agreement, dated July 28, 2000, among First
Security, several lenders, ABN, CSFB, and Credit Lyonnais |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.44 |
|
|
|
|
|
| |
10.37 |
|
|
Trust Agreement, dated July 28, 2000, between First
Security and various other parties |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.45 |
|
|
|
|
|
| |
10.38 |
|
|
Security Agreement, dated July 28, 2000, between First
Security and ABN, and accepted and agreed to by VSGC |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.46 |
|
|
|
|
|
| |
10.39 |
|
|
Master Lease Agreement, dated July 28, 2000, between First
Security and VSGC |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.47 |
|
|
|
|
|
| |
10.40 |
|
|
VERITAS Participation Agreement First Amendment, dated
September 27, 2001, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.3 |
|
|
|
|
|
| |
10.41 |
|
|
VERITAS Participation Agreement Second Amendment, dated
November 7, 2001, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.07 |
|
|
|
|
|
| |
10.42 |
|
|
VERITAS Participation Agreement Third Amendment, dated
January 16, 2002, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
08/14/02 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.43 |
|
|
VERITAS Fourth Amendment to Participation Agreement dated
September 24, 2002, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.44 |
|
|
VERITAS Fifth Amendment to Participation Agreement and Lease,
dated October 11, 2002, among VSGC, the various parties to
the Milpitas Participation Agreement and other operative
agreements, Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.45 |
|
|
VERITAS Consent and Sixth Amendment Agreement to Participation
Agreement, dated June 6, 2003, among VSGC, the various
parties to the Milpitas Participation Agreement and other
operative agreements, Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
10.03 |
|
|
|
|
|
79
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.46 |
|
|
Amended and Restated Credit Agreement, dated September 27,
2001, among VSGC, ABN, CSFB, Credit Lyonnais, and various other
parties |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.47 |
|
|
VERITAS Amended and Restated Credit Agreement First Amendment,
dated November 7, 2001, among VSGC, ABN, CSFB, Credit
Lyonnais, and various other parties |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.08 |
|
|
|
|
|
| |
10.48* |
|
|
Employment Agreement, dated November 17, 2000, between
VERITAS and Gary L. Bloom |
|
|
10-K |
|
|
|
03/29/01 |
|
|
|
10.47 |
|
|
|
|
|
| |
10.49* |
|
|
VERITAS Software Management Deferred Compensation Plan |
|
|
10-K |
|
|
|
03/29/01 |
|
|
|
10.50 |
|
|
|
|
|
| |
10.50 |
|
|
Agreement on Bank Transactions, dated October 3, 2001,
between VERITAS Software, KK and Fuji Bank |
|
|
10-Q |
|
|
|
05/14/02 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.51* |
|
|
VERITAS 2002 Employee Stock Purchase Plan |
|
|
S-8 |
|
|
|
05/28/02 |
(3) |
|
|
4.01 |
|
|
|
|
|
| |
10.52 |
|
|
VERITAS 2002 International Employee Stock Purchase Plan |
|
|
S-8 |
|
|
|
05/28/02 |
(3) |
|
|
4.02 |
|
|
|
|
|
| |
10.53* |
|
|
VERITAS 2002 Directors Stock Option Plan |
|
|
S-8 |
|
|
|
05/28/02 |
(3) |
|
|
4.03 |
|
|
|
|
|
| |
10.54* |
|
|
Employment Agreement, dated November 11, 2002, between
VERITAS and Edwin Gillis |
|
|
10-K |
|
|
|
03/28/03 |
|
|
|
10.75 |
|
|
|
|
|
| |
10.55* |
|
|
VERITAS Amended and Restated 2003 Stock Incentive Plan |
|
|
8-K |
|
|
|
8/31/2004 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.56* |
|
|
Letter Agreement, dated May 12, 2003, between VERITAS and
Geoffrey Squire |
|
|
10-Q |
|
|
|
05/15/03 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.57* |
|
|
Employment Agreement, dated February 13, 2004, between
VERITAS and Arthur Matin |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.58 |
|
|
|
|
|
| |
10.58* |
|
|
Change in Control Agreement, dated March 15, 2004, between
VERITAS and Gary Bloom |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.59 |
|
|
|
|
|
| |
10.59* |
|
|
Form of Change in Control Agreement between VERITAS and certain
executive officers and schedule of executive officers party
thereto |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.60 |
|
|
|
|
|
| |
10.60* |
|
|
2004 VERITAS Executive Incentive Compensation Plan |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.61 |
|
|
|
|
|
| |
10.61* |
|
|
2004 VERITAS Bonus Plan (VBP) |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.62 |
|
|
|
|
|
| |
10.62* |
|
|
Form of Stock Option Agreement under the VERITAS 2003 Stock
Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.63* |
|
|
Form of Stock Option Agreement for Executive Officers under the
VERITAS 2003 Stock Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.64* |
|
|
Form of Restricted Stock Issuance Agreement under the VERITAS
2003 Stock Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.65* |
|
|
Form of RSU Award Agreement under the VERITAS 2003 Stock
Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.05 |
|
|
|
|
|
80
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.66* |
|
|
Form of VERITAS Stock Option Agreement for Executive Officers
under the VERITAS 2003 Stock Incentive Plan for grants made
during the term of the Reorganization Agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
12.01 |
|
|
Computation of Ratio of Earnings to Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
21.01 |
|
|
Subsidiaries of the Registrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
23.01 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
24.01 |
|
|
Power of Attorney (see signature page to this Form 10-K) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
31.01 |
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
31.02 |
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
32.01 |
|
|
Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
| |
* |
Management contract, compensatory plan or arrangement. |
|
|
|
| |
† |
Confidential treatment has been granted with respect to certain
portions of this document. |
|
|
| (1) |
SEC File Number 333-83777 |
| |
| (2) |
SEC File Number 333-89258 |
| |
| (3) |
SEC File Number 333-89252 |
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, State
of California, on the 6th day of April, 2005.
|
|
| |
Veritas Software
Corporation
|
|
|
| |
|
| |
Edwin J. Gillis |
| |
Executive Vice President, Finance |
| |
and Chief Financial Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Gary L. Bloom,
Edwin J. Gillis and John F. Brigden, and each or any of them,
his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities to sign
any and all amendments to this report on Form 10-K and any
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming
all that such attorneys-in-fact, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof. This Power of Attorney may be signed in several
counterparts.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Gary L. Bloom
Gary
L. Bloom |
|
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer) |
|
April 6, 2005 |
| |
/s/ Edwin J. Gillis
Edwin
J. Gillis |
|
Executive Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
April 6, 2005 |
| |
/s/ Geoffrey W. Squire
Geoffrey
W. Squire |
|
Vice-Chairman of the Board |
|
April 6, 2005 |
| |
/s/ Michael A. Brown
Michael
A. Brown |
|
Director |
|
April 6, 2005 |
| |
/s/ Kurt J. Lauk
Kurt
J. Lauk |
|
Director |
|
April 6, 2005 |
| |
/s/ William Pade
William
Pade |
|
Director |
|
April 6, 2005 |
| |
/s/ David J. Roux
David
J. Roux |
|
Director |
|
April 6, 2005 |
82
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Carolyn M. Ticknor
Carolyn
M. Ticknor |
|
Director |
|
April 6, 2005 |
| |
/s/ V. Paul Unruh
V.
Paul Unruh |
|
Director |
|
April 6, 2005 |
83
FINANCIAL STATEMENTS
As required under Item 8. Financial Statements and
Supplementary Data, the consolidated financial statements of the
Company are provided in this separate section. The consolidated
financial statements included in this section are as follows:
| |
|
|
|
|
| Financial Statement Description |
|
Page | |
| |
|
| |
|
Reports of Independent Registered Public Accounting Firm
|
|
|
F-2 |
|
|
Consolidated Balance Sheets as of December 31, 2004 and 2003
|
|
|
F-5 |
|
|
Consolidated Statements of Operations — Years Ended
December 31, 2004, 2003 and 2002
|
|
|
F-6 |
|
|
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income — Years Ended December 31,
2004, 2003 and 2002
|
|
|
F-7 |
|
|
Consolidated Statements of Cash Flows — Years Ended
December 31, 2004, 2003 and 2002
|
|
|
F-8 |
|
|
Notes to Consolidated Financial Statements
|
|
|
F-9 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
VERITAS Software Corporation:
We have audited the accompanying consolidated balance sheets of
VERITAS Software Corporation and subsidiaries as of
December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders’ equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2004. In
connection with our audits of the consolidated financial
statements, we also have audited the accompanying financial
statement schedule II. These consolidated financial
statements and related schedule are the responsibility of the
management of VERITAS Software Corporation. Our responsibility
is to express an opinion on these consolidated financial
statements and related schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of VERITAS Software Corporation and subsidiaries as of
December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 10 to the consolidated financial
statements, effective July 1, 2003, VERITAS Software
Corporation and subsidiaries adopted the provisions of Financial
Accounting Standards Board Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities an Interpretation
of ARB No. 51.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the internal control over financial reporting
of VERITAS Software Corporation as of December 31, 2004,
based on the criteria established in Internal
Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated April 6, 2005 expressed an
unqualified opinion on management’s assessment of, and an
adverse opinion on the effective operation of, internal control
over financial reporting.
/s/ KPMG LLP
Mountain View, California
April 6, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
VERITAS Software Corporation:
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting appearing under Item 9A(b), that
VERITAS Software Corporation and subsidiaries did not maintain
effective internal control over financial reporting as of
December 31, 2004, because of the effect of the material
weakness identified in management’s assessment, based on
the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management of
VERITAS Software Corporation is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on management’s assessment and an opinion on the
effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or a combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement will not be prevented or
detected. The following deficiencies resulted in errors in
accounting for software revenue recognition and have been
identified and included in management’s assessment because,
in the aggregate, they constitute a material weakness in
internal control over financial reporting as of
December 31, 2004:
|
|
|
| |
• |
Manual Order Entry Processes. |
|
|
| |
As of December 31, 2004, the Company did not maintain
adequate review procedures requiring validation by qualified
personnel of information included in manual customer orders for
software products and services to ensure that this information
was accurately entered into the order processing system and to
ensure revenue recognition in accordance with generally accepted
accounting principles. |
F-3
• Software Revenue Recognition Review.
|
|
| |
As of December 31, 2004, the Company did not maintain
adequate review procedures to ensure that multiple-element
software arrangements and other related software revenue
recognition requirements were accounted for in accordance with
generally accepted accounting principles. |
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of VERITAS Software Corporation and
subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations,
stockholders’ equity and comprehensive income, and cash
flows for each of the years in the three-year period ended
December 31, 2004. The aforementioned material weakness was
considered in determining the nature, timing and extent of audit
tests applied in our audit of the 2004 consolidated financial
statements, and this report does not affect our report dated
April 6, 2005, which expressed an unqualified opinion on
those consolidated financial statements and the related
financial statement schedule.
In our opinion, management’s assessment that VERITAS
Software Corporation did not maintain effective internal control
over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on criteria established
in Internal Control — Integrated Framework
issued by COSO. Also, in our opinion, because of the effect
of the material weakness described above on the achievement of
the objectives of the control criteria, VERITAS Software
Corporation has not maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2004, based on the criteria established in
Internal Control — Integrated Framework issued
by COSO.
/s/ KPMG LLP
Mountain View, California
April 6, 2005
F-4
VERITAS SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
700,108 |
|
|
$ |
823,171 |
|
| |
Short-term investments
|
|
|
1,853,092 |
|
|
|
1,679,844 |
|
| |
Accounts receivable, net of allowance for doubtful accounts of
$4,698 and $7,807, respectively
|
|
|
393,897 |
|
|
|
250,098 |
|
| |
Other current assets
|
|
|
103,917 |
|
|
|
60,254 |
|
| |
Deferred income taxes
|
|
|
44,311 |
|
|
|
36,288 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
3,095,325 |
|
|
|
2,849,655 |
|
|
Property and equipment, net
|
|
|
585,243 |
|
|
|
572,977 |
|
|
Other intangibles, net
|
|
|
153,373 |
|
|
|
81,344 |
|
|
Goodwill, net
|
|
|
1,953,432 |
|
|
|
1,755,591 |
|
|
Other non-current assets
|
|
|
24,375 |
|
|
|
25,385 |
|
|
Deferred income taxes
|
|
|
76,811 |
|
|
|
63,514 |
|
| |
|
|
|
|
|
|
| |
|
$ |
5,888,559 |
|
|
$ |
5,348,466 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
38,440 |
|
|
$ |
38,289 |
|
| |
Accrued compensation and benefits
|
|
|
152,443 |
|
|
|
124,655 |
|
| |
Accrued acquisition and restructuring costs
|
|
|
18,203 |
|
|
|
25,051 |
|
| |
Other accrued liabilities
|
|
|
102,118 |
|
|
|
77,718 |
|
| |
Current portion of long-term debt
|
|
|
380,630 |
|
|
|
— |
|
| |
Income taxes payable
|
|
|
126,873 |
|
|
|
141,623 |
|
| |
Deferred revenue
|
|
|
547,853 |
|
|
|
398,772 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
1,366,560 |
|
|
|
806,108 |
|
|
Convertible subordinated notes
|
|
|
520,000 |
|
|
|
520,000 |
|
|
Long-term debt
|
|
|
— |
|
|
|
380,630 |
|
|
Accrued acquisition and restructuring costs
|
|
|
47,877 |
|
|
|
69,019 |
|
|
Other long-term liabilities
|
|
|
30,431 |
|
|
|
29,115 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
1,964,868 |
|
|
|
1,804,872 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $.001 par value:
|
|
|
|
|
|
|
|
|
| |
|
10,000 shares authorized; none issued and outstanding
|
|
|
— |
|
|
|
— |
|
| |
Common stock, $.001 par value:
|
|
|
|
|
|
|
|
|
| |
|
2,000,000 shares authorized; 575,399 and
567,086 shares issued at December 31, 2004 and 2003;
424,381 and 429,092 shares outstanding at December 31,
2004 and 2003
|
|
|
424 |
|
|
|
429 |
|
| |
Additional paid-in capital
|
|
|
4,875,420 |
|
|
|
4,923,524 |
|
| |
Accumulated deficit
|
|
|
(966,665 |
) |
|
|
(1,378,076 |
) |
| |
Deferred stock-based compensation
|
|
|
(29,346 |
) |
|
|
(8,455 |
) |
| |
Accumulated other comprehensive income
|
|
|
43,858 |
|
|
|
6,172 |
|
| |
|
|
|
|
|
|
| |
|
|
3,923,691 |
|
|
|
3,543,594 |
|
| |
|
|
|
|
|
|
| |
|
$ |
5,888,559 |
|
|
$ |
5,348,466 |
|
| |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
$ |
1,191,069 |
|
|
$ |
1,092,731 |
|
|
$ |
986,793 |
|
| |
Services
|
|
|
850,805 |
|
|
|
654,356 |
|
|
|
519,205 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total net revenue
|
|
|
2,041,874 |
|
|
|
1,747,087 |
|
|
|
1,505,998 |
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
User license fees
|
|
|
30,553 |
|
|
|
48,747 |
|
|
|
36,220 |
|
| |
Services(1)
|
|
|
276,868 |
|
|
|
229,541 |
|
|
|
202,465 |
|
| |
Amortization of developed technology
|
|
|
19,583 |
|
|
|
35,267 |
|
|
|
66,917 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total cost of revenue
|
|
|
327,004 |
|
|
|
313,555 |
|
|
|
305,602 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Gross profit
|
|
|
1,714,870 |
|
|
|
1,433,532 |
|
|
|
1,200,396 |
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and marketing(1)
|
|
|
610,962 |
|
|
|
533,974 |
|
|
|
478,536 |
|
| |
Research and development(1)
|
|
|
346,644 |
|
|
|
301,880 |
|
|
|
274,932 |
|
| |
General and administrative(1)
|
|
|
194,454 |
|
|
|
156,044 |
|
|
|
143,065 |
|
| |
Amortization of other intangibles
|
|
|
9,201 |
|
|
|
35,249 |
|
|
|
72,064 |
|
| |
In-process research and development
|
|
|
11,900 |
|
|
|
19,400 |
|
|
|
— |
|
| |
Loss on disposal of assets
|
|
|
— |
|
|
|
— |
|
|
|
3,122 |
|
| |
Restructuring costs (reversals), net
|
|
|
(9,648 |
) |
|
|
— |
|
|
|
99,308 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
1,163,513 |
|
|
|
1,046,547 |
|
|
|
1,071,027 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Income from operations
|
|
|
551,357 |
|
|
|
386,985 |
|
|
|
129,369 |
|
|
Interest and other income, net
|
|
|
52,846 |
|
|
|
43,613 |
|
|
|
41,735 |
|
|
Interest expense
|
|
|
(24,399 |
) |
|
|
(30,401 |
) |
|
|
(30,267 |
) |
|
Loss on extinguishment of debt
|
|
|
— |
|
|
|
(4,714 |
) |
|
|
— |
|
|
Gain (loss) on strategic investments
|
|
|
9,505 |
|
|
|
(3,518 |
) |
|
|
(11,799 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Income before income taxes and cumulative effect of change in
accounting principle
|
|
|
589,309 |
|
|
|
391,965 |
|
|
|
129,038 |
|
|
Provision for income taxes
|
|
|
177,898 |
|
|
|
38,243 |
|
|
|
70,772 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Income before cumulative effect of change in accounting principle
|
|
|
411,411 |
|
|
|
353,722 |
|
|
|
58,266 |
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
— |
|
|
|
(6,249 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net income
|
|
$ |
411,411 |
|
|
$ |
347,473 |
|
|
$ |
58,266 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income per share before cumulative effect of change in
accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
$ |
0.96 |
|
|
$ |
0.84 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Diluted
|
|
$ |
0.94 |
|
|
$ |
0.81 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Diluted
|
|
$ |
— |
|
|
$ |
(0.01 |
) |
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
$ |
0.96 |
|
|
$ |
0.83 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Diluted
|
|
$ |
0.94 |
|
|
$ |
0.80 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing per share amounts —
basic
|
|
|
429,873 |
|
|
|
420,754 |
|
|
|
409,523 |
|
| |
|
|
|
|
|
|
|
|
|
|
Number of shares used in computing per share amounts —
diluted
|
|
|
438,966 |
|
|
|
434,446 |
|
|
|
418,959 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amortization of stock-based compensation consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Services
|
|
$ |
610 |
|
|
$ |
125 |
|
|
$ |
— |
|
| |
|
Selling and marketing
|
|
|
5,942 |
|
|
|
479 |
|
|
|
— |
|
| |
|
Research and development
|
|
|
3,960 |
|
|
|
1,994 |
|
|
|
435 |
|
| |
|
General and administrative
|
|
|
851 |
|
|
|
82 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Total amortization of stock-based compensation
|
|
$ |
11,363 |
|
|
$ |
2,680 |
|
|
$ |
435 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
|
|
|
|
|
|
|
|
Other | |
|
|
| |
|
Common Stock | |
|
Additional | |
|
|
|
Deferred | |
|
Comprehensive | |
|
Total | |
| |
|
| |
|
Paid-In | |
|
Accumulated | |
|
Stock-Based | |
|
Income | |
|
Stockholders’ | |
| |
|
Shares | |
|
Amount | |
|
Capital | |
|
Deficit | |
|
Compensation | |
|
(Loss) | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance at December 31, 2001
|
|
|
404,503 |
|
|
$ |
405 |
|
|
$ |
4,526,868 |
|
|
$ |
(1,783,815 |
) |
|
$ |
(869 |
) |
|
$ |
(1,547 |
) |
|
$ |
2,741,042 |
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,266 |
|
|
|
— |
|
|
|
— |
|
|
|
58,266 |
|
| |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Foreign currency translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,489 |
|
|
|
11,489 |
|
| |
|
Derivative financial instrument adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(11,048 |
) |
|
|
(11,048 |
) |
| |
|
Unrealized gain (loss) on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,868 |
) |
|
|
(2,868 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,839 |
|
|
Exercise of stock options
|
|
|
6,086 |
|
|
|
7 |
|
|
|
55,403 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55,410 |
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
1,452 |
|
|
|
1 |
|
|
|
30,171 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,172 |
|
|
Tax benefits from stock plans
|
|
|
— |
|
|
|
— |
|
|
|
19,593 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,593 |
