UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
June 3, 2012 For the quarterly period ended June 3, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-26579
TIBCO SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware | 77-0449727 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3303 Hillview Avenue
Palo Alto, California 94304-1213
(Address of principal executive offices) (Zip code)
Registrants telephone number, including area code: (650) 846-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrants common stock, $0.001 par value, as of July 6, 2012 was 162,085,627 shares.
TIBCO SOFTWARE INC.
Page No. | ||||||
PART I. |
FINANCIAL INFORMATION | |||||
Item 1. |
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Condensed Consolidated Balance Sheets as of May 31, 2012 and November 30, 2011 |
3 | |||||
4 | ||||||
Condensed Consolidated Statements of Cash Flows for the Six Months Ended May 31, 2012 and 2011 |
5 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 35 | ||||
Item 4. |
Controls and Procedures | 36 | ||||
PART II. |
OTHER INFORMATION | |||||
Item 1. |
Legal Proceedings | 37 | ||||
Item 1A. |
Risk Factors | 37 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 48 | ||||
Item 4. |
Mine Safety Disclosures | 48 | ||||
Item 6. |
Exhibits | 49 | ||||
Signatures | 50 |
2
TIBCO SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value per share)
May 31, 