|
|
Amortization of stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
435 |
|
|
|
— |
|
|
|
435 |
|
|
Conversion of convertible subordinated notes
|
|
|
52 |
|
|
|
— |
|
|
|
500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
412,093 |
|
|
|
413 |
|
|
|
4,632,535 |
|
|
|
(1,725,549 |
) |
|
|
(434 |
) |
|
|
(3,974 |
) |
|
|
2,902,991 |
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
347,473 |
|
|
|
— |
|
|
|
— |
|
|
|
347,473 |
|
| |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Foreign currency translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,705 |
|
|
|
9,705 |
|
| |
|
Derivative financial instrument adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,266 |
|
|
|
3,266 |
|
| |
|
Unrealized gain (loss) on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,825 |
) |
|
|
(2,825 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357,619 |
|
|
Exercise of stock options
|
|
|
10,347 |
|
|
|
11 |
|
|
|
148,013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
148,024 |
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
2,057 |
|
|
|
2 |
|
|
|
30,917 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,919 |
|
|
Tax benefits from stock plans
|
|
|
— |
|
|
|
— |
|
|
|
38,265 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38,265 |
|
|
Issuance of stock options in business acquisitions
|
|
|
— |
|
|
|
— |
|
|
|
100,815 |
|
|
|
— |
|
|
|
(11,911 |
) |
|
|
— |
|
|
|
88,904 |
|
|
Issuance of common stock in business acquisitions
|
|
|
7,342 |
|
|
|
7 |
|
|
|
210,572 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
210,579 |
|
|
Amortization of stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,680 |
|
|
|
— |
|
|
|
2,680 |
|
|
Cancellation of unvested stock options
|
|
|
— |
|
|
|
— |
|
|
|
(1,210 |
) |
|
|
— |
|
|
|
1,210 |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of common stock
|
|
|
(9,934 |
) |
|
|
(11 |
) |
|
|
(316,228 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(316,239 |
) |
|
Conversion of convertible subordinated notes
|
|
|
7,187 |
|
|
|
7 |
|
|
|
79,845 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
79,852 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
429,092 |
|
|
|
429 |
|
|
|
4,923,524 |
|
|
|
(1,378,076 |
) |
|
|
(8,455 |
) |
|
|
6,172 |
|
|
|
3,543,594 |
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
411,411 |
|
|
|
— |
|
|
|
— |
|
|
|
411,411 |
|
| |
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Foreign currency translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,487 |
|
|
|
44,487 |
|
| |
|
Derivative financial instrument adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,052 |
|
|
|
6,052 |
|
| |
|
Unrealized gain (loss) on marketable securities
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,853 |
) |
|
|
(12,853 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449,097 |
|
|
Exercise of stock options
|
|
|
5,758 |
|
|
|
6 |
|
|
|
83,461 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
83,467 |
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
2,521 |
|
|
|
2 |
|
|
|
38,869 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38,871 |
|
|
Stock-based compensation for modification of stock options
|
|
|
— |
|
|
|
— |
|
|
|
4,279 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,279 |
|
|
Tax benefits from stock plans
|
|
|
— |
|
|
|
— |
|
|
|
45,507 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45,507 |
|
|
Issuance of stock options in business acquisitions
|
|
|
— |
|
|
|
— |
|
|
|
19,563 |
|
|
|
— |
|
|
|
(17,182 |
) |
|
|
— |
|
|
|
2,381 |
|
|
Other equity transactions
|
|
|
— |
|
|
|
— |
|
|
|
(252 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(252 |
) |
|
Issuance of restricted stock units, net of tax withholdings
|
|
|
34 |
|
|
|
— |
|
|
|
12,222 |
|
|
|
— |
|
|
|
(12,568 |
) |
|
|
— |
|
|
|
(346 |
) |
|
Amortization of stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,084 |
|
|
|
— |
|
|
|
7,084 |
|
|
Cancellation of unvested stock options
|
|
|
— |
|
|
|
— |
|
|
|
(1,775 |
) |
|
|
— |
|
|
|
1,775 |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of common stock
|
|
|
(13,024 |
) |
|
|
(13 |
) |
|
|
(249,978 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(249,991 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
424,381 |
|
|
$ |
424 |
|
|
$ |
4,875,420 |
|
|
$ |
(966,665 |
) |
|
$ |
(29,346 |
) |
|
$ |
43,858 |
|
|
$ |
3,923,691 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
411,411 |
|
|
$ |
347,473 |
|
|
$ |
58,266 |
|
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
— |
|
|
|
6,249 |
|
|
|
— |
|
| |
|
Depreciation and amortization
|
|
|
119,062 |
|
|
|
128,258 |
|
|
|
122,051 |
|
| |
|
Amortization of developed technology
|
|
|
19,583 |
|
|
|
35,267 |
|
|
|
66,917 |
|
| |
|
Amortization of other intangibles
|
|
|
9,201 |
|
|
|
35,249 |
|
|
|
72,064 |
|
| |
|
In-process research and development
|
|
|
11,900 |
|
|
|
19,400 |
|
|
|
— |
|
| |
|
Provision for (recovery of) allowance for doubtful accounts
|
|
|
(1,985 |
) |
|
|
(1,348 |
) |
|
|
6,232 |
|
| |
|
Stock-based compensation
|
|
|
11,363 |
|
|
|
2,680 |
|
|
|
435 |
|
| |
|
Tax benefits from stock plans
|
|
|
45,507 |
|
|
|
38,265 |
|
|
|
19,593 |
|
| |
|
Loss on extinguishment of debt
|
|
|
— |
|
|
|
4,714 |
|
|
|
— |
|
| |
|
(Gain) loss on strategic investments
|
|
|
(9,505 |
) |
|
|
3,518 |
|
|
|
11,799 |
|
| |
|
Loss on sale and disposal of assets
|
|
|
— |
|
|
|
— |
|
|
|
7,930 |
|
| |
|
Deferred and other income taxes
|
|
|
1,860 |
|
|
|
(58,945 |
) |
|
|
(19,926 |
) |
| |
|
Changes in operating assets and liabilities, net of effects of
business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
(124,300 |
) |
|
|
(62,344 |
) |
|
|
4,784 |
|
| |
|
|
Other assets
|
|
|
(39,519 |
) |
|
|
37,166 |
|
|
|
(5,320 |
) |
| |
|
|
Accounts payable
|
|
|
(991 |
) |
|
|
(3,154 |
) |
|
|
3,132 |
|
| |
|
|
Accrued compensation and benefits
|
|
|
23,325 |
|
|
|
16,496 |
|
|
|
8,002 |
|
| |
|
|
Accrued acquisition and restructuring costs
|
|
|
(36,892 |
) |
|
|
(31,662 |
) |
|
|
98,012 |
|
| |
|
|
Other accrued liabilities
|
|
|
19,245 |
|
|
|
(31,380 |
) |
|
|
40,294 |
|
| |
|
|
Income and other taxes payable
|
|
|
(3,831 |
) |
|
|
17,179 |
|
|
|
59,834 |
|
| |
|
|
Deferred revenue
|
|
|
128,724 |
|
|
|
124,916 |
|
|
|
35,328 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by operating activities
|
|
|
584,158 |
|
|
|
627,997 |
|
|
|
589,427 |
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of investments
|
|
|
(3,846,285 |
) |
|
|
(1,789,371 |
) |
|
|
(1,770,353 |
) |
| |
Sales and maturities of investments
|
|
|
3,671,861 |
|
|
|
1,701,733 |
|
|
|
1,448,642 |
|
| |
Purchases of property and equipment
|
|
|
(117,739 |
) |
|
|
(81,184 |
) |
|
|
(108,200 |
) |
| |
Purchases of businesses and technologies, net of cash acquired
|
|
|
(324,890 |
) |
|
|
(400,234 |
) |
|
|
(12,973 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used for investing activities
|
|
|
(617,053 |
) |
|
|
(569,056 |
) |
|
|
(442,884 |
) |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net proceeds from issuance of convertible subordinated notes
|
|
|
(170 |
) |
|
|
508,200 |
|
|
|
— |
|
| |
Redemption of convertible subordinated notes
|
|
|
— |
|
|
|
(391,671 |
) |
|
|
— |
|
| |
Repurchase of common stock, net
|
|
|
(249,991 |
) |
|
|
(316,239 |
) |
|
|
— |
|
| |
Proceeds from issuance of common stock
|
|
|
122,338 |
|
|
|
178,943 |
|
|
|
85,582 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(127,823 |
) |
|
|
(20,767 |
) |
|
|
85,582 |
|
|
Effect of exchange rate changes
|
|
|
37,655 |
|
|
|
20,935 |
|
|
|
442 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net increase (decrease) in cash and cash equivalents
|
|
|
(123,063 |
) |
|
|
59,109 |
|
|
|
232,567 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
823,171 |
|
|
|
764,062 |
|
|
|
531,495 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
700,108 |
|
|
$ |
823,171 |
|
|
$ |
764,062 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest
|
|
$ |
17,733 |
|
|
$ |
14,709 |
|
|
$ |
11,984 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Cash paid for income taxes
|
|
$ |
132,073 |
|
|
$ |
27,906 |
|
|
$ |
15,112 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of common stock and stock options for business
acquisitions
|
|
$ |
19,563 |
|
|
$ |
311,394 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Issuance of common stock for conversion of notes
|
|
$ |
— |
|
|
$ |
79,852 |
|
|
$ |
500 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Note payable assumed on purchase of technology
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Increase in property and equipment upon adoption of FIN 46
|
|
$ |
— |
|
|
$ |
366,849 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Increase in long-term debt upon adoption of FIN 46
|
|
$ |
— |
|
|
$ |
380,630 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| Note 1. |
Organization and Summary of Significant Accounting
Policies |
VERITAS Software Corporation (the “Company”), a
Delaware corporation, is a leading independent supplier of
storage and infrastructure software products and services. The
Company’s software products operate across a variety of
computing environments, from personal computers
(“PCs”) and workgroup servers to enterprise servers
and networking platforms in corporate data centers to protect,
archive and recover business-critical data, provide high levels
of application availability, enhance and tune system and
application performance to define and meet service levels and
enable recovery from disasters. The Company’s solutions
enable businesses to reduce costs by efficiently and effectively
managing their information technology (“IT”)
infrastructure as they seek to maximize value from their IT
investments. The Company offers software products focused on
three areas: Data Protection, Storage Management and Utility
Computing Infrastructure. The Company also provides a full range
of services to assist customers in assessing, architecting,
implementing, supporting and maintaining their storage and
infrastructure software solutions. The Company sells and markets
its products and related services both directly to end-users and
through a variety of indirect sales channels, which include
value-added resellers, distributors, systems integrators and
original equipment manufacturers. The Company’s customers
include many leading global corporations and small and
medium-sized enterprises around the world operating in a wide
variety of industries.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.
Certain amounts reported in the previous years have been
reclassified to conform to the 2004 presentation.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents include cash and highly liquid
investments with insignificant interest rate risk and with
original maturities of three months or less. The Company invests
its excess cash in diversified instruments maintained primarily
in U.S. financial institutions in an effort to preserve
principal and to maintain safety and liquidity.
The Company classifies all of its short-term investments in
accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The
Company’s short-term investments do not include strategic
investments.
As of December 31, 2004 and 2003, the Company classified
its short-term investments as available-for-sale, and all
short-term investments consisted of securities with original
maturities in excess of 90 days. Available-for-sale
securities are carried at fair value, with unrealized holding
gains and losses reported in accumulated other comprehensive
income, which is a separate component of stockholders’
equity, net of tax, on the Company’s consolidated balance
sheets. The amortization of premiums and discounts on the
F-9
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
investments and realized gains and losses, determined by
specific identification based on the trade date of the
transaction, are included in interest and other income, net, in
the Company’s consolidated statements of operations.
|
|
|
Fair Value of Financial Instruments |
The following methods are used to estimate the fair value of the
Company’s financial instruments:
|
|
| |
a) the carrying value of cash and cash equivalents,
accounts receivables, accounts payable and accrued liabilities
approximates their fair value due to the short-term nature of
these instruments; |
| |
| |
b) available-for-sale securities and forward exchange
contracts are recorded based on quoted market prices; |
| |
| |
c) convertible subordinated notes are recorded at their
accreted values, which approximate the cash outlay that is due
upon the note settlements which approximates the fair value of
$510 million; and |
| |
| |
d) long-term debt is recorded at the termination values of
the debt agreements which approximates fair value. |
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
SFAS No. 109 prescribes the use of the asset and
liability method. Deferred tax assets and liabilities are
determined based on the difference between the financial
statement carrying amounts and the tax basis of assets and
liabilities and net operating loss and tax credit carryforwards
and are measured using the enacted statutory tax rates expected
to apply when realized or settled. The Company records a
valuation allowance to reduce its deferred tax assets when
uncertainty regarding their realizability exists.
Property and equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives or, in the case of leasehold
improvements, the remaining lease term, if shorter. The
estimated useful life of furniture and equipment and computer
equipment is generally two to five years and the estimated
useful life of the Company’s buildings is thirty-five years.
|
|
|
Goodwill and Other Intangibles |
Goodwill represents the excess of the purchase price of net
tangible and identifiable intangible assets acquired in business
combinations over their estimated fair value. Other intangibles
include developed technology, customer base, license agreements,
trademarks and other intangibles acquired and convertible
subordinated note issuance costs. On January 1, 2002, the
Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually
in accordance with the provisions of SFAS No. 142. As
a result, the Company no longer amortizes goodwill, but will
test it for impairment annually or whenever events or changes in
circumstances suggest that the carrying amount may not be
recoverable. Identifiable intangibles that are subject to
amortization are amortized over a one to five year period using
the straight-line method. Convertible subordinated note issuance
costs are amortized over the applicable term of the obligation.
The Company holds investments in capital stock in privately-held
companies. These strategic investments do not represent a
greater than 20% voting interest in any investee and the Company
does not have the ability
F-10
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
to significantly influence any investee’s operating and
financial policies. The investments are accounted for on a cost
basis and are included in other non-current assets.
Impairment losses are recognized on these strategic investments
when the Company determines that there has been a decline in the
fair value of the investment that is other-than-temporary.
|
|
|
Derivative Financial Instruments |
On January 1, 2001, the Company adopted
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments
and hedging activities and requires the Company to recognize
these as either assets or liabilities on the balance sheet and
measure them at fair value. If certain conditions are met, a
derivative may be specifically designated and accounted for as
(a) a hedge of the exposure to changes in the fair value of
a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash
flows of a transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or
a foreign-currency-denominated forecasted transaction.
Derivatives or portions of derivatives that are not designated
as hedging instruments are adjusted to fair value through
earnings in the period of change in their fair value.
The Company transacts business in various foreign currencies and
has established a foreign currency hedging program, utilizing
foreign currency forward exchange contracts (“forward
contracts”) to hedge certain foreign currency transaction
exposures. The objective of these contracts is to neutralize the
impact of currency exchange rate movements on the Company’s
operating results by offsetting gains and losses on the forward
contracts with increases or decreases in foreign currency
transactions. The Company does not designate its foreign
exchange forward contracts as hedges and accordingly, adjusts
these instruments to fair value through earnings. The Company
does not use forward contracts for speculative or trading
purposes.
In October 1997, the Accounting Standards Executive Committee
issued Statement of Position (“SOP”) No. 97-2,
Software Revenue Recognition, which has been amended by
SOP No. 98-4, Deferral of the Effective Date of a
Provision of SOP 97-2, and SOP No. 98-9,
Modification of SOP No. 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. These
statements set forth generally accepted accounting principles
for recognizing revenue on software transactions. SOP
No. 97-2, as amended by SOP No. 98-4, was effective
for revenue recognized under software license and services
arrangements beginning January 1, 1998. SOP No. 98-9
amended SOP No. 97-2 and requires recognition of revenue
using the “residual method” when certain criteria are
met.
The Company derives revenue primarily from two sources: software
licenses and services. Revenue from software licenses is
primarily related to the licensing of software products under
perpetual license agreements. Services revenue includes
contracts for software maintenance and technical support,
consulting and education services. The Company applies its
revenue recognition policy to determine which portions of its
revenue are recognized currently and which portions must be
deferred. Significant judgments and estimates are made and used
by the Company to determine the amount of revenue recognized in
any accounting period.
The Company recognizes revenue when persuasive evidence of an
arrangement exists, the product or service has been delivered,
the fee is fixed or determinable, collection is probable and
vendor-specific objective evidence (“VSOE”) of fair
value exists to allocate the total fee among all delivered and
undelivered elements in the arrangement.
F-11
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Multiple Element Arrangements |
The Company typically enters into arrangements with customers
that include perpetual software licenses, maintenance and
technical support. Some arrangements may also include consulting
and education services. Software licenses are sold as site
licenses or on a per copy basis. Site licenses give customers
the right to copy licensed software on either a limited or
unlimited basis during a specified term. Per copy licenses give
customers the right to use a single copy of licensed software.
Assuming all other revenue recognition criteria are met, license
revenue is recognized upon delivery using the residual method in
accordance with SOP No. 98-9. Under the residual method,
the Company allocates and defers revenue for the undelivered
elements, based on VSOE of fair value, and recognizes the
difference between the total arrangement fee and the amount
deferred for the undelivered elements as revenue. The
determination of fair value of each undelivered element in
multiple element arrangements is based on the price charged when
the same element is sold separately. If sufficient evidence of
fair value cannot be determined for any undelivered item, all
revenue from the arrangement is deferred until VSOE of fair
value can be established or until all elements of the
arrangement have been delivered. If the only undelivered element
is maintenance and technical support for which the Company
cannot establish VSOE, the Company will recognize the entire
arrangement fees ratably over the maintenance and support term.
Maintenance and technical support includes updates (unspecified
product upgrades and enhancements) on a when-and-if-available
basis, telephone support and bug fixes or patches. VSOE of fair
value for maintenance and technical support is based upon stated
renewal rates for site licenses and historical renewal rates for
per copy licenses. Maintenance and technical support revenue is
recognized ratably over the maintenance term.
Consulting primarily consists of product installation services
that do not involve customization of the software. Installation
services provided by the Company are not mandatory and can also
be performed by the customer or a third party. Our VSOE of fair
value for consulting is based upon the price charged when sold
separately. Consulting revenue is recognized as work is
performed when reasonably dependable estimates can be made of
the extent of progress toward completion, contract revenue and
contract costs. Otherwise, consulting revenue is recognized when
the services are complete.
Education services primarily consist of courses taught by the
Company’s instructors at its facilities or at the
customer’s site. Various courses are offered specific to
the license products. Education services fees are based on a per
course basis or on an annual education pass, which allows for
unlimited courses to be taken by one individual over a one-year
term. Our VSOE of fair value for education services is based
upon the price charged when sold separately. Revenue is
recognized when the customer has completed the course. For
annual education passes, the revenue is recognized ratably over
the one-year term.
|
|
|
Revenue Recognition Criteria |
The Company defines revenue recognition criteria as follows:
|
|
|
| |
• |
Persuasive Evidence of an Arrangement Exists. It is the
Company’s customary practice to have a written contract,
signed by both the customer and the Company, or a purchase order
prior to recognizing revenue on an arrangement. |
| |
| |
• |
Delivery has Occurred. The Company’s software may be
physically delivered to its customers with standard transfer
terms of FOB shipping point. Software may also be delivered
electronically, through an FTP download or by installation at
the customer site. The Company considers delivery complete when
the software products have been shipped and the customer has
access to license keys. If an arrangement includes an acceptance
provision, the Company generally defers the revenue and |
F-12
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
| |
|
recognizes it upon the earlier of receipt of written customer
acceptance or expiration of the acceptance period. |
| |
| |
• |
The Vendor’s Fee is Fixed or Determinable. The
Company’s customary payment terms are generally within
30 days after the invoice date. Arrangements with payment
terms extending beyond 90 days are not considered to be
fixed or determinable, in which case revenue is recognized as
the fees become due and payable. |
| |
| |
• |
Collection is Probable. Probability of collection is
assessed on a customer-by-customer basis. The Company typically
sells to customers with whom the Company has a history of
successful collections. New customers are subjected to a credit
review process to evaluate the customers’ financial
position and ability to pay. If it is determined at the outset
of an arrangement that collection is not probable, revenue is
recognized upon receipt of payment. |
The Company generally recognizes revenue from licensing of
software products through its indirect sales channel upon
sell-through or with evidence of an end-user. For certain types
of customers, such as distributors, the Company recognizes
revenue upon receipt of a point of sales report, which is its
evidence that the products have been sold through to an
end-user. For resellers, the Company recognizes revenue when it
obtains evidence that an end-user exists, which is usually when
the software is delivered. For licensing of the Company’s
software to original equipment manufacturers (“OEMs”),
royalty revenue is recognized when the OEM reports the sale of
the software products to an end-user customer, generally on a
quarterly basis. In addition to license royalties, some OEMs pay
an annual flat fee and/or support royalties for the right to
sell maintenance and technical support to the end-user. The
Company recognizes revenue from OEM support royalties and fees
ratably over the term of the support agreement.
|
|
|
Transactions with Suppliers |
Some of the Company’s customers are also its suppliers.
Occasionally, in the normal course of business, the Company
purchases goods or services for its operations from these
suppliers at or about the same time the Company licenses its
software to them. The Company also has multi-year agreements
under which it receives sub-licensing royalty payments from OEMs
from whom it may also purchase goods or services. The Company
identifies and reviews significant transactions to confirm that
they are separately negotiated at terms the Company considers to
be arm’s length. In cases where the transactions are not
separately negotiated, the Company applies the provisions of
Accounting Principles Board (“APB”) Opinion
No. 29, Accounting for Nonmonetary Transactions, and
Emerging Issues Task Force Issue (“EITF”)
No. 01-02, Interpretations of APB Opinion 29. If the
fair values are reasonably determinable, revenue is recorded at
the fair values of the products delivered or products or
services received, whichever is more readily determinable. If
the Company cannot determine fair value of either of the goods
or services involved within reasonable limits, it records the
transaction on a net basis. License revenue associated with
software licenses entered into with our suppliers at or about
the same time that the Company purchases goods or services from
them is not material to the Company’s consolidated
financial statements.
|
|
|
Product Returns and Exchanges |
The Company’s license arrangements do not typically provide
customers a contractual right of return. Some of the
Company’s sales programs allow customers limited product
exchange rights. The Company estimates potential future product
returns and exchanges and reduces current period product revenue
in accordance with SFAS No. 48, Revenue Recognition
When Right of Return Exists. The Company’s estimate is
based on its analysis of historical returns and exchanges.
Actual returns may vary from estimates if the
F-13
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company experiences a change in actual sales, returns or
exchange patterns due to unanticipated changes in products,
competitive or economic conditions.
Cost of revenue includes costs related to user license and
services revenue and amortization of acquired developed
technology. Cost of user license revenue includes material,
packaging, shipping and other production costs and third-party
royalties. Cost of services includes salaries, benefits and
overhead costs associated with employees providing maintenance
and technical support, consulting and education services.
Third-party consultant fees are also included in cost of
services.
|
|
|
Software Development Costs |
The Company accounts for the development cost of software
intended for sale in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. SFAS No. 86 requires
product development costs to be charged to expense as incurred
until technological feasibility has been established.
Technological feasibility has been established upon completion
of a working model, which is when the majority of system and
beta testing has been performed. To date, software development
costs incurred between completion of a working model and general
release to customers have not been material and, in accordance
with our policy, have not been capitalized. As such, all
software development costs have been charged to research and
development expense in the accompanying consolidated statements
of operations.
|
|
|
Concentrations of Credit Risk |
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments
in debt securities, trade receivables and financial instruments
used in hedging activities. The Company primarily invests its
excess cash in commercial paper rated A-1/P-1, corporate notes,
government securities (taxable and non-taxable), asset-backed
securities, auction market securities with approved financial
institutions and other specific money market instruments of
similar liquidity and credit quality. The Company is exposed to
credit risks in the event of default by the financial
institutions or issuers of investments to the extent recorded on
the balance sheet. The Company generally does not require
collateral. The Company maintains allowances for credit losses
on trade receivables based on various factors, including changes
in customers’ ability to pay due to bankruptcy, cash flow
issues or other changes in the customer’s financial
condition, significant payment delays and other economic
conditions. Such losses have been within management’s
expectations. The counterparties to the agreements relating to
the Company’s financial instruments used in hedging
activities consist of major, multinational, high credit quality,
financial institutions. The amounts potentially subject to
credit risk arising from the possible inability of
counterparties to meet the terms of their contracts are
generally limited to the amounts, if any, by which a
counterparty’s obligations exceed the obligations of the
Company with that counterparty. The Company does not expect to
incur material losses with respect to financial instruments that
potentially subject the Company to concentrations of credit risk.
Basic income per share is computed using the weighted average
number of common shares outstanding during the period. Diluted
net income per share is computed using the weighted average
number of common shares and dilutive potential common shares
outstanding during the period. Dilutive potential common shares
consist of employee stock options, restricted stock units and
common shares issuable assuming conversion of the convertible
subordinated notes using the treasury stock method, if dilutive.
F-14
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Accounting for Stock-Based Compensation |
The Company accounts for employee stock-based compensation in
accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, and the
disclosure requirements of SFAS No. 148, Accounting
for Stock-Based Compensation — Transition and
Disclosure — an Amendment of FASB Statement
No. 123. Since the exercise price of options granted
under the Company’s stock option plans is equal to the
market value on the date of grant, no compensation cost has been
recognized for grants under such plans. In accordance with APB
Opinion No. 25, the Company does not recognize compensation
cost related to its employee stock purchase plan. The Company
recognizes stock-based compensation expense in connection with
stock options assumed in acquisitions and its grants of
restricted stock units over the applicable service period which
is generally equal to the vesting period. The following table
illustrates the effect on net income and net income per share if
the Company had accounted for its stock option and stock
purchase plans under the fair value method of accounting under
SFAS No. 123, Accounting for Stock-Based
Compensation:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
411,411 |
|
|
$ |
347,473 |
|
|
$ |
58,266 |
|
| |
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock-based compensation expense included in net income, net of
tax
|
|
|
7,841 |
|
|
|
1,769 |
|
|
|
287 |
|
| |
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock-based compensation expense determined under the fair value
based method for all awards, net of tax
|
|
|
(250,758 |
) |
|
|
(306,194 |
) |
|
|
(294,818 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
168,494 |
|
|
$ |
43,048 |
|
|
$ |
(236,265 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
0.96 |
|
|
$ |
0.83 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
0.39 |
|
|
$ |
0.10 |
|
|
$ |
(0.58 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
0.94 |
|
|
$ |
0.80 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
0.38 |
|
|
$ |
0.10 |
|
|
$ |
(0.58 |
) |
| |
|
|
|
|
|
|
|
|
|
For the pro forma amounts determined under
SFAS No. 123, as set forth above, the fair value of
each stock option grant under the stock option plans is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
2.88 |
% |
|
|
2.71 |
% |
|
|
3.82 |
% |
|
Dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Weighted average expected life
|
|
|
4.0 years |
|
|
|
4.5 years |
|
|
|
5.0 years |
|
|
Volatility of common stock
|
|
|
55 |
% |
|
|
84 |
% |
|
|
90 |
% |
F-15
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For purposes of the pro forma disclosures, the expected
volatility assumptions the Company used prior to the fourth
quarter of fiscal 2003 were based solely on the historical
volatility of the Company’s common stock over the most
recent period commensurate with the estimated expected life of
the Company’s stock options. Beginning with the fourth
quarter of fiscal 2003, the Company modified its approach and
expected volatility by considering other relevant factors in
accordance with SFAS No. 123. The Company considered
implied volatility in market-traded options on the
Company’s common stock as well as historical volatility.
The Company will continue to monitor these and other relevant
factors used to measure expected volatility for future option
grants.
Also, beginning with the third quarter of fiscal 2003, the
Company decreased its estimate of the expected life of new
options granted to its employees from 5 years to
4 years. The Company based its expected life assumption on
historical experience as well as the terms and vesting periods
of the options granted. The reduction in the estimated expected
life was a result of an analysis of the Company’s
historical experience.
The fair value of the employees’ purchase rights under the
employee stock purchase plan is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions for these rights:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk-free interest rate
|
|
|
1.00-2.51 |
% |
|
|
1.06-1.87 |
% |
|
|
1.62-3.02 |
% |
|
Dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Weighted average expected life
|
|
|
6 to 24 months |
|
|
|
6 to 24 months |
|
|
|
6 to 24 months |
|
|
Volatility of common stock
|
|
|
70 |
% |
|
|
90 |
% |
|
|
90 |
% |
In 2004, the Company granted 503,250 restricted stock units to
certain employees resulting in deferred stock-based compensation
of $12.6 million and recorded $2.2 million of
associated stock-based compensation expense for the year ended
December 31, 2004. The compensation expense related to the
restricted stock units is charged to the statement of operations
over the vesting period, which is 3 to 4 years. As a result
of the Company’s restatement of its financial statements
for 2002 and 2001 and the delay in filing its Form 10-K for
the year ended December 31, 2003, the Company suspended
option-holders’ ability to use the Company’s
registration statements for its stock option plans (the
“Plans”). As a result, option-holders were unable to
exercise options under the Plans until such time as the Company
filed its Form 10-K for the year ended December 31,
2003 and lifted the suspension on the use of the registration
statements. Pursuant to the terms of the Plans, options held by
certain former employees of the Company were scheduled to expire
during the suspension period. On March 15, 2004, the
Company extended the expiration date of such options for a
period of 15 days from the date of filing the
Form 10-K, which was considered a modification of such
options. For the year ended December 31, 2004,
$4.3 million was expensed in the statement of operations as
a result of this modification.
|
|
|
Translation of Foreign Currencies |
Assets and liabilities of foreign subsidiaries, whose functional
currency is the local currency, are translated at year-end
exchange rates. Income and expense items are translated at the
average rates of exchange prevailing during the year. The
adjustment resulting from translating the financial statements
of such foreign subsidiaries is reflected in accumulated other
comprehensive income (loss) within stockholders’ equity.
Foreign currency transaction gains or losses are reported in
results of operations.
The Company reviews its goodwill and intangible assets with
indefinite useful lives for impairment at least annually in
accordance with the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets.
SFAS No. 142 requires that the Company perform the
goodwill impairment test annually or when a change in
F-16
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
facts and circumstances indicate that the fair value of the
reporting unit may be below its carrying amount. The Company
completed this test in the fourth quarter of 2004, 2003 and 2002
and no impairment loss was recognized upon completion of the
tests.
|
|
|
Impairment of Long-Lived Assets |
The Company reviews its long-lived assets, including property
and equipment and intangible assets with estimable useful lives,
for impairment whenever an event or change in facts and
circumstances indicates that their carrying amount may not be
recoverable. The Company assesses impairment of its long-lived
assets in accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The
Company determines recoverability of the asset group by
comparing the carrying amount of the asset group to the net
future undiscounted cash flows that the asset group is expected
to generate. The impairment recognized is the amount by which
the carrying amount exceeds the fair market value of the asset
group. No impairment was recognized in 2004 and 2003. During
2002, certain long-lived assets were impaired in connection with
the Company’s restructuring plan as discussed in
Note 8.
Advertising costs are expensed as incurred. Advertising expense
was approximately $36.2 million for the year ended
December 31, 2004, $38.8 million for the year ended
December 31, 2003 and $34.9 million for the year ended
December 31, 2002.
|
|
|
Recent Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 123R,
Share-Based Payment, which revises
SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related
implementation guidance. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee
services in share-based payment transactions, including the
issuance of stock options and other stock-based compensation to
employees. Public companies are required to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award.
That cost will be recognized over the period during which an
employee is required to provide service in exchange for the
award, which is usually the vesting period. The grant-date fair
value of employee share options and similar instruments will be
estimated using option-pricing models adjusted for the unique
characteristics of those instruments. The Statement is effective
for the Company’s interim reporting period beginning
July 1, 2005 and applies to all awards granted after the
effective date and to awards modified, repurchased or canceled
after that date. The cumulative effect of initially applying
this Statement is recognized as of the effective date. After the
effective date, compensation cost will be recognized for the
portion of outstanding awards for which the requisite service
has not yet been rendered. For periods before the effective
date, the Company can elect to apply a modified version of
retrospective application under which financial statements for
prior periods are adjusted on a basis consistent with the pro
forma disclosures required for those periods by
SFAS No. 123. See Accounting for Stock-Based
Compensation above for the pro forma net income (loss) and
per share amounts for the years ended December 31, 2004,
2003 and 2002 as if the Company had used a fair value-based
method similar to the requirements of SFAS No. 123R to
measure stock-based compensation expense. The Company is
currently quantifying the impact this Statement will have on its
financial position and results of operations. The Company does
not believe the adoption of SFAS No. 123R will have a
material effect on its cash flows.
In December 2004, the FASB issued SFAS No. 153,
Exchange of Nonmonetary Assets, an Amendment of APB Opinion
No. 29. SFAS No. 153 amends APB Opinion
No. 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general
exception for exchanges of
F-17
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. The provisions of this Statement will be
effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not
believe the adoption of SFAS No. 153 will have a
material effect on its financial position, results of operations
or cash flows.
In December 2004, the FASB issued FASB Staff Position
(“FSP”) No. FAS 109-1, Application of
FASB Statement No. 109, Accounting for Income Taxes, to the
Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004, and FSP
No. FAS 109-2, Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. FSP
No. FAS 109-1 requires that tax deductions on
qualified production activities related to the American Jobs
Creation Act of 2004 (the “Act”) be accounted for as a
special deduction under SFAS No. 109. The provisions
of FSP No. FAS 109-1 are effective for the
Company’s fiscal year ended December 31, 2004. The
adoption of FSP No. FAS 109-1 did not have a material
impact in 2004 and is not expected to have a material impact on
the Company’s financial position, results of operations or
cash flows in future periods. FSP No. FAS 109-2
permits an enterprise to evaluate the effect of the Act on its
plan for reinvestment or repatriation of foreign earnings for
purposes of applying SFAS No. 109 beyond its financial
reporting period. The Act includes a deduction of 85% of certain
foreign earnings that are repatriated, as defined in the Act.
The Company has elected to apply this provision to qualifying
earnings repatriations in the year ending December 31,
2005. The Company is currently evaluating the impact FSP
No. FAS 109-2 will have on its financial position,
results of operations and cash flows.
In September 2004, the EITF reached a consensus on EITF
No. 04-8, The Effect of Contingently Convertible Debt on
Diluted Earnings per Share, that all issued securities that
have embedded conversion features that are contingently
exercisable upon occurrence of a market-price condition should
be included in the calculation of diluted earnings per share,
regardless of whether the market price trigger has been met.
This consensus also applies to instruments with embedded
conversion features that are contingently exercisable upon the
occurrence of a market price condition or upon the occurrence of
another contingency. The Company adopted EITF No. 04-8 in
December 2004 and the adoption did not have a material effect on
its diluted per share calculation.
In March 2004, the FASB issued EITF No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments. EITF No. 03-1 includes new
guidance for evaluating and recording impairment losses on debt
and equity investments, as well as new disclosure requirements
for investments that are deemed to be temporarily impaired. In
September 2004, the FASB delayed the accounting provisions of
EITF No. 03-1; however the disclosure requirements are
effective for the Company’s annual periods ended
December 31, 2004 and 2003. The Company will evaluate the
impact of EITF No. 03-1 once final guidance is issued.
In January 2003, the FASB issued FASB Interpretation
No. (“FIN”) 46, Consolidation of Variable
Interest Entities, an Interpretation of
ARB No. 51, which addresses the consolidation of
variable interest entities. FIN 46 provides guidance for
determining when an entity that is the primary beneficiary of a
variable interest entity or equivalent structure should
consolidate the variable interest entity into the entity’s
financial statements. In December 2003, the FASB completed
deliberations of proposed modifications to FIN 46 resulting in
multiple effective dates based on the nature as well as the
creation date of the variable interest entity. The Company had
three build-to-suit operating leases, commonly referred to as
synthetic leases. Each synthetic lease was owned by a trust that
did not have any voting rights, employees, financing activity
other than the lease with the Company, ability to absorb losses
or right to participate in gains realized on the sale of the
related property. The Company determined that the trusts under
the leasing structures qualified as variable interest entities
for purposes of FIN 46. Consequently, the Company was considered
the primary beneficiary and consolidated the trusts into its
financial statements beginning July 1, 2003. As a result of
consolidating
F-18
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
these entities in the third quarter of 2003, the Company
reported a cumulative effect of change in accounting principle
in accordance with APB Opinion No. 20, Accounting
Changes, with a charge of $6.2 million which equals the
amount of depreciation expense that would have been recorded had
these trusts been consolidated from the date the properties were
available for occupancy, net of tax, In addition, on
July 1, 2003, the Company recorded property and equipment,
net of accumulated depreciation, equal to $366.8 million,
long-term debt in the amount of $369.2 million and
non-controlling interest of $11.4 million for a total of
$380.6 million of long-term debt on the balance sheet.
Depreciation expense related to these properties is
approximately $1.6 million per quarter and $4.2 million per
quarter of rent expense previously classified as cost of revenue
and operating expenses has been classified as interest expense
in the statements of operations beginning July 1, 2003.
|
|
| Note 2. |
Merger of VERITAS with Symantec Corporation |
On December 16, 2004, VERITAS and Symantec Corporation
announced that the companies had entered into a definitive
agreement (the “Agreement”) to merge in an all-stock
transaction. Under the agreement, which has been unanimously
approved by both boards of directors, all of the Company’s
stock will be converted into Symantec stock at a fixed exchange
ratio of 1.1242 shares of Symantec common stock for each
outstanding share of VERITAS common stock. Upon closing,
Symantec stockholders will own approximately 60 percent and
VERITAS stockholders will own approximately 40 percent of
the combined company. Completion of the merger is subject to
customary closing conditions that include receipt of required
approvals from the stockholders of the Company and Symantec and
receipt of required regulatory approvals. The transaction, which
is expected to close in the second calendar quarter of 2005, may
not be completed if any of the conditions are not satisfied.
Under terms specified in the merger agreement, VERITAS or
Symantec may terminate the agreement, and as a result either
VERITAS or Symantec may be required to pay a $440 million
termination fee to the other party in certain circumstances.
|
|
| Note 3. |
Business Combinations |
On September 20, 2004, the Company acquired all of the
outstanding capital stock of KVault Software Limited
(“KVS”), a provider of e-mail archiving products. The
Company acquired KVS to extend its storage software market to
include products to store, manage, backup and archive corporate
e-mail and data. The KVS acquisition included total purchase
consideration of $249.2 million which included
$224.1 million of cash, $19.6 million relating to the
assumption of KVS’ outstanding unvested stock options for
1.2 million shares of the Company’s common stock and
$5.5 million of acquisition-related costs. As a result of
the acquisition, the Company recorded deferred stock-based
compensation of $17.2 million, which will be amortized over
the remaining vesting period for the stock options assumed. The
fair value of the Company’s stock options assumed was
determined using the Black-Scholes option pricing model and the
following assumptions: estimated expected life of 4 years,
risk-free interest rate of 3.08%, expected volatility of 62% and
no expected dividend yield. Upon assumption by the Company of
the outstanding KVS options, each KVS option became exercisable
for 0.0886 shares of the Company’s common stock.
F-19
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The total estimated purchase price was allocated to KVS’
net tangible and intangible assets based upon their estimated
fair values as of the date of the completion of the acquisition.
The following represents the allocation of the aggregate
purchase price to the acquired net assets of KVS:
| |
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
2,565 |
|
|
Other current assets
|
|
|
12,644 |
|
|
Long-term assets
|
|
|
1,434 |
|
|
Current liabilities
|
|
|
(15,492 |
) |
|
Goodwill
|
|
|
144,372 |
|
|
Developed technology
|
|
|
54,300 |
|
|
Customer base
|
|
|
18,140 |
|
|
Other intangible assets
|
|
|
2,600 |
|
|
Deferred stock-based compensation
|
|
|
17,182 |
|
|
In-process research and development
|
|
|
11,500 |
|
| |
|
|
|
| |
Total
|
|
$ |
249,245 |
|
| |
|
|
|
The Company does not expect future adjustments to the purchase
price or purchase price allocation to be material. Goodwill
represents the excess of the purchase price over the fair value
of tangible and identifiable intangible assets acquired.
Goodwill is not amortized, which is consistent with the guidance
in SFAS No. 142. Developed technology, customer base
and other intangible assets are being amortized over their
estimated useful lives of five years. The weighted average
amortization period for all purchased intangible assets is five
years.
In connection with the acquisition of KVS, the Company allocated
$11.5 million of the purchase price to in-process
technology that had not yet reached technological feasibility
and had no alternative future use. This amount has been expensed
in the consolidated statements of operations for the year ended
December 31, 2004.
In order to value purchased in-process research and development
(“IPR&D”), a research project for which
technological feasibility had not been established was
identified. The value of this project was determined by
estimating the expected cash flows from the project and
discounting the net cash flows back to their present value,
using an appropriate discount rate.
Net Cash Flows. The net cash flows expected from the
identified project are based on the Company’s estimates of
revenues, cost of sales, research and development costs,
selling, general and administrative costs and income taxes from
those projects. Revenue estimates are based on the assumptions
mentioned below. The research and development costs included in
the estimates reflect costs to bring in-process projects to
technological feasibility and sustain the technology thereafter.
The estimated revenues are based on the Company’s
projection of each in-process project and the business
projections were compared and found to be consistent with
industry analysts’ forecasts of growth in substantially all
of the relevant markets. Estimated total revenues related to the
contribution of the IPR&D project to the various products
affected are expected to peak in the year ending
December 31, 2008 and decline from 2009 into 2011 as the
affected products continue to evolve.
These projections are based on the Company’s estimates of
market size and growth, expected trends in technology and the
nature and expected timing of new project introductions by KVS.
Discount Rate. Discounting the expected net cash flows
back to their present value is based on the industry weighted
average cost of capital (“WACC”). The Company believes
the overall WACC is
F-20
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
approximately 21%. The discount rate used to discount the
expected net cash flows from IPR&D is 23%. The discount rate
used is higher than the overall WACC due to inherent
uncertainties surrounding the successful development of
IPR&D, market acceptance of the technology, the useful life
of such technology and the uncertainty of technological advances
which could potentially impact the estimates described above.
Percentage of Completion. The percentage of completion
for the in-process project identified was estimated at
approximately 56% based on costs incurred to date on the project
as compared to the remaining costs required to bring the project
to technological feasibility.
If the projects discussed above are not successfully developed,
the sales and profitability of the Company may be adversely
affected in future periods.
Acquisition-related costs of $5.5 million consist of
$2.2 million associated with legal and other professional
fees, $2.1 million for terminating and satisfying existing
lease commitments, $0.1 million of severance related costs
and $1.1 million of government taxes associated with the
acquisition. Costs associated with terminating and satisfying
existing lease commitments will be paid over the remaining lease
terms ending in 2006 through 2015 or over a shorter period as
the Company may negotiate with its lessors. The Company expects
the majority of costs will be paid by the year ending
December 31, 2008. Total cash outlays for
acquisition-related costs were approximately $3.2 million
for legal and other professional fees through December 31,
2004.
The results of operations of KVS are included in the
Company’s consolidated financial statements from
September 21, 2004. The pro forma results of operations
disclosed below give effect to the acquisition of KVS as if the
acquisition was consummated on January 1, 2003.
On July 14, 2004, the Company acquired all of the
outstanding capital stock of Invio Software, Inc.
(“Invio”), a privately held supplier of information
technology (“IT”) process automation technology. The
Company acquired Invio to extend the capability of software
products that enable utility computing by offering customers a
tool for standardizing and automating IT service delivery in key
areas such as storage provisioning, server provisioning and data
protection. The Invio acquisition included purchase
consideration of approximately $35.4 million which included
$34.9 million in cash and $0.5 million of
acquisition-related costs. The purchase price was allocated to
goodwill of $22.8 million, developed technology of
$7.7 million, net deferred tax assets of $4.6 million
and net tangible assets of $0.3 million. The amortization
period for the developed technology is 4.0 years.
Acquisition-related costs consist of $0.5 million for legal
and other professional fees. Total cash outlays for
acquisition-related costs were $0.5 million through
December 31, 2004. The results of operations of Invio were
included in the Company’s consolidated financial statements
from the date of acquisition. The pro forma impact of the
acquisition on the Company’s results of operations is not
significant.
On January 20, 2004, the Company acquired all of the
outstanding capital stock of Ejasent, Inc.
(“Ejasent”), a privately held provider of application
virtualization technology for utility computing. The Company
acquired Ejasent to add important application migration
technology, which allows IT personnel to move an application
from one server to another without disrupting or terminating the
application, to the Company’s growing utility computing
portfolio. The Ejasent acquisition included purchase
consideration of $61.2 million, with $47.8 million in
cash and $13.4 million of acquisition-related costs. The
purchase price was allocated to goodwill of $33.0 million,
developed technology of $10.2 million, other intangibles of
$1.9 million, IPR&D of $0.4 million, net deferred
tax assets of $15.9 million and net tangible liabilities of
$0.2 million. The weighted average amortization period for
all purchased intangible assets is 4.4 years.
Acquisition-related costs
F-21
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
consist of $11.2 million of change in control bonuses and
direct transaction costs of $2.2 million for legal and
other professional fees. Total cash outlays for
acquisition-related costs were $13.4 million through
December 31, 2004. The results of operations of Ejasent
were included in the Company’s consolidated financial
statements from the date of acquisition. The pro forma impact of
the acquisition on the Company’s results of operations is
not significant.
|
|
|
Precise Software Solutions Ltd. |
On June 30, 2003, the Company acquired all of the
outstanding common stock of Precise Software Solutions Ltd.
(“Precise”), a provider of application performance
management products. The Company acquired Precise in order to
expand its product and service offerings across storage,
databases and application management. The Precise acquisition
included purchase consideration of $714.6 million, with
7.3 million shares of common stock valued at
$210.6 million, $397.8 million of cash,
$94.0 million relating to the assumption of Precise’s
outstanding vested and unvested stock options for
4.4 million shares of the Company’s common stock and
$12.2 million of acquisition-related costs. The purchase
price was allocated to goodwill of $500.8 million, which is
net of fiscal 2004 tax and other adjustments of
$8.9 million, developed technology of $27.6 million,
other intangibles of $34.3 million, IPR&D of
$15.3 million, net deferred tax liabilities of
$13.0 million, deferred stock-based compensation of
$7.3 million and net tangible assets of
$142.3 million. The weighted average amortization period
for all purchased intangible assets is 3.7 years. The
acquired IPR&D of $15.3 million was written off and the
related charge was expensed in the statement of operations in
the second quarter of 2003. Acquisition-related costs of
$12.2 million consist of $8.9 million associated with
investment banking, legal and other professional fees,
$2.9 million for terminating and satisfying existing lease
commitments and $0.4 million for severance-related costs.
Total cash outlays for acquisition-related costs were
approximately $8.8 million for investment banking, legal
and other professional fees, $0.4 million for severance and
$0.9 million for leases through December 31, 2004.
The results of operations of Precise are included in the
Company’s consolidated financial statements from
July 1, 2003. The pro forma results of operations disclosed
below give effect to the acquisition of Precise as if the
acquisition was consummated on January 1, 2002.
|
|
|
Jareva Technologies, Inc. |
On January 27, 2003, the Company acquired all of the
outstanding capital stock of Jareva Technologies, Inc.
(“Jareva”), a privately held provider of automated
server provisioning products that enable businesses to
automatically deploy additional servers without manual
intervention. The Company acquired Jareva to integrate
Jareva’s technology into the Company’s software
products to enable the Company’s customers to optimize
their investments in server hardware by deploying new server
resources on demand. The Jareva acquisition included total
purchase consideration of $68.7 million, with
$58.7 million of cash, $6.8 million relating to the
assumption of options exercisable for 426,766 shares of the
Company’s common stock and $3.2 million of
acquisition-related costs. The purchase price was allocated to
goodwill of $47.6 million, which is net of fiscal 2004 tax
adjustments of $3.7 million, developed technology of
$9.1 million, other intangibles of $1.9 million,
IPR&D of $4.1 million, net deferred tax liabilities of
$2.5 million, deferred stock-based compensation of
$4.6 million and net tangible assets of $3.9 million.
The weighted average amortization period for all purchased
intangible assets is 3.3 years. The acquired IPR&D of
$4.1 million was written off and the related charge was
expensed in the statement of operations in the first quarter of
2003. Acquisition-related costs of $3.2 million consist of
$2.7 million associated with terminating and satisfying
remaining lease commitments, partially offset by sublease income
net of related sublease costs, and direct transaction costs of
$0.5 million for legal and other professional fees. Total
cash outlays for acquisition-related costs were
$2.4 million through December 31, 2004. The results of
operations of Jareva are included in the Company’s
consolidated financial statements from the date of acquisition.
The pro forma impact on the Company’s results of operations
is not significant.
F-22
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Pro Forma Results of Operations |
The results of operations of KVS and Precise are included in the
Company’s consolidated financial statements from the dates
of acquisition. The following table presents pro forma results
of operations and gives effect to the acquisition of KVS as if
the acquisition was consummated at the beginning of 2004 and
2003 and Precise as if the acquisition was consummated at the
beginning of each period presented. The unaudited pro forma
results of operations are not necessarily indicative of what
would have occurred had the acquisitions been made as of the
beginning of the period or of the results that may occur in the
future. Net income excludes the write-off of acquired IPR&D
of $11.5 million for KVS and $15.3 million for Precise
and includes amortization of intangible assets per quarter of
$3.7 million for KVS and $4.7 million for Precise. Net
income also includes amortization of deferred compensation per
quarter of $2.0 million for KVS and $0.5 million for
Precise. The unaudited pro forma information is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Total net revenue
|
|
$ |
2,067,155 |
|
|
$ |
1,801,146 |
|
|
$ |
1,581,998 |
|
|
Income before cumulative effect of change in accounting principle
|
|
$ |
386,421 |
|
|
$ |
309,516 |
|
|
$ |
44,932 |
|
|
Net income
|
|
$ |
386,421 |
|
|
$ |
303,267 |
|
|
$ |
44,932 |
|
|
Net income per share — basic
|
|
$ |
0.90 |
|
|
$ |
0.72 |
|
|
$ |
0.11 |
|
|
Net income per share — diluted
|
|
$ |
0.88 |
|
|
$ |
0.69 |
|
|
$ |
0.10 |
|
|
|
| Note 4. |
Cash, Cash Equivalents and Short-Term Investments |
The Company’s cash, cash equivalents and short-term
investments consisted of the following at December 31, 2004
and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
| |
|
Amortized Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash
|
|
$ |
112,985 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
112,985 |
|
| |
Money market funds
|
|
|
554,763 |
|
|
|
— |
|
|
|
— |
|
|
|
554,763 |
|
| |
Commercial paper
|
|
|
9,376 |
|
|
|
— |
|
|
|
— |
|
|
|
9,376 |
|
| |
Government securities
|
|
|
22,984 |
|
|
|
— |
|
|
|
— |
|
|
|
22,984 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents
|
|
$ |
700,108 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
700,108 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auction market securities
|
|
$ |
125,050 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
125,050 |
|
| |
Asset-backed securities
|
|
|
237,936 |
|
|
|
38 |
|
|
|
(1,462 |
) |
|
|
236,512 |
|
| |
Government securities
|
|
|
606,173 |
|
|
|
323 |
|
|
|
(4,470 |
) |
|
|
602,026 |
|
| |
Common stock
|
|
|
2,009 |
|
|
|
— |
|
|
|
— |
|
|
|
2,009 |
|
| |
Corporate notes
|
|
|
894,279 |
|
|
|
258 |
|
|
|
(7,042 |
) |
|
|
887,495 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Short-term investments
|
|
$ |
1,865,447 |
|
|
$ |
619 |
|
|
$ |
(12,974 |
) |
|
$ |
1,853,092 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
F-23
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
| |
|
Amortized Cost | |
|
Gains | |
|
Losses | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash
|
|
$ |
262,929 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
262,929 |
|
| |
Money market funds
|
|
|
493,334 |
|
|
|
— |
|
|
|
— |
|
|
|
493,334 |
|
| |
Commercial paper
|
|
|
64,660 |
|
|
|
— |
|
|
|
— |
|
|
|
64,660 |
|
| |
Government securities
|
|
|
2,248 |
|
|
|
— |
|
|
|
— |
|
|
|
2,248 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents
|
|
$ |
823,171 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
823,171 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Auction market securities
|
|
$ |
282,800 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
282,800 |
|
| |
Asset-backed securities
|
|
|
62,613 |
|
|
|
— |
|
|
|
(930 |
) |
|
|
61,683 |
|
| |
Government securities
|
|
|
489,654 |
|
|
|
554 |
|
|
|
(926 |
) |
|
|
489,282 |
|
| |
Corporate notes
|
|
|
843,519 |
|
|
|
3,744 |
|
|
|
(1,184 |
) |
|
|
846,079 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Short-term investments
|
|
$ |
1,678,586 |
|
|
$ |
4,298 |
|
|
$ |
(3,040 |
) |
|
$ |
1,679,844 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with EITF No. 03-1, the following table
summarizes the fair value and gross unrealized losses related to
available-for-sale securities, aggregated by investment category
and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Less than 12 Months | |
|
12 Months or Greater | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Gross | |
|
|
|
Gross | |
|
|
|
Gross | |
| |
|
|
|
Unrealized | |
|
|
|
Unrealized | |
|
|
|
Unrealized | |
| |
|
Fair Value | |
|
Losses | |
|
Fair Value | |
|
Losses | |
|
Fair Value | |
|
Losses | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Asset-backed securities
|
|
$ |
183,417 |
|
|
$ |
(916 |
) |
|
$ |
13,734 |
|
|
$ |
(546 |
) |
|
$ |
197,151 |
|
|
$ |
(1,462 |
) |
|
Corporate notes
|
|
|
641,349 |
|
|
|
(5,883 |
) |
|
|
89,232 |
|
|
|
(1,159 |
) |
|
|
730,581 |
|
|
|
(7,042 |
) |
|
Government securities
|
|
|
448,566 |
|
|
|
(4,219 |
) |
|
|
58,749 |
|
|
|
(251 |
) |
|
|
507,315 |
|
|
|
(4,470 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,273,332 |
|
|
$ |
(11,018 |
) |
|
$ |
161,715 |
|
|
$ |
(1,956 |
) |
|
$ |
1,435,047 |
|
|
$ |
(12,974 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values were determined for each individual security in the
investment portfolio. As of December 31, 2004 and 2003, the
declines in value of the Company’s investments are
primarily related to changes in interest rates and are
considered to be temporary in nature.
Realized gains (losses) are included in interest and other
income, net in the consolidated statements of operations. The
following table sets forth the components of the Company’s
interest and other income, net:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest income
|
|
$ |
50,894 |
|
|
$ |
43,050 |
|
|
$ |
50,338 |
|
|
Dividend income
|
|
|
1,499 |
|
|
|
165 |
|
|
|
576 |
|
|
Gains on sale of investments
|
|
|
21 |
|
|
|
4,161 |
|
|
|
2,145 |
|
|
Other miscellaneous income (expenses)
|
|
|
432 |
|
|
|
(3,763 |
) |
|
|
(11,324 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total interest and other income, net
|
|
$ |
52,846 |
|
|
$ |
43,613 |
|
|
$ |
41,735 |
|
| |
|
|
|
|
|
|
|
|
|
F-24
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the year ended December 31, 2002, other miscellaneous
expenses include a $6.1 million charge in connection with
the settlement of a litigation matter.
The amortized cost and estimated fair value of the
Company’s cash, cash equivalents and short-term
investments, as of December 31, 2004, shown by contractual
maturity date, are included in the following table:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
|
|
Estimated | |
| |
|
Amortized Cost | |
|
Fair Value | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Due in less than one year
|
|
$ |
1,424,681 |
|
|
$ |
1,422,164 |
|
|
Due between one and five years
|
|
|
1,140,874 |
|
|
|
1,131,036 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
2,565,555 |
|
|
$ |
2,553,200 |
|
| |
|
|
|
|
|
|
|
|
| Note 5. |
Property and Equipment |
Property and equipment is stated at cost and consists of the
following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Buildings
|
|
$ |
375,364 |
|
|
$ |
375,322 |
|
|
Computer equipment
|
|
|
460,840 |
|
|
|
372,860 |
|
|
Furniture and equipment
|
|
|
104,447 |
|
|
|
93,815 |
|
|
Leasehold improvements
|
|
|
98,452 |
|
|
|
91,383 |
|
|
Construction in process
|
|
|
35,251 |
|
|
|
17,057 |
|
| |
|
|
|
|
|
|
| |
|
|
1,074,354 |
|
|
|
950,437 |
|
|
Less — accumulated depreciation and amortization
|
|
|
(489,111 |
) |
|
|
(377,460 |
) |
| |
|
|
|
|
|
|
| |
Property and equipment, net
|
|
$ |
585,243 |
|
|
$ |
572,977 |
|
| |
|
|
|
|
|
|
Depreciation and amortization of property and equipment was
approximately $111.1 million for the year ended
December 31, 2004, $114.0 million for the year ended
December 31, 2003 and $103.1 million for the year
ended December 31, 2002.
|
|
| Note 6. |
Goodwill and Other Intangible Assets |
On January 1, 2002, the Company adopted
SFAS No. 142. As a result, the Company no longer
amortizes goodwill but will test it for impairment annually or
whenever events or changes in circumstances suggest that the
carrying amount may not be recoverable.
F-25
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth the carrying amount of goodwill.
Goodwill also includes amounts originally allocated to assembled
workforce:
| |
|
|
|
|
|
Balance at December 31, 2002
|
|
$ |
1,193,289 |
|
|
Goodwill acquired
|
|
|
563,719 |
|
|
Adjustments for prior acquisitions
|
|
|
(1,417 |
) |
| |
|
|
|
|
Balance at December 31, 2003
|
|
|
1,755,591 |
|
|
Goodwill acquired
|
|
|
200,188 |
|
|
Adjustments for prior acquisitions
|
|
|
(14,137 |
) |
|
Impact of exchange rates
|
|
|
11,790 |
|
| |
|
|
|
|
Balance at December 31, 2004
|
|
$ |
1,953,432 |
|
| |
|
|
|
During 2004, goodwill increased $200.2 million due to the
acquisitions of KVS, Invio and Ejasent in the amounts of
$144.4 million, $22.8 million and $33.0 million,
respectively, offset by tax adjustments of $12.8 million
for prior acquisitions, and the reduction in goodwill associated
with the divestiture of a portion of a prior year acquisition in
the amount of $0.8 million. During 2003, goodwill increased
$563.7 million due to the acquisitions of Precise, Jareva
and other acquisitions in the amounts of $509.7 million,
$51.3 million and $2.7 million, respectively offset by
tax adjustments of $1.4 million for prior acquisitions.
The following tables set forth the carrying amount of other
intangible assets that will continue to be amortized, including
the impact of exchange rates:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
Gross | |
|
|
| |
|
Carrying | |
|
Accumulated | |
|
Net Carrying | |
| |
|
Amount | |
|
Amortization | |
|
Amount | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Developed technology
|
|
$ |
365,568 |
|
|
$ |
258,250 |
|
|
$ |
107,318 |
|
|
Distribution channels
|
|
|
234,800 |
|
|
|
234,800 |
|
|
|
— |
|
|
Trademarks
|
|
|
29,433 |
|
|
|
26,214 |
|
|
|
3,219 |
|
|
Other intangible assets
|
|
|
80,153 |
|
|
|
44,037 |
|
|
|
36,116 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Intangibles related to acquisitions
|
|
|
709,954 |
|
|
|
563,301 |
|
|
|
146,653 |
|
|
Convertible subordinated notes issuance costs
|
|
|
12,595 |
|
|
|
5,875 |
|
|
|
6,720 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total other intangibles
|
|
$ |
722,549 |
|
|
$ |
569,176 |
|
|
$ |
153,373 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
| |
|
Gross | |
|
|
| |
|
Carrying | |
|
Accumulated | |
|
Net Carrying | |
| |
|
Amount | |
|
Amortization | |
|
Amount | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Developed technology
|
|
$ |
287,949 |
|
|
$ |
237,043 |
|
|
$ |
50,906 |
|
|
Distribution channels
|
|
|
234,800 |
|
|
|
234,800 |
|
|
|
— |
|
|
Trademarks
|
|
|
26,650 |
|
|
|
24,925 |
|
|
|
1,725 |
|
|
Other intangible assets
|
|
|
51,734 |
|
|
|
33,714 |
|
|
|
18,020 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Intangibles related to acquisitions
|
|
|
601,133 |
|
|
|
530,482 |
|
|
|
70,651 |
|
|
Convertible subordinated notes issuance costs
|
|
|
12,401 |
|
|
|
1,708 |
|
|
|
10,693 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total other intangibles
|
|
$ |
613,534 |
|
|
$ |
532,190 |
|
|
$ |
81,344 |
|
| |
|
|
|
|
|
|
|
|
|
F-26
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The total amortization expense related to developed technology
and other intangible assets is set forth in the table below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Developed technology
|
|
$ |
21,093 |
|
|
$ |
36,778 |
|
|
$ |
67,232 |
|
|
Distribution channels
|
|
|
— |
|
|
|
24,458 |
|
|
|
58,700 |
|
|
Trademarks
|
|
|
1,284 |
|
|
|
3,112 |
|
|
|
6,089 |
|
|
Other intangible assets
|
|
|
10,200 |
|
|
|
8,102 |
|
|
|
7,600 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total amortization expense
|
|
$ |
32,577 |
|
|
$ |
72,450 |
|
|
$ |
139,621 |
|
| |
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2004, 2003 and 2002, total
amortization expense for intangible assets includes
$3.8 million, $1.9 million and $0.6 million,
respectively, that was included in user license fees cost of
revenue.
The total expected future annual amortization of intangible
assets related to acquisitions is set forth in the table below:
| |
|
|
|
|
|
| |
|
Future | |
| |
|
Amortization | |
| |
|
| |
| |
|
(In thousands) | |
|
2005
|
|
$ |
43,850 |
|
|
2006
|
|
|
41,781 |
|
|
2007
|
|
|
29,944 |
|
|
2008
|
|
|
18,976 |
|
|
2009
|
|
|
12,102 |
|
| |
|
|
|
| |
Total
|
|
$ |
146,653 |
|
| |
|
|
|
For the years ended December 31, 2004, 2003 and 2002, the
amortization of the convertible subordinated notes issuance
costs of $4.2 million, $2.7 million and
$1.9 million, respectively, was included in interest
expense. The expected future annual amortization of the
convertible subordinated notes issuance costs is
$4.2 million for 2005 and $2.5 million for 2006.
|
|
| Note 7. |
Strategic Investments |
The Company holds investments in capital stock of several
privately-held companies. The total carrying amount of these
strategic investments was $2.7 million at December 31,
2004 and $5.4 million at December 31, 2003. These
strategic investments are included in other non-current assets.
In 2004, the Company realized a gain of $9.5 million
related to two strategic investments. The Company recorded
impairment losses on strategic investments of $3.5 million
in 2003 and $14.8 million in 2002, partially offset by a
gain on disposal of a strategic investment of $3.0 million
in 2002. The losses realized represent other-than-temporary
declines in the fair value of the investments and were
determined based on the value of the investee’s stock, its
inability to obtain additional private financing, its cash
position and current burn rate, the status and competitive
position of the investee’s products and the uncertainty of
its financial condition, among other factors.
|
|
| Note 8. |
Accrued Acquisition and Restructuring Costs |
In the fourth quarter of 2002, the Company’s board of
directors approved a facility restructuring plan to exit and
consolidate certain of the Company’s facilities located in
17 metropolitan areas worldwide. The
F-27
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
facility restructuring plan was adopted to address overcapacity
in its facilities as a result of lower than planned headcount
growth in these metropolitan areas. In connection with this
facility restructuring plan, the Company recorded a net
restructuring charge (the “2002 Facility Accrual”) to
operating expenses of $96.1 million in the fourth quarter
of 2002. The 2002 Facility Accrual was originally comprised of
(i) $86.9 million associated with terminating and
satisfying remaining lease commitments, partially offset by
sublease income net of related sublease costs and
(ii) write-offs of $9.2 million for net assets.
In 2002, the Company also recorded incremental restructuring
costs of $3.2 million related to restructuring initiated in
1999, resulting in total restructuring costs of
$99.3 million for the year ended December 31, 2002. As
of December 31, 2002, accrued acquisition and restructuring
costs consisted of the 2002 Facility Accrual, the remaining
acquisition costs to be paid in connection with prior period
acquisitions, including facility related costs, and the
remaining restructuring costs to be paid for other restructuring
plans.
In the third quarter of 2004, the Company acquired KVS and, as a
result, reversed $9.6 million of the 2002 Facility Accrual
related to previously restructured facilities to be occupied by
KVS personnel. In addition, cash outlays of $14.9 million
and the impact of foreign exchange rates of $1.1 million
were recognized in 2004. As of December 31, 2004, the
remaining balance of the 2002 Facility Accrual was
$52.4 million. Restructuring costs will be paid over the
remaining lease terms, ending at various dates through 2022, or
over a shorter period as the Company may negotiate with its
lessors. The majority of costs are expected to be paid by the
year ending December 31, 2010.
The Company is in the process of seeking suitable subtenants for
these facilities. The estimates related to the 2002 Facility
Accrual may vary significantly depending, in part, on factors
that are beyond the Company’s control, including the
commercial real estate market in the applicable metropolitan
areas, its ability to obtain subleases related to these
facilities and the time period to do so, the sublease rental
market rates and the outcome of negotiations with lessors
regarding terminations of some of the leases. Adjustments to the
2002 Facility Accrual will be made if actual lease exit costs or
sublease income differ materially from amounts currently
expected. Because a portion of the 2002 Facility Accrual relates
to international locations, the accrual will be affected by
exchange rate fluctuations.
As of December 31, 2004, accrued acquisition and
restructuring costs consisted of the 2002 Facility Accrual
discussed above, acquisition-related costs discussed in
Note 3 and other accrued acquisition and restructuring
charges incurred from 1999 through 2004, net of cash payments
made.
F-28
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of accrued acquisition and restructuring costs
and movements within these components through December 31,
2004 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Direct | |
|
Involuntary | |
|
|
|
|
|
|
| |
|
Transaction | |
|
Termination | |
|
Facility | |
|
Net Asset | |
|
|
| |
|
Costs | |
|
Benefits | |
|
Related Costs | |
|
Write-offs | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at December 31, 2002
|
|
$ |
1.0 |
|
|
$ |
— |
|
|
$ |
97.7 |
|
|
$ |
11.4 |
|
|
$ |
110.1 |
|
| |
Additions
|
|
|
9.5 |
|
|
|
0.4 |
|
|
|
6.1 |
|
|
|
— |
|
|
|
16.0 |
|
| |
Cash payments
|
|
|
(9.9 |
) |
|
|
(0.4 |
) |
|
|
(16.3 |
) |
|
|
— |
|
|
|
(26.6 |
) |
| |
Asset write-offs
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8.9 |
) |
|
|
(8.9 |
) |
| |
Adjustment
|
|
|
— |
|
|
|
— |
|
|
|
0.8 |
|
|
|
(0.8 |
) |
|
|
— |
|
| |
Impact of exchange rates
|
|
|
— |
|
|
|
— |
|
|
|
3.1 |
|
|
|
0.4 |
|
|
|
3.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
0.6 |
|
|
|
— |
|
|
|
91.4 |
|
|
|
2.1 |
|
|
|
94.1 |
|
| |
Additions
|
|
|
6.0 |
|
|
|
11.3 |
|
|
|
2.1 |
|
|
|
— |
|
|
|
19.4 |
|
| |
Cash payments
|
|
|
(6.0 |
) |
|
|
(11.2 |
) |
|
|
(19.8 |
) |
|
|
— |
|
|
|
(37.0 |
) |
| |
Asset write-offs
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.1 |
) |
|
|
(2.1 |
) |
| |
Restructuring reversal, net
|
|
|
— |
|
|
|
— |
|
|
|
(9.6 |
) |
|
|
— |
|
|
|
(9.6 |
) |
| |
Adjustments
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
(0.6 |
) |
| |
Impact of exchange rates
|
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
|
|
— |
|
|
|
1.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
0.4 |
|
|
$ |
0.1 |
|
|
$ |
65.6 |
|
|
$ |
— |
|
|
$ |
66.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Note 9. |
Convertible Subordinated Notes |
In August 2003, the Company issued $520.0 million of
0.25% convertible subordinated notes due August 1,
2013 (“0.25% Notes”) for which the Company
received net proceeds of approximately $508.2 million, to
several initial purchasers in a private offering. The
0.25% Notes were issued at their face value and provide for
semi-annual interest payments of $0.7 million each February
1 and August 1, beginning February 1, 2004. Effective
as of January 28, 2004, the 0.25% Notes began accruing
additional interest at a rate of 0.25% as a result of the
Company’s registration statement having not been declared
effective by the SEC on or before the 180th day following the
original issuance of the 0.25% Notes and the
0.25% Notes continued to accrue additional interest at that
rate until April 27, 2004, the 90th day following such
registration default. On April 27, 2004, the
0.25% Notes began to accrue additional interest at a rate
of 0.50% and continued to accrue such additional interest until
November 24, 2004, the date on which the registration
statement was declared effective. Effective as of
January 30, 2005, the 0.25% Notes began to accrue
additional interest at a rate of 0.25% per annum as a
result of the Company’s registration statement having been
suspended by the Company beyond its permitted grace period. The
0.25% Notes will continue to accrue additional interest at
this rate until the suspension of the Company’s
registration statement is lifted, and this rate will increase to
0.50% per annum if the suspension has not been lifted by
April 30, 2005. The 0.25% Notes are convertible, under
specified circumstances, into shares of the Company’s
common stock at a conversion rate of 21.6802 shares per
$1,000 principal amount of notes, which is equivalent to a
conversion price of approximately $46.13 per share.
Pursuant to the terms of a supplemental indenture dated as of
October 25, 2004, the Company will be required to deliver
cash to holders upon conversion, except to the extent that its
conversion obligation exceeds the principal amount of the notes
converted, in which case, the Company will have the option to
satisfy the excess (and only the excess) in cash and/or shares
of common stock.
The conversion rate of the 0.25% Notes is subject to
adjustment upon the occurrence of specified events. The
specified circumstances under which the 0.25% Notes are
convertible prior to maturity are: (1) during
F-29
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
any quarterly conversion period (which periods begin on the
eleventh trading day of each fiscal quarter and end on the
eleventh trading day of the following fiscal quarter) prior to
August 1, 2010, if the closing sale price of the
Company’s common stock for at least 20 trading days in the
30 trading day period ending on the first day of such conversion
period exceeds 120% of the conversion price of the notes on that
first day, (2) during the period beginning August 1,
2010 through the maturity date of the notes, if the closing sale
price of the Company’s common stock is more than 120% of
the then current conversion price, (3) during the five
consecutive business day period following any five consecutive
trading day period in which the average of the trading prices
for the 0.25% Notes was less than 95% of the average of the
sale price of the Company’s common stock multiplied by the
then current conversion rate of the notes, (4) the
Company’s corporate credit rating assigned by
Standard & Poor’s falls below B- (and if
Moody’s has assigned a corporate credit rating to the
Company and such rating is lower than B3) or if both such
ratings are withdrawn, (5) the Company calls the notes for
redemption or (6) upon the occurrence of corporate
transactions specified in the indenture governing the notes
(including, for the 15 days prior to the anticipated
closing date of a merger, consolidation or similar transaction
and the 15 days after the date of closing of such
transaction), at the option of the holder, the 0.25% Notes
are convertible in accordance with the applicable terms. On or
after August 5, 2006, the Company has the option to redeem
all or a portion of the 0.25% Notes at a redemption price
equal to 100% of the principal amount, plus accrued and unpaid
interest. On August 1, 2006 and August 1, 2008, or
upon the occurrence of a fundamental change involving the
Company, holders of the 0.25% Notes may require the Company
to repurchase their notes at a repurchase price equal to 100% of
the principal amount, plus accrued and unpaid interest.
In August 2003, all of the Company’s outstanding 5.25%
convertible subordinated notes due 2004
(“5.25% Notes”) converted into 6.7 million
shares of common stock at a conversion price of $9.56 per
share. In August 2003, a portion of the Company’s
outstanding 1.856% convertible subordinated notes due 2006
(“1.856% Notes”) converted into 0.5 million
shares of common stock at an effective conversion price of
$31.35 per share. The remaining outstanding principal
amount of the 1.856% Notes was redeemed by the Company in
August 2003 for $391.8 million in cash, including
$0.1 million of accrued interest. In connection with the
redemption of the 1.856% Notes for cash, the Company
recorded a loss on extinguishment of debt of approximately
$4.7 million in the third quarter of 2003 related to the
unamortized portion of debt issuance costs. This charge is
classified as a non-operating expense in the Company’s
consolidated statement of operations.
In 1999 and 2000, the Company entered into three build-to-suit
lease agreements for office buildings in Mountain View,
California, Roseville, Minnesota and Milpitas, California. The
Company began occupying the Roseville and Mountain View
facilities in May and June 2001, respectively, and began
occupying the Milpitas facility in April 2003. The Mountain View
facility includes 425,000 square feet and serves as the
Company’s corporate headquarters and for research and
development functions. The Milpitas facility includes
465,000 square feet and is primarily used for technical
support, sales and general corporate functions. The Roseville
facility includes 206,000 square feet and provides space
for technical support and research and development functions. A
syndicate of financial institutions financed the acquisition and
development of these properties. Prior to July 1, 2003, the
Company accounted for these properties as operating leases in
accordance with SFAS No. 13, Accounting for
Leases, as amended. On July 1, 2003, the Company
adopted FIN 46. Under FIN 46, the lessors of the
facilities are considered variable interest entities, and the
Company is considered the primary beneficiary. Accordingly, the
Company began consolidating these variable interest entities on
July 1, 2003 and has included the property and equipment
and debt on its balance sheet as of December 31, 2004 and
2003 and the results of their operations in its consolidated
statement of operations from July 1, 2003. As of
December 31, 2004, $380.6 million of debt has been
classified as current as the lease
F-30
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
terms for the Mountain View and Roseville facilities expire in
March 2005 and the lease term for the Milpitas facility expires
in July 2005.
Interest only payments under the debt agreements relating to the
facilities are generally paid quarterly and are equal to the
termination value of the outstanding debt obligations multiplied
by the Company’s cost of funds, which is based on London
Inter Bank Offered Rate (“LIBOR”) using 30-day to
180-day LIBOR contracts and adjusted for the Company’s
credit spread. The termination values of the debt agreements are
approximately $145.2 million, $41.2 million and
$194.2 million for the Mountain View, Roseville and
Milpitas leases, respectively. The terms of these debt
agreements are five years with an option to extend the lease
terms for two successive periods of one year each, if agreed to
by the financial institutions that financed the facilities. The
terms of these debt agreements began March 2000 for the Mountain
View and Roseville facilities and July 2000 for the Milpitas
facility. The Company has the option to purchase the three
facilities for the aggregate termination value of
$380.6 million or, at the end of the term, to arrange for
the sale of the properties to third parties while the Company
retains an obligation to the financial institutions that
financed the facilities in an amount equal to the difference
between the sales price and the guaranteed residual value up to
an aggregate $344.6 million if the sales price is less than
this amount, subject to the specific terms of the debt
agreements. In addition, the Company is entitled to any proceeds
from a sale of the facilities in excess of the termination
values.
In January 2002, the Company entered into two three-year pay
fixed, receive floating, interest rate swaps for the purpose of
hedging the cash payments related to the Mountain View and
Roseville agreements (see Note 13). Under the terms of
these interest rate swaps, the Company makes payments based on
the fixed rate and will receive interest payments based on the
3-month LIBOR rate. For the year ended December 31, 2004
and six months ended December 31, 2003, the aggregate
payments on the debt agreements, including the net payments on
the interest rate swaps, were $16.9 million and
$8.5 million, respectively, and were included in interest
expense in the consolidated statement of operations in
accordance with FIN 46. For the six months ended
June 30, 2003 and the year ended December 31, 2002,
the aggregate payments were $8.3 million and
$17.0 million, respectively, and were classified as rent
expense and included in cost of revenue and operating expenses
in the consolidated statement of operations, in accordance with
SFAS No. 13.
The agreements for the facilities described above require that
the Company maintain specified financial covenants, all of which
the Company was in compliance with as of December 31, 2004.
The specified financial covenants as of December 31, 2004
require the Company to maintain a minimum rolling four quarter
earnings before interest, taxes, depreciation and amortization
(“EBITDA”) of $500.0 million, a minimum ratio of
cash, cash equivalents, short-term investments and accounts
receivable to current liabilities plus the debt consolidated
under the build-to-suit lease agreements of 1.2 to 1, and a
leverage ratio of total funded indebtedness to rolling four
quarter EBITDA of not more than 2 to 1. For purposes of these
financial covenants, EBITDA represents the Company’s net
income for the applicable period, plus interest expense, taxes,
depreciation and amortization and all non-cash restructuring
charges, less software development expenses classified as
capital expenditures. In February 2005, the Company received a
waiver from Bank of America, N.A. as agent for the syndicate of
banks that funded the development of the Mountain View and
Roseville facilities, and ABN AMRO Bank, N.V. as agent for the
syndicate of banks that funded the development of the Milpitas
facility with regard to certain negative covenants prohibiting a
change in control and the Company’s proposed merger with
Symantec. In order to secure the obligation under each
agreement, each of the facilities is subject to a deed of trust
in favor of the financial institutions that financed the
development and acquisition of the respective facility. Bank of
America, N.A. was the agent for the syndicate of banks that
funded the development of the Mountain View and Roseville
facilities, and ABN AMRO Bank, N.V. was the agent for the
syndicate of banks that funded the development of the Milpitas
facility.
In February 2005, the Company’s board of directors
authorized the future purchase of the properties subject to each
of the build-to-suit lease agreements. In March 2005, the
Company acquired beneficial
F-31
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
ownership of the Mountain View, California, Milpitas,
California, and Roseville, Minnesota properties for an aggregate
cash purchase price of approximately $384 million. As a
result the Company’s cash and debt balances will decrease
by this amount.
During 2002, the Company’s Japanese subsidiary entered into
a short-term credit facility with a multinational Japanese bank
in the amount of 1.0 billion Japanese yen
($9.6 million USD). At December 31, 2004 and 2003, no
amount was outstanding. The short-term credit facility was
renewed in March 2005 and is due to expire in March 2006.
Borrowings under the short-term credit facility bear interest at
Tokyo Inter Bank Offered Rate plus 0.5%. There are no covenants
on the short-term credit facility and the loan has been
guaranteed by VERITAS Software Global LLC, a wholly-owned
subsidiary of the Company.
The Company currently has operating leases for its facilities
and rental equipment through 2022. Rental expense under
operating leases was approximately $56.3 million,
$63.3 million and $60.1 million for the years ended
December 31, 2004, 2003 and 2002, respectively, including
the payments made under the Company’s three build-to-suit
lease agreements prior to June 30, 2003. In addition to the
basic rent, the Company is responsible for all taxes, insurance
and utilities related to the facilities. The following table is
a summary of the contractual commitments associated with the
Company’s operating lease obligations as of
December 31, 2004:
| |
|
|
|
|
|
| |
|
Operating | |
| |
|
Lease | |
| |
|
Obligations | |
| |
|
| |
| |
|
(In thousands) | |
|
2005
|
|
$ |
55,472 |
|
|
2006
|
|
|
46,735 |
|
|
2007
|
|
|
40,775 |
|
|
2008
|
|
|
35,840 |
|
|
2009
|
|
|
29,763 |
|
|
Thereafter
|
|
|
142,407 |
|
| |
|
|
|
| |
Total
|
|
$ |
350,992 |
|
| |
|
|
|
|
|
|
Acquired Technology Commitments |
On October 1, 2002, the Company acquired volume replicator
software technology for $6.0 million and contingent
payments of up to another $6.0 million based on future
revenues generated by the acquired technology. The contingent
payments will be paid quarterly over 40 quarters, in amounts
between $150,000 and $300,000. The Company issued a promissory
note payable in the principal amount of $5.0 million,
representing the present value of the Company’s minimum
payment obligations under the purchase agreement for the
acquired technology, which are payable quarterly commencing in
the first quarter of 2003 and ending in the fourth quarter of
2012. The contingent payments in excess of the quarterly minimum
obligations will be paid as they may become due. The outstanding
balance of the note payable was $4.1 million as of
December 31, 2004 and $4.6 million as of
December 31, 2003 and is included in other long-term
liabilities.
|
|
| Note 13. |
Derivative Financial Instruments |
In September 2000, the Company entered into a three-year cross
currency cash flow hedge against foreign exchange fluctuations
on foreign currency denominated cash flows under an intercompany
loan receivable. Under the terms of this derivative financial
instrument, Euro denominated fixed principal and
F-32
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
interest payments to be received under the intercompany loan
were swapped for U.S. dollar-fixed principal and interest
payments. In 2003, the intercompany loan was paid in full and
the derivative financial instrument was settled.
In January 2002, the Company entered into two three-year pay
fixed, receive floating, interest rate swaps for the purpose of
hedging cash flows on variable interest rate debt related to the
Mountain View, California and Roseville, Minnesota build-to-suit
lease agreements. Under the terms of these interest rate swaps,
the Company makes payments based on the fixed rate and will
receive interest payments based on 3-month LIBOR. The
Company’s payments on its build-to-suit lease agreements
are based upon a 3-month LIBOR plus a credit spread. If critical
terms of the interest rate swap or the hedged item do not
change, the interest rate swap will be considered to be highly
effective with all changes in the fair value included in other
comprehensive income. If critical terms of the interest rate
swap or the hedged item change, the hedge may become partially
or fully ineffective, which could result in all or a portion of
the changes in fair value of the derivative recorded in the
statement of operations. The interest rate swaps settle the
first day of January, April, July and October until expiration.
As of December 31, 2004 and 2003, the fair value of the
interest rate swaps was $(1.7) million and
($7.8) million, respectively, and was recorded in other
long-term liabilities. As a result of entering into the interest
rate swaps, the Company has mitigated its exposure to variable
cash flows associated with interest rate fluctuations. Because
the rental payments on the leases are based on the 3-month LIBOR
and the Company receives 3-month LIBOR from the interest rate
swap counter-party, the Company has eliminated any impact to
raising interest rates related to its rent payments under the
build-to-suit lease agreements. On July 1, 2003, the
Company began accounting for its variable interest rate debt in
accordance with FIN 46. In accordance with
SFAS No. 133, the Company had designated the interest
rate swap as a cash flow hedge of the variability embedded in
the rent expense as it is based on the 3-month LIBOR. However,
with the adoption of FIN 46, the Company redesignated the
interest rate swap as a cash flow hedge of variability in
interest expense and it remains highly effective with all
changes in the fair value included in other comprehensive income.
As of December 31, 2004, the total gross notional amount of
the Company’s foreign currency forward contracts was
approximately $208.9 million, all of which hedge
intercompany accounts, as well as non-functional currency
denominated cash, cash equivalents, short-term investment and
accounts receivable of certain of its international
subsidiaries. The forward contracts had terms of 34 days or
less and settled on January 31, 2005. All foreign currency
transactions and all outstanding forward contracts are
marked-to-market at the end of the period with unrealized gains
and losses included in interest and other income, net. The
unrealized gain (loss) on the outstanding forward contracts at
December 31, 2004 was immaterial to the Company’s
consolidated financial statements.
In July 2004, the Company’s board of directors authorized a
program by which the Company was authorized to repurchase up to
$500.0 million of the Company’s common stock over the
following 12 to 18 months. During 2004, the Company
repurchased 13.0 million shares of common stock for an
aggregate purchase price of $250.0 million.
SEC Investigation. As previously disclosed, since the
third quarter of 2002, the Company has received subpoenas issued
by the Securities Exchange Commission in the investigation
entitled In the Matter of AOL/ Time Warner. The SEC has
requested information concerning the facts and circumstances
surrounding the Company’s transactions with AOL Time
Warner, or AOL, and related accounting and disclosure matters.
The Company’s transactions with AOL, entered into in
September 2000, involved a software and services purchase
F-33
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
by AOL at a stated value of $50.0 million and the purchase
by the Company of advertising services from AOL at a stated
value of $20.0 million. In March 2003, the Company restated
its financial statements for 2001 and 2000 to reflect a
reduction in revenues and expenses of $20.0 million. The
restatement included an additional reduction in revenues and
expenses of $1.0 million related to two other
contemporaneous transactions with other parties entered into in
2000 that involved software licenses and the purchase of online
advertising services. In March 2005, the SEC charged AOL with
securities fraud pursuant to a complaint entitled Securities
and Exchange Commission v. Time Warner, Inc. In its
complaint, the SEC described certain transactions between AOL
and a “California-based software company that creates and
licenses data storage software” that appears to reference
the Company’s transactions with AOL as described above, and
alleged that AOL aided and abetted that California-based
software company in violating Section 10(b) of the
Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.
In March 2004, the Company announced its intention to restate
its financial statements for 2002 and 2001 and revise its
previously announced financial results for 2003. The decision
resulted from the findings of an investigation into past
accounting practices that concluded on March 12, 2004. The
investigation resulted from concerns raised by an employee in
late 2003, which led to a detailed review of the matter in
accordance with the Company’s corporate governance
processes, including the reporting of the matter to the audit
committee of the Company’s board of directors, and to KPMG
LLP, the Company’s independent registered public accounting
firm. The audit committee retained independent counsel to
investigate issues relating to these past accounting practices,
and the audit committee’s counsel retained independent
accountants to assist with the investigation. In the first
quarter of 2004, the Company voluntarily disclosed to the staff
of the SEC past accounting practices applicable to the
Company’s 2002 and 2001 financial statements that were not
in compliance with GAAP.
The Company and its audit committee continue to cooperate with
the SEC in its review of these matters. At this time, the
Company cannot predict the outcome of the SEC’s review.
After the Company announced in January 2003 that it would
restate its financial results as a result of transactions
entered into with AOL in September 2000, numerous separate
complaints purporting to be class actions were filed in the
United States District Court for the Northern District of
California alleging that the Company and some of our officers
and directors violated provisions of the Securities Exchange Act
of 1934. The complaints contain varying allegations, including
that the Company made materially false and misleading statements
with respect to its 2000, 2001 and 2002 financial results
included in its filings with the SEC, press releases and other
public disclosures. On May 2, 2003, a lead plaintiff and
lead counsel were appointed. A consolidated complaint entitled
In Re VERITAS Software Corporation Securities Litigation
was filed by the lead plaintiff on July 18, 2003. On
February 18, 2005, the parties filed a Stipulation of
Settlement in the class action. On March 18, 2005, the
Court entered an order preliminarily approving the class action
settlement. Pursuant to the terms of the settlement, a
$35.0 million settlement fund was established on
March 25, 2005. The Company funded approximately
$10.1 million of the settlement fund, which amount is
obligated to be repaid to the Company by its insurance carrier
on or before April 15, 2005. As of December 31, 2004,
the Company has recorded a liability of $35.0 million,
classified as other accrued liabilities on the consolidated
balance sheet, and a corresponding receivable for the same
amount, classified as other current assets on the consolidated
balance sheet.
In 2003, several complaints purporting to be derivative actions
were filed in California Superior Court against some of the
Company’s directors and officers. These complaints are
generally based on the same facts and circumstances alleged in
In Re VERITAS Software Corporation Securities Litigation,
referenced above, and allege that the named directors and
officers breached their fiduciary duties by failing to oversee
adequately the Company’s financial reporting. The state
court complaints were consolidated into the action In Re
F-34
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
VERITAS Software Corporation Derivative Litigation, which
was filed on May 8, 2003 in the Superior Court of
Santa Clara County. On January 26, 2005, the parties
to the derivative action filed a stipulation of settlement with
the Superior Court and the Court entered an order approving the
stipulation of settlement and dismissed the lawsuit with
prejudice on February 4, 2005.
On August 2, 2004, the Company received a copy of an
amended complaint in Stichting Pensioenfonds ABP v. AOL
Time Warner, et. al. in which the Company was named as
a defendant. The case was originally filed in the United States
District Court for the Southern District of New York in July
2003 against Time Warner (formerly, AOL Time Warner), current
and former officers and directors of Time Warner and AOL, and
Time Warner’s outside auditor, Ernst & Young LLP.
In adding the Company as a defendant, the plaintiff alleges that
the Company aided and abetted AOL in alleged common law fraud
and also alleges that the Company engaged in common law fraud as
part of a civil conspiracy. The plaintiff seeks an unspecified
amount of compensatory and punitive damages. On
November 22, 2004, the Company filed a motion to dismiss in
this action and the plaintiff filed its opposition memoranda on
March 4, 2005. The motion remains pending before the Court.
On July 7, 2004, a purported class action complaint
entitled Paul Kuck, et al. v. VERITAS Software
Corporation, et al. was filed in the United States
District Court for the District of Delaware. The lawsuit alleges
violations of federal securities laws in connection with the
Company’s announcement on July 6, 2004 that the
Company expected its results of operations for the fiscal
quarter ended June 30, 2004 to fall below the
Company’s earlier estimates. The complaint generally seeks
an unspecified amount of damages. Subsequently, additional
purported class action complaints have been filed in Delaware
federal court against the same defendants named in the Kuck
lawsuit. These complaints are based on the same facts and
circumstances as the Kuck lawsuit. On July 19, 2004,
defendants filed a motion to transfer venue from Delaware to the
Northern District of California. The Court denied the motion on
January 14, 2005, and denied the Company’s motion for
reconsideration of denial of transfer on March 2, 2005.
On December 17, 2004, a purported class action complaint
entitled Daniel Drotzman, et. al., v. Gary Bloom,
et. al., was filed in California Superior Court against
the Company’s board of directors. The lawsuit alleged that
defendants breached their fiduciary duty by approving the merger
agreement the Company entered into with Symantec because they
were allegedly motivated to obtain indemnification agreements
from Symantec in connection with the Kuck securities class
action described above. The complaint generally sought an
unspecified amount of damages. Subsequently, an additional
purported class action complaint was filed in California state
court against the same defendants named in the Drotzman lawsuit.
This complaint was based on the same set of facts and
circumstances as the Drotzman lawsuit. On January 3, 2005,
defendants filed demurrers to both complaints requesting they be
dismissed by the Court. On February 15, 2005, plaintiffs
filed a request for dismissal without prejudice with the Court,
which request was granted by the Court on the same date.
The foregoing cases that have not been settled or dismissed are
still in the preliminary stages, and it is not possible for the
Company to quantify the extent of its potential liability, if
any. An unfavorable outcome in any of these matters could have a
material adverse effect on its business, financial condition,
results of operations and cash flow. In addition, defending any
litigation may be costly and divert management’s attention
from the day-to-day operations of the Company’s business.
In addition to the legal proceedings listed above, the Company
is also party to various other legal proceedings that have
arisen in the ordinary course of business. While the Company
currently believe that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a
material adverse effect on the Company’s financial position
or overall trends in results of operations, litigation is
subject to inherent uncertainties. Were an unfavorable ruling to
occur, there exists the possibility of a material adverse impact
on the Company’s results of operations and cash flows for
the period in which the ruling occurs. The
F-35
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
estimate of the potential impact on the Company’s financial
position or overall results of operations for the above
discussed legal proceedings could change in the future.
The Company has adopted a retirement savings plan qualified
under Section 401(k) of the Internal Revenue Code, which is
a pretax savings plan covering substantially all United States
employees. Under the plan, employees may contribute up to 20% of
their pretax salary, subject to certain limitations. Employees
are eligible to participate beginning the first day of the month
following their date of hire. The Company matches approximately
50% of the employee contributions up to $2,500 per year and
contributed approximately $8.1 million, $7.0 million
and $6.9 million in 2004, 2003 and 2002, respectively. The
Company has established a deferred compensation plan for certain
eligible employees whereby the employee can defer a portion of
their cash compensation on a pre-tax basis to an investment
account. The Company has classified the investments in the
deferred compensation plan as trading and, accordingly records
an asset and corresponding liability related to the investments
held and obligation to the employee. Changes in the fair value
of the asset and liability are recorded in the statement of
operations. As of December 31, 2004 and 2003, the asset and
liability relating to the deferred compensation plan was
$11.6 million and $8.7 million, respectively. The
asset is classified in other non-current assets and the
liability is classified in other long-term liabilities in the
balance sheet.
|
|
| Note 17. |
Stockholders’ Equity and Stock Compensation Plans |
|
|
|
Accumulated Other Comprehensive Income |
The components of accumulated other comprehensive income are:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Foreign currency translation adjustments
|
|
$ |
57,943 |
|
|
$ |
13,456 |
|
|
Derivative financial instrument adjustments
|
|
|
(1,730 |
) |
|
|
(7,782 |
) |
|
Unrealized gain (loss) on marketable securities, net of tax
|
|
|
(12,355 |
) |
|
|
498 |
|
| |
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$ |
43,858 |
|
|
$ |
6,172 |
|
| |
|
|
|
|
|
|
On October 4, 1998, the Board of Directors of the Company
adopted a Stockholder Rights Plan, declaring a dividend of one
preferred share purchase right for each outstanding share of
common stock, par value $0.001 per share, of the Company.
The rights are initially attached to the Company’s common
stock and will not trade separately. If a person or group
acquires 15% or more of the Company’s common stock, or
announces an intention to make a tender offer for the
Company’s common stock the consummation of which would
result in acquiring 15% or more of the Company’s common
stock, then the rights will be distributed and will then trade
separately from the common stock. Each right entitles the
registered holder to purchase from the Company one one-hundredth
of a share of Series A Junior Participating Preferred
Stock, par value $0.001 per share, of the Company. The
rights expire October 5, 2008, unless the expiration date
is extended or unless the rights are earlier redeemed or
exchanged by the Company. In connection with the Company’s
pending merger with Symantec (the “Merger”), the
Company and Mellon Investor Services LLC, as Rights Agent,
entered into an amendment, dated as of December 15, 2004
(the “Rights Amendment”), to the Stockholder Rights
Plan. The effect of the Rights Amendment is to permit the Merger
and the other transactions contemplated by the merger agreement
with Symantec to occur without triggering any distribution or
adverse event under the Rights Agreement.
F-36
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company is authorized to issue up to 10,000,000 shares
of undesignated preferred stock. No such preferred shares have
been issued to date.
During 2004, the Company had two stock option plans: the 2003
Stock Incentive Plan (the “2003 Plan”) and the
2002 Directors Stock Option Plan (the “Director
Plan”). The Company’s 1993 Equity Incentive Plan (the
“1993 Plan”) expired after the approval by the
Company’s stockholders on May 13, 2003 of the 2003
Plan. As of December 31, 2004, options for approximately
43,901,205 shares of common stock remained outstanding
under the 1993 Plan. The 2003 Plan provides for the issuance of
incentive or nonstatutory stock options and common stock to
employees and consultants of the Company. As of
December 31, 2004, the Company granted 503,250 restricted
stock units under the 2003 Plan, of which 34,278 shares
were issued and 15,723 shares were withheld for payment of
taxes. During 2004, the Company granted options under the 2003
Plan for approximately 10,342,259 shares of common stock.
The options generally are granted at the fair market value of
the Company’s common stock at the date of grant, vest over
a four-year period and are exercisable immediately upon vesting.
During 2004, the Company’s stockholders approved several
amendments to the 2003 Plan effective May 13, 2004,
including a reduction in the option term from 10 to 7 years
from the date of grant and an increase in the options available
for grant by 18,000,000 shares. The Company’s Director
Plan provides for the issuance of stock options to directors of
the Company. These options generally are granted at the fair
market value of the Company’s common stock at the date of
grant, expire 10 years from the date of grant, vest over a
four-year period and are exercisable immediately upon vesting.
As of December 31, 2004, the Company had reserved
32.0 million shares of common stock for issuance under the
2003 Plan and 1.9 million shares for issuance under the
Director Plan. As of December 31, 2004, 19.6 million
shares were available for future grant under the plans.
A summary of the status of the Company’s stock option plans
as of December 31, 2004, 2003 and 2002 and changes during
the years ended on those dates is presented:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
| |
|
Number of | |
|
Average | |
|
Number of | |
|
Average | |
|
Number of | |
|
Average | |
| |
|
Shares | |
|
Exercise Price | |
|
Shares | |
|
Exercise Price | |
|
Shares | |
|
Exercise Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Outstanding at beginning of year
|
|
|
69,074 |
|
|
$ |
38.38 |
|
|
|
72,356 |
|
|
$ |
37.85 |
|
|
|
59,621 |
|
|
$ |
45.09 |
|
| |
Granted
|
|
|
10,737 |
|
|
$ |
26.73 |
|
|
|
8,447 |
|
|
$ |
26.86 |
|
|
|
25,901 |
|
|
$ |
19.50 |
|
| |
Assumed in business combinations
|
|
|
1,224 |
|
|
$ |
1.79 |
|
|
|
4,005 |
|
|
$ |
18.98 |
|
|
|
— |
|
|
$ |
— |
|
| |
Exercised
|
|
|
(5,758 |
) |
|
$ |
14.52 |
|
|
|
(10,347 |
) |
|
$ |
14.32 |
|
|
|
(6,086 |
) |
|
$ |
9.14 |
|
| |
Forfeited
|
|
|
(10,351 |
) |
|
$ |
47.54 |
|
|
|
(5,387 |
) |
|
$ |
45.05 |
|
|
|
(7,080 |
) |
|
$ |
56.41 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding at end of year
|
|
|
64,926 |
|
|
$ |
36.87 |
|
|
|
69,074 |
|
|
$ |
38.38 |
|
|
|
72,356 |
|
|
$ |
37.85 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options exercisable at end of year
|
|
|
41,735 |
|
|
|
|
|
|
|
38,143 |
|
|
|
|
|
|
|
31,786 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
$ |
11.98 |
|
|
|
|
|
|
$ |
16.74 |
|
|
|
|
|
|
$ |
13.92 |
|
|
|
|
|
F-37
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about stock options
outstanding at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
|
| |
|
| |
|
Options Exercisable | |
| |
|
|
|
Weighted- | |
|
|
|
| |
| |
|
Number | |
|
Average | |
|
Weighted- | |
|
Number | |
|
Weighted- | |
| |
|
Outstanding at | |
|
Remaining | |
|
Average | |
|
Exercisable at | |
|
Average | |
| |
|
December 31, | |
|
Contractual | |
|
Exercise | |
|
December 31, | |
|
Exercise | |
| Range of Exercise Prices |
|
2004 | |
|
Life | |
|
Price | |
|
2004 | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
$ 0.04 - $ 15.59
|
|
|
6,436 |
|
|
|
4.96 |
|
|
$ |
6.91 |
|
|
|
4,602 |
|
|
$ |
7.23 |
|
|
$15.69 - $ 16.26
|
|
|
11,482 |
|
|
|
7.78 |
|
|
$ |
16.25 |
|
|
|
5,397 |
|
|
$ |
16.25 |
|
|
$16.36 - $ 22.23
|
|
|
8,639 |
|
|
|
6.66 |
|
|
$ |
19.06 |
|
|
|
5,072 |
|
|
$ |
19.41 |
|
|
$22.25 - $ 28.72
|
|
|
10,016 |
|
|
|
7.22 |
|
|
$ |
26.97 |
|
|
|
5,884 |
|
|
$ |
27.26 |
|
|
$28.95 - $ 35.24
|
|
|
8,119 |
|
|
|
8.65 |
|
|
$ |
32.42 |
|
|
|
2,716 |
|
|
$ |
32.09 |
|
|
$35.47 - $ 53.39
|
|
|
8,205 |
|
|
|
6.73 |
|
|
$ |
40.07 |
|
|
|
6,215 |
|
|
$ |
40.53 |
|
|
$54.67 - $ 97.00
|
|
|
8,449 |
|
|
|
5.80 |
|
|
$ |
85.81 |
|
|
|
8,286 |
|
|
$ |
86.09 |
|
|
$97.61 - $134.17
|
|
|
3,580 |
|
|
|
5.43 |
|
|
$ |
114.85 |
|
|
|
3,563 |
|
|
$ |
114.83 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.04 - $134.17
|
|
|
64,926 |
|
|
|
6.85 |
|
|
$ |
36.87 |
|
|
|
41,735 |
|
|
$ |
44.12 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan |
During 2004, the Company had two employee stock purchase plans
(the “Purchase Plans”): the 2002 Employee Stock
Purchase Plan (the “2002 Purchase Plan”) and the 2002
International Employee Stock Purchase Plan (the
“International Purchase Plan”), which is a subplan of
the 2002 Purchase Plan. Under the Purchase Plans, the Company is
authorized to issue up to 23.1 million shares of common
stock to its full-time employees, nearly all of whom are
eligible to participate. The employees participating in the
Purchase Plans can choose to have up to 10% of their wages
withheld to purchase the Company’s common stock. The
Purchase Plans consist of two-year offerings with four 6-month
purchase periods in each offering period. The purchase price of
the stock is 85% of the lower of the subscription date fair
market value or the end of the purchase period fair market value.
The number of eligible employees that participated in the
Purchase Plans was 4,366 in 2004, 3,745 in 2003 and 3,682 in
2002. Under the Purchase Plans, the Company issued
2.5 million shares to employees in 2004, 2.1 million
in 2003 and 1.5 million in 2002. The weighted-average
purchase price of these shares was $15.43 in 2004, $15.03 in
2003 and $20.79 in 2002.
Income before income taxes and cumulative effect of change in
accounting principle consisted of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
United States
|
|
$ |
393,534 |
|
|
$ |
292,914 |
|
|
$ |
84,646 |
|
|
International
|
|
|
195,775 |
|
|
|
99,051 |
|
|
|
44,392 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
589,309 |
|
|
$ |
391,965 |
|
|
$ |
129,038 |
|
| |
|
|
|
|
|
|
|
|
|
F-38
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The provision for income taxes consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
$ |
117,689 |
|
|
$ |
(15,252 |
) |
|
$ |
47,234 |
|
| |
Deferred
|
|
|
38,343 |
|
|
|
27,502 |
|
|
|
981 |
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
|
21,559 |
|
|
|
2,440 |
|
|
|
31,693 |
|
| |
Deferred
|
|
|
(6,911 |
) |
|
|
8,781 |
|
|
|
(24,254 |
) |
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current
|
|
|
11,456 |
|
|
|
14,292 |
|
|
|
10,134 |
|
| |
Deferred
|
|
|
(4,238 |
) |
|
|
480 |
|
|
|
4,984 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
177,898 |
|
|
$ |
38,243 |
|
|
$ |
70,772 |
|
| |
|
|
|
|
|
|
|
|
|
The tax benefits associated with employee stock option and
employee stock purchase plan activity reduced taxes currently
payable by $45.5 million for 2004, $38.3 million for
2003 and $19.6 million for 2002.
The provision for income taxes differed from the amount computed
by applying the federal statutory rate as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Federal tax at statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State taxes
|
|
|
1.6 |
|
|
|
1.9 |
|
|
|
3.7 |
|
|
Impact of foreign taxes
|
|
|
(6.0 |
) |
|
|
(4.4 |
) |
|
|
(6.3 |
) |
|
In-process research and development charges
|
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
|
Tax effect of foreign loss (income) related to the restructuring
costs
|
|
|
(0.5 |
) |
|
|
— |
|
|
|
11.3 |
|
|
Tax benefit of losses on strategic investments
|
|
|
(0.1 |
) |
|
|
0.3 |
|
|
|
11.7 |
|
|
Tax credits
|
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
Changes in merger related tax liabilities and benefits,
principally related to Seagate
|
|
|
(0.2 |
) |
|
|
(25.4 |
) |
|
|
(4.9 |
) |
|
Non-deductible expenses and other
|
|
|
0.7 |
|
|
|
1.2 |
|
|
|
4.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
30.2 |
% |
|
|
9.8 |
% |
|
|
54.8 |
% |
| |
|
|
|
|
|
|
|
|
|
F-39
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Significant components of the Company’s deferred tax assets
are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Net operating loss carryforwards
|
|
$ |
75,600 |
|
|
$ |
69,084 |
|
| |
Deferred revenue and accruals not currently deductible
|
|
|
65,757 |
|
|
|
57,710 |
|
| |
Acquired intangibles
|
|
|
3,215 |
|
|
|
14,605 |
|
| |
Tax credit carryforwards
|
|
|
32,155 |
|
|
|
52,222 |
|
| |
Other
|
|
|
34,693 |
|
|
|
36,076 |
|
| |
|
|
|
|
|
|
| |
|
|
211,420 |
|
|
|
229,697 |
|
|
Valuation allowance
|
|
|
(68,952 |
) |
|
|
(87,890 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
142,468 |
|
|
|
141,807 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Acquired intangibles
|
|
|
(21,346 |
) |
|
|
(42,005 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
121,122 |
|
|
$ |
99,802 |
|
| |
|
|
|
|
|
|
As of December 31, 2002, deferred and other income taxes
payable recorded in connection with the Seagate transaction
totaled $134.4 million and related to certain tax
liabilities that the Company expected to pay, other current
assets included $21.3 million of indemnification receivable
from SAC and other non-current assets included
$18.0 million of indemnification receivable from SAC.
Certain of Seagate’s federal and state tax returns for
various fiscal years were under examination by taxing
authorities. On March 15, 2004, the Company was notified
that the federal tax audits for all periods ended with the date
of the transaction had been completed and all tax liabilities
had been settled, which resulted in a net federal tax refund,
which the Company distributed to a trust for the benefit of the
former Seagate stockholders. Accordingly, the Company reversed
the indemnification receivable of $39.3 million and income
taxes payable of $134.4 million, resulting in a net income
tax benefit of $95.1 million. The benefit was recorded as a
credit to income tax expense for the year ended
December 31, 2003.
The valuation allowance decreased by $18.9 million in 2004
and increased by $7.8 million in 2003. The valuation
allowance has been established due to uncertainties related to
the Company’s ability to generate sufficient taxable income
in specific geographical and jurisdictional locations, the
Company’s future taxable income from capital gains and net
operating losses from acquired companies that may be subject to
significant annual limitation under certain provisions of the
Internal Revenue Code.
As of December 31, 2004, the Company had federal tax loss
carryforwards of approximately $145.7 million (related to
acquisitions) and federal tax credit carryforwards of
approximately $2.2 million. The federal tax loss
carryforwards will expire in 2005 through 2023, and federal tax
credit carryforwards will expire in 2005 through 2024, if not
utilized. The Company had state tax loss carryforwards in
multiple jurisdictions with various expiration dates. The
Company had state tax credit carryforwards of approximately
$46.1 million, substantially all of which may be carried
forward indefinitely. Because of the change in ownership
provisions of the Internal Revenue Code, a portion of the
Company’s net operating loss and tax credit carryforwards
may be subject to annual limitation, which may result in the
expiration of net operating loss and tax credit carryforwards
before utilization. In addition, the Company had foreign net
operating loss carryforwards of approximately $32.3 million
that may be carried forward indefinitely.
As of December 31, 2004, the Company believes that it is
more likely than not that the results of future operations will
generate sufficient taxable income to realize the net deferred
tax assets.
F-40
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On October 22, 2004, the American Jobs Creation Act
(“the AJCA”) was signed into law. The AJCA includes a
deduction of 85% of certain foreign earnings that are
repatriated, as defined in the AJCA. The Company may elect to
apply this provision to qualifying earnings repatriations in
either the year ended December 31, 2004 or 2005. The
Company has not elected to apply the provision for the year
ended December 31, 2004.
The Company has started an evaluation of the effects of the
repatriation provision; however, the Company does not expect to
be able to complete this evaluation until after Congress or the
Treasury Department provide additional clarifying language on
key elements of the provision. In January 2005, the Treasury
Department began to issue the first of a series of clarifying
guidance documents related to this provision. The Company
expects to complete its evaluation of the effects of the
repatriation provision within a reasonable period of time
following the publication of the additional clarifying language.
Based on the amount of eligible foreign earnings as of
December 31, 2004, the range of possible amounts that the
Company is considering for repatriation under this provision is
between zero and $359 million. The related potential range
of income tax that would be payable as a result of the
repatriation is between zero and $30 million.
The Company has not provided federal or state income taxes on
approximately $359 million of cumulative unremitted foreign
earnings of certain of its international subsidiaries as of
December 31, 2004, since it intends to indefinitely
reinvest such earnings. As of December 31, 2004, the
unrecognized deferred tax liability with respect to such
earnings was approximately $81 million.
The Company has been notified by the Internal Revenue Service of
its intention to examine the Company’s federal income tax
return for the year ended December 31, 2000. The Company
has ongoing tax audits in a number of jurisdictions in which it
does business.
Note 19. Net Income Per Share
The following table sets forth the computation of basic and
diluted net income per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
411,411 |
|
|
$ |
347,473 |
|
|
$ |
58,266 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Denominator for basic net income per share —
weighted-average shares
|
|
|
429,873 |
|
|
|
420,754 |
|
|
|
409,523 |
|
| |
Potential common shares
|
|
|
9,093 |
|
|
|
13,692 |
|
|
|
9,436 |
|
| |
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
438,966 |
|
|
|
434,446 |
|
|
|
418,959 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Basic net income per share
|
|
$ |
0.96 |
|
|
$ |
0.83 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Diluted net income per share
|
|
$ |
0.94 |
|
|
$ |
0.80 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
F-41
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the years ended December 31, 2004, 2003 and 2002,
potential common shares consist of employee stock options using
the treasury stock method. The following table sets forth the
potential common shares that were excluded from the net income
per share computations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Employee stock options outstanding(1)
|
|
|
40,246 |
|
|
|
32,877 |
|
|
|
36,243 |
|
|
5.25% convertible subordinated notes
|
|
|
— |
|
|
|
— |
|
|
|
6,695 |
|
|
1.856% convertible subordinated notes
|
|
|
— |
|
|
|
— |
|
|
|
12,981 |
|
|
0.25% convertible subordinated notes(2)
|
|
|
11,274 |
|
|
|
11,274 |
|
|
|
— |
|
|
|
| (1) |
These employee stock options were excluded from the computation
of diluted net income per share because the exercise price was
greater than the average market price of the Company’s
common stock during the period, and therefore the effect is
antidilutive. |
| |
| (2) |
Potential common shares related to the Company’s
0.25% convertible subordinated notes were excluded from the
computation of diluted net income per share because the
effective conversion price was higher than the average market
price of the Company’s common stock during the period, and
therefore the effect is antidilutive. |
The weighted average exercise prices of employee stock options
with exercise prices exceeding the average fair value of the
Company’s common stock was $55.05, $63.58 and
$64.59 per share for the years ended December 31,
2004, 2003 and 2002, respectively.
Note 20. Segment Information
The Company operates in one segment, storage and infrastructure
software solutions. The Company’s products and services are
sold throughout the world, both directly to end-users and
through a variety of indirect sales channels. The Company’s
chief operating decision maker, the chief executive officer,
evaluates the performance of the Company based upon stand-alone
revenue of product channels and the geographic regions of the
segment and does not receive discrete financial information
about asset allocation, expense allocation or profitability from
the Company’s storage products or services.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
User license fees(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
619,334 |
|
|
$ |
650,375 |
|
|
$ |
620,566 |
|
| |
Europe(2)
|
|
|
408,499 |
|
|
|
301,056 |
|
|
|
242,020 |
|
| |
Other(3)
|
|
|
163,236 |
|
|
|
141,300 |
|
|
|
124,207 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
1,191,069 |
|
|
|
1,092,731 |
|
|
|
986,793 |
|
| |
|
|
|
|
|
|
|
|
|
|
Services(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
|
569,638 |
|
|
|
463,262 |
|
|
|
396,150 |
|
| |
Europe(2)
|
|
|
201,248 |
|
|
|
134,594 |
|
|
|
88,322 |
|
| |
Other(3)
|
|
|
79,919 |
|
|
|
56,500 |
|
|
|
34,733 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
850,805 |
|
|
|
654,356 |
|
|
|
519,205 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total net revenue
|
|
$ |
2,041,874 |
|
|
$ |
1,747,087 |
|
|
$ |
1,505,998 |
|
| |
|
|
|
|
|
|
|
|
|
F-42
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Long-lived assets(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
1,954,158 |
|
|
$ |
1,902,181 |
|
|
$ |
1,418,730 |
|
| |
Europe(2)
|
|
|
719,290 |
|
|
|
483,315 |
|
|
|
55,049 |
|
| |
Other(3)
|
|
|
11,880 |
|
|
|
13,723 |
|
|
|
13,137 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
2,685,328 |
|
|
|
2,399,219 |
|
|
|
1,486,916 |
|
| |
|
Other assets, including current
|
|
|
3,203,231 |
|
|
|
2,949,247 |
|
|
|
2,712,419 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total consolidated assets
|
|
$ |
5,888,559 |
|
|
$ |
5,348,466 |
|
|
$ |
4,199,335 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
License and services revenues are attributed to geographic
regions based on location of customers. |
| |
| (2) |
Europe includes the Middle East and Africa. |
| |
| (3) |
Other consists of Canada, Latin America, Japan and the Asia
Pacific region. |
| |
| (4) |
Long-lived assets include all long-term assets except those
specifically excluded under SFAS No. 131,
Disclosure about Segments of an Enterprise and Related
Information, such as deferred income taxes and financial
instruments. |
In 2004, 2003 and 2002, no end-user customer accounted for more
than 10% of the Company’s net revenue. In 2004 and 2003, no
distributor accounted for more than 10% of the Company’s
total net revenue. In 2002, a distributor that sells the
Company’s products and services through resellers,
accounted for 11% of the Company’s total net revenue.
|
|
|
User License Fees Information |
The Company markets and distributes its software products both
as stand-alone software products and as integrated product
suites, also referenced as application solutions. The Company
derives its user license fees from the licensing of its
technology, segregated into three product areas: Data
Protection, which include its NetBackup, Backup Exec and
Enterprise Vault product families; Storage Management, which
includes its Storage Foundation, Replicator and storage resource
management product families; and Utility Computing
Infrastructure, which includes its Cluster Server,
CommandCentral, OpForce and
i3
product families. User license fees by product area were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
User license fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Data protection
|
|
$ |
660.1 |
|
|
$ |
624.7 |
|
|
$ |
599.0 |
|
| |
Storage management
|
|
|
298.7 |
|
|
|
264.8 |
|
|
|
251.5 |
|
| |
Utility computing infrastructure
|
|
|
232.3 |
|
|
|
203.2 |
|
|
|
136.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total user license fees
|
|
$ |
1,191.1 |
|
|
$ |
1,092.7 |
|
|
$ |
986.8 |
|
| |
|
|
|
|
|
|
|
|
|
F-43
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Provision for | |
|
|
|
|
| |
|
|
|
(Recovery of) | |
|
|
|
|
| |
|
Balance at | |
|
Doubtful | |
|
|
|
Balance at | |
| |
|
Beginning | |
|
Accounts, | |
|
|
|
End of | |
| |
|
of Year | |
|
Net(1) | |
|
Deductions | |
|
Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004
|
|
$ |
7,807 |
|
|
$ |
(1,985 |
) |
|
$ |
(1,124 |
) |
|
$ |
4,698 |
|
|
Year ended December 31, 2003
|
|
$ |
12,008 |
|
|
$ |
(1,348 |
) |
|
$ |
(2,853 |
) |
|
$ |
7,807 |
|
|
Year ended December 31, 2002
|
|
$ |
12,658 |
|
|
$ |
6,232 |
|
|
$ |
(6,882 |
) |
|
$ |
12,008 |
|
|
|
| (1) |
Provision for (Recovery of) Doubtful Accounts, Net. The
provision for (recovery of) doubtful accounts, net, consists of
the Company’s estimates with respect to its uncollectible
accounts, net of recoveries of amounts previously written off.
The Company’s management must make estimates of its
uncollectible accounts receivables. Management specifically
analyzes accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit-worthiness, current
economic trends and changes in the Company’s customer
payment terms when evaluating the adequacy of the allowance for
doubtful accounts. |
F-44
EXHIBIT INDEX
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
2.01 |
|
|
Agreement and Plan of Merger and Reorganization, dated
March 29, 2000, among VERITAS Software Corporation
(“VERITAS”), Victory Merger Sub, Inc. and Seagate
Technology, Inc. (“Seagate”) |
|
|
8-K |
|
|
|
04/05/00 |
|
|
|
2.1 |
|
|
|
|
|
| |
2.02 |
|
|
Stock Purchase Agreement, dated March 29, 2000, among Suez
Acquisition Company (Cayman) Limited (“Suez”), Seagate
and Seagate Software Holdings, Inc. |
|
|
8-K |
|
|
|
04/05/00 |
|
|
|
2.2 |
|
|
|
|
|
| |
2.03 |
|
|
Consolidated Amendment to Stock Purchase Agreement, Agreement
and Plan of Merger and Reorganization and Indemnification
Agreement, and Consent, dated August 29, 2000, among
VERITAS, Victory Merger Sub, Inc., Seagate, Seagate Software
Holdings, Inc. and Suez |
|
|
S-4/A |
|
|
|
08/30/00 |
|
|
|
2.05 |
|
|
|
|
|
| |
2.04 |
|
|
Consolidated Amendment No. 2 to Stock Purchase Agreement,
Agreement and Plan of Merger and Reorganization and
Indemnification Agreement, and Consent, dated October 18,
2000, among VERITAS, Victory Merger Sub, Inc., Seagate, Seagate
Software Holdings, Inc. and Suez |
|
|
S-4/A |
|
|
|
10/19/00 |
|
|
|
2.03 |
|
|
|
|
|
| |
2.05 |
|
|
Amended and Restated Agreement and Plan of Reorganization, dated
April 15, 1999, among VERITAS, VERITAS Operating
Corporation (“VOC”), Seagate, Seagate Software, Inc.
(“Seagate Software”) and Seagate Software
Network & Storage Management Group, Inc. (included as
Appendix A to the prospectus which is a part of the
registration statement on Form S-4 filed April 19,
1999) |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
2.01 |
|
|
|
|
|
| |
2.06 |
|
|
Amended and Restated Combination Agreement, dated April 12,
1999, between VERITAS, VERITAS Holding Corporation, and
TeleBackup Systems, Inc. (included as Appendix G to the
proxy statement/ prospectus which is a part of the registration
statement on Form S-4 filed April 19, 1999) |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
2.02 |
|
|
|
|
|
| |
2.07 |
|
|
Agreement and Plan of Merger, dated December 19, 2002,
among VERITAS, Argon Merger Sub Ltd. (“Argon”), and
Precise Software Solutions Ltd. (“Precise”) |
|
|
8-K |
|
|
|
12/24/02 |
|
|
|
2.1 |
|
|
|
|
|
| |
2.08 |
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated
May 23, 2003, among VERITAS, Argon and Precise (included as
Annex AA to the proxy statement/ prospectus which is a part
of the registration statement amendment on Form S-4 filed
May 27, 2003) |
|
|
S-4/A |
|
|
|
05/27/03 |
|
|
|
2.2 |
|
|
|
|
|
| |
2.09 |
|
|
Share Purchase Agreement, dated as of August 30, 2004, by
and among VERITAS, KVault Software Limited (“kVault”)
and certain shareholders named therein |
|
|
10-Q |
|
|
|
11/05/04 |
|
|
|
2.01 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
2.10 |
|
|
Agreement and Plan of Reorganization, dated as of
December 15, 2004, by and among Symantec Corporation,
Carmel Acquisition Corp., a Delaware corporation and a direct
wholly owned subsidiary of Symantec Corporation, and VERITAS
Software Corporation (“Reorganization Agreement”) |
|
|
8-K |
|
|
|
12/20/04 |
|
|
|
2.01 |
|
|
|
|
|
| |
3.01 |
|
|
Amended and Restated Certificate of Incorporation of VERITAS
Holding Corporation |
|
|
8-A |
|
|
|
06/02/99 |
|
|
|
3.01 |
|
|
|
|
|
| |
3.02 |
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of VERITAS Holding Corporation (changing name of
corporation to VERITAS Software Corporation) |
|
|
8-A |
|
|
|
06/02/99 |
|
|
|
3.02 |
|
|
|
|
|
| |
3.03 |
|
|
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of VERITAS |
|
|
S-8 |
|
|
|
06/02/00 |
|
|
|
4.03 |
|
|
|
|
|
| |
3.04 |
|
|
Amended and Restated Bylaws of VERITAS |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
3.04 |
|
|
|
|
|
| |
4.01 |
|
|
Form of Rights Agreement between VERITAS Holding Corporation and
the Rights Agent, which includes as Exhibit A the forms of
Certificate of Designations of Series A Junior
Participating Preferred Stock, as Exhibit B the Form of
Right Certificate, and as Exhibit C the Summary of Rights
to Purchase Preferred Shares |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
4.06 |
|
|
|
|
|
| |
4.02 |
|
|
Form of Registration Rights Agreement between VERITAS and
Seagate Software |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
4.07 |
|
|
|
|
|
| |
4.03 |
|
|
Form of Stockholder Agreement between VERITAS, VOC, Seagate
Software and Seagate |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
4.08 |
|
|
|
|
|
| |
4.04 |
|
|
Form of Specimen Stock Certificate |
|
|
S-1 |
|
|
|
10/22/93 |
|
|
|
4.01 |
|
|
|
|
|
| |
4.05 |
|
|
Indenture dated August 1, 2003 between VERITAS and
U.S. Bank National Association (the “Trustee”)
relating to VERITAS 0.25% Convertible Subordinated Notes
Due 2013 |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
4.01 |
|
|
|
|
|
| |
4.06 |
|
|
Registration Rights Agreement, dated August 1, 2003, among
VERITAS, Goldman Sachs & Co., ABN AMRO Rothschild LLC,
and McDonald Investments Inc. |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
4.02 |
|
|
|
|
|
| |
4.07 |
|
|
First Supplemental Indenture, dated as of October 25, 2004,
by and between VERITAS and U.S. Bank National Association |
|
|
8-K |
|
|
|
10/27/04 |
|
|
|
4.01 |
|
|
|
|
|
| |
4.08 |
|
|
Amendment, dated December 15, 2004, to the Rights
Agreement, dated as of June 16, 1999, by and between
VERITAS and Mellon Investor Services LLC f/k/a ChaseMellon
Shareholder Services, L.L.C., as Rights Agent |
|
|
8-K |
|
|
|
12/20/04 |
|
|
|
4.1 |
|
|
|
|
|
| |
10.01 |
|
|
Indemnification Agreement, dated March 29, 2000, among
VERITAS, Seagate, Suez, and certain other parties |
|
|
8-K |
|
|
|
04/05/00 |
|
|
|
2.3 |
|
|
|
|
|
| |
10.02† |
|
|
Development and License Agreement between Seagate and VERITAS |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.01 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.03† |
|
|
Cross License Agreement and OEM Agreement between Seagate
Software Information Management Group, Inc. and VERITAS |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.04* |
|
|
VERITAS 1993 Equity Incentive Plan, as amended |
|
|
S-8 |
|
|
|
05/28/02 |
(2) |
|
|
4.01 |
|
|
|
|
|
| |
10.05* |
|
|
VERITAS 1993 Employee Stock Purchase Plan, as amended |
|
|
S-8 |
|
|
|
03/29/01 |
|
|
|
4.02 |
|
|
|
|
|
| |
10.06* |
|
|
VERITAS 1993 Directors Stock Option Plan, as amended |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.05 |
|
|
|
|
|
| |
10.07* |
|
|
Form of Key Employee Agreement |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.11 |
|
|
|
|
|
| |
10.08* |
|
|
Form of Indemnification Agreement entered into between VERITAS
and each of its directors and executive officers |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.15 |
|
|
|
|
|
| |
10.09 |
|
|
Amendment No. 1, dated April 16, 1999, to
Cross-License and OEM Agreement between Seagate Software
Information Management Group, Inc. and VERITAS |
|
|
S-4 |
|
|
|
04/19/99 |
|
|
|
10.16 |
|
|
|
|
|
| |
10.10 |
|
|
Participation Agreement, dated April 23, 1999, among VOC,
First Security Bank, N.A. (“First Security”), various
banks and other lending institutions, NationsBank, N.A
(“NationsBank), and various other parties (“Mountain
View Participation Agreement”) |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.17 |
|
|
|
|
|
| |
10.11 |
|
|
Security Agreement, dated April 23, 1999, between
FirstSecurity, National Bank, and NationsBank |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.26 |
|
|
|
|
|
| |
10.12 |
|
|
Master Lease Agreement, dated April 23, 1999, between First
Security and VOC |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.30 |
|
|
|
|
|
| |
10.13 |
|
|
Form of Environmental Indemnity Agreement, dated April 23,
1999, between VERITAS and Fairchild Semiconductor Corporation,
included as Exhibit C to that certain Agreement of Purchase
and Sale, dated March 29, 1999, between VERITAS and
Fairchild Semiconductor of California |
|
|
S-1/A |
|
|
|
08/06/99 |
(1) |
|
|
10.27 |
|
|
|
|
|
| |
10.14 |
|
|
First Amendment and Restatement of Certain Operative Agreements
and Other Agreements, dated March 3, 2000, among VOC and
the various parties to the Mountain View Participation Agreement
and other operative agreements, and Bank of America, N.A.
(“Bank of America”), as successor to NationsBank |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.29 |
|
|
|
|
|
| |
10.15 |
|
|
Second Amendment, Assignment and Assumption and Restatement of
Certain Operative Agreements and Other Agreements, dated
July 28, 2000, among VOC, VERITAS Software Global
Corporation (“VSGC”), the various parties to the
Mountain View Participation Agreement and other operative
agreements, and Bank of America |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.41 |
|
|
|
|
|
| |
10.16 |
|
|
Third Amendment and Restatement of Certain Operative Agreements
and Other Agreements, dated April 5, 2001, among VSGC, the
various parties to the Mountain View Participation Agreement and
other operative agreements, and Bank of America |
|
|
10-Q |
|
|
|
05/11/01 |
|
|
|
10.03 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.17 |
|
|
Fourth Amendment and Restatement of Certain Operative
Agreements, dated September 26, 2001, among VSGC, the
various parties to the Mountain View Participation Agreement and
other operative agreements, Wells Fargo Bank Northwest, National
Association (“Wells Fargo”), and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.18 |
|
|
Fifth Amendment and Restatement of Certain Operative Agreements,
dated November 2, 2001, among VSGC, the various parties to
the Mountain View Participation Agreement and other operative
agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.05 |
|
|
|
|
|
| |
10.19 |
|
|
Sixth Amendment and Restatement of Certain Operative Agreements,
dated September 24, 2002, among VSGC, the various parties
to the Mountain View Participation Agreement and other operative
agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.20 |
|
|
Consent and Seventh Amendment Agreement, dated June 6,
2003, among VSGC, the various parties to the Mountain View
Participation Agreement and other operative agreements, Wells
Fargo, and Bank of America |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.21 |
|
|
Participation Agreement, dated March 9, 2000, among VOC,
First Security, various banks and other lending institutions,
Bank of America, and various other parties (“Roseville
Participation Agreement”) |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.33 |
|
|
|
|
|
| |
10.22 |
|
|
Master Lease Agreement, dated March 9, 2000, between First
Security and VOC |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.34 |
|
|
|
|
|
| |
10.23 |
|
|
Trust Agreement, dated March 9, 2000, between First
Security and various other parties |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.36 |
|
|
|
|
|
| |
10.24 |
|
|
Credit Agreement, dated March 9, 2000, among First
Security, the several lenders from time to time as parties
thereto, and Bank of America |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.37 |
|
|
|
|
|
| |
10.25 |
|
|
Security Agreement, dated March 9, 2000, between First
Security and Bank of America, and accepted and agreed to by VOC |
|
|
10-K |
|
|
|
03/30/00 |
|
|
|
10.38 |
|
|
|
|
|
| |
10.26 |
|
|
First Amendment, Assignment and Assumption and Restatement of
Certain Operative Agreements and Other Agreements, dated
July 28, 2000, among VOC, VSGC, the various parties to the
Roseville Participation Agreement and other operative
agreements, First Security, and Bank of America |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.42 |
|
|
|
|
|
| |
10.27 |
|
|
Second Amendment and Restatement of Certain Operative Agreements
and Other Agreements, dated April 5, 2001, among VSGC, the
various parties to the Roseville Participation Agreement and
other operative agreements, First Security, and Bank of America |
|
|
10-Q |
|
|
|
05/11/01 |
|
|
|
10.04 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.28 |
|
|
Third Amendment and Restatement of Certain Operative Agreements,
dated September 26, 2001, among VSGC, the various parties
to the Roseville Participation Agreement and other operative
Agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.29 |
|
|
Fourth Amendment and Restatement of Certain Operative
Agreements, dated November 2, 2001, among VSGC, the various
parties to the Roseville Participation Agreement and other
operative agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.6 |
|
|
|
|
|
| |
10.30 |
|
|
Fifth Amendment and Restatement of Certain Operative Agreements,
dated September 24, 2002, among VSGC, the various parties
to the Roseville Participation Agreement and other operative
agreements, Wells Fargo, and Bank of America |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.31 |
|
|
Consent and Sixth Amendment Agreement, dated June 6, 2003,
among VSGC, the various parties to the Roseville Participation
Agreement and other operative agreements, Wells Fargo, and Bank
of America |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.32 |
|
|
Lease Supplement No. 3, dated February 27, 2002,
between Wells Fargo and VERITAS regarding Roseville, Minnesota
facility |
|
|
10-Q |
|
|
|
05/14/02 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.33 |
|
|
Consent Letter Agreement regarding Roseville, Minnesota
facility, dated March 1, 2002, among Bank of America,
VERITAS, VSGC, VOC, VERITAS Software Technology Corporation, and
VERITAS Software Technology Holding Corporation |
|
|
10-Q |
|
|
|
08/14/02 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.34 |
|
|
First Amendment to Credit Agreement and Other Intercreditor
Agreements, dated March 1, 2002, among Bank of America,
various banks and other lending institutions, and Wells Fargo,
related to Roseville, Minnesota facility |
|
|
10-Q |
|
|
|
08/14/02 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.35 |
|
|
Participation Agreement, dated July 28, 2000, among VSGC,
First Security, various banks and other lending institutions,
ABN AMRO Bank N.V. (“ABN”), Credit Suisse First Boston
(“CSFB”) and Credit Lyonnais Los Angeles Branch
(“Credit Lyonnais”)(“Milpitas Participation
Agreement”) |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.43 |
|
|
|
|
|
| |
10.36 |
|
|
Credit Agreement, dated July 28, 2000, among First
Security, several lenders, ABN, CSFB, and Credit Lyonnais |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.44 |
|
|
|
|
|
| |
10.37 |
|
|
Trust Agreement, dated July 28, 2000, between First
Security and various other parties |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.45 |
|
|
|
|
|
| |
10.38 |
|
|
Security Agreement, dated July 28, 2000, between First
Security and ABN, and accepted and agreed to by VSGC |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.46 |
|
|
|
|
|
| |
10.39 |
|
|
Master Lease Agreement, dated July 28, 2000, between First
Security and VSGC |
|
|
S-4/A |
|
|
|
09/28/00 |
|
|
|
10.47 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.40 |
|
|
VERITAS Participation Agreement First Amendment, dated
September 27, 2001, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.3 |
|
|
|
|
|
| |
10.41 |
|
|
VERITAS Participation Agreement Second Amendment, dated
November 7, 2001, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.07 |
|
|
|
|
|
| |
10.42 |
|
|
VERITAS Participation Agreement Third Amendment, dated
January 16, 2002, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
08/14/02 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.43 |
|
|
VERITAS Fourth Amendment to Participation Agreement dated
September 24, 2002, among VSGC, the various parties to the
Milpitas Participation Agreement and other operative agreements,
Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.44 |
|
|
VERITAS Fifth Amendment to Participation Agreement and Lease,
dated October 11, 2002, among VSGC, the various parties to
the Milpitas Participation Agreement and other operative
agreements, Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
11/14/02 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.45 |
|
|
VERITAS Consent and Sixth Amendment Agreement to Participation
Agreement, dated June 6, 2003, among VSGC, the various
parties to the Milpitas Participation Agreement and other
operative agreements, Wells Fargo, and ABN |
|
|
10-Q |
|
|
|
08/14/03 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.46 |
|
|
Amended and Restated Credit Agreement, dated September 27,
2001, among VSGC, ABN, CSFB, Credit Lyonnais, and various other
parties |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.47 |
|
|
VERITAS Amended and Restated Credit Agreement First Amendment,
dated November 7, 2001, among VSGC, ABN, CSFB, Credit
Lyonnais, and various other parties |
|
|
10-Q |
|
|
|
11/14/01 |
|
|
|
10.08 |
|
|
|
|
|
| |
10.48* |
|
|
Employment Agreement, dated November 17, 2000, between
VERITAS and Gary L. Bloom |
|
|
10-K |
|
|
|
03/29/01 |
|
|
|
10.47 |
|
|
|
|
|
| |
10.49* |
|
|
VERITAS Software Management Deferred Compensation Plan |
|
|
10-K |
|
|
|
03/29/01 |
|
|
|
10.50 |
|
|
|
|
|
| |
10.50 |
|
|
Agreement on Bank Transactions, dated October 3, 2001,
between VERITAS Software, KK and Fuji Bank |
|
|
10-Q |
|
|
|
05/14/02 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.51* |
|
|
VERITAS 2002 Employee Stock Purchase Plan |
|
|
S-8 |
|
|
|
05/28/02 |
(3) |
|
|
4.01 |
|
|
|
|
|
| |
10.52 |
|
|
VERITAS 2002 International Employee Stock Purchase Plan |
|
|
S-8 |
|
|
|
05/28/02 |
(3) |
|
|
4.02 |
|
|
|
|
|
| |
10.53* |
|
|
VERITAS 2002 Directors Stock Option Plan |
|
|
S-8 |
|
|
|
05/28/02 |
(3) |
|
|
4.03 |
|
|
|
|
|
| |
10.54* |
|
|
Employment Agreement, dated November 11, 2002, between
VERITAS and Edwin Gillis |
|
|
10-K |
|
|
|
03/28/03 |
|
|
|
10.75 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Incorporated by Reference | |
|
|
| Exhibit | |
|
|
|
| |
|
Filed | |
| Number | |
|
Exhibit Description |
|
Form | |
|
Date | |
|
Number | |
|
Herewith | |
| | |
|
|
|
| |
|
| |
|
| |
|
| |
| |
10.55* |
|
|
VERITAS Amended and Restated 2003 Stock Incentive Plan |
|
|
8-K |
|
|
|
8/31/2004 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.56* |
|
|
Letter Agreement, dated May 12, 2003, between VERITAS and
Geoffrey Squire |
|
|
10-Q |
|
|
|
05/15/03 |
|
|
|
10.01 |
|
|
|
|
|
| |
10.57* |
|
|
Employment Agreement, dated February 13, 2004, between
VERITAS and Arthur Matin |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.58 |
|
|
|
|
|
| |
10.58* |
|
|
Change in Control Agreement, dated March 15, 2004, between
VERITAS and Gary Bloom |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.59 |
|
|
|
|
|
| |
10.59* |
|
|
Form of Change in Control Agreement between VERITAS and certain
executive officers and schedule of executive officers party
thereto |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.60 |
|
|
|
|
|
| |
10.60* |
|
|
2004 VERITAS Executive Incentive Compensation Plan |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.61 |
|
|
|
|
|
| |
10.61* |
|
|
2004 VERITAS Bonus Plan (VBP) |
|
|
10-K |
|
|
|
6/14/2004 |
|
|
|
10.62 |
|
|
|
|
|
| |
10.62* |
|
|
Form of Stock Option Agreement under the VERITAS 2003 Stock
Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.02 |
|
|
|
|
|
| |
10.63* |
|
|
Form of Stock Option Agreement for Executive Officers under the
VERITAS 2003 Stock Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.03 |
|
|
|
|
|
| |
10.64* |
|
|
Form of Restricted Stock Issuance Agreement under the VERITAS
2003 Stock Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.04 |
|
|
|
|
|
| |
10.65* |
|
|
Form of RSU Award Agreement under the VERITAS 2003 Stock
Incentive Plan |
|
|
10-Q |
|
|
|
11/05/2004 |
|
|
|
10.05 |
|
|
|
|
|
| |
10.66* |
|
|
Form of VERITAS Stock Option Agreement for Executive Officers
under the VERITAS 2003 Stock Incentive Plan for grants made
during the term of the Reorganization Agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
12.01 |
|
|
Computation of Ratio of Earnings to Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
21.01 |
|
|
Subsidiaries of the Registrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
23.01 |
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
24.01 |
|
|
Power of Attorney (see signature page to this Form 10-K) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
31.01 |
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
31.02 |
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
| |
32.01 |
|
|
Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
| |
* |
Management contract, compensatory plan or arrangement. |
|
|
|
| |
† |
Confidential treatment has been granted with respect to certain
portions of this document. |
|
|
| (1) |
SEC File Number 333-83777 |
| |
| (2) |
SEC File Number 333-89258 |
| |
| (3) |
SEC File Number 333-89252 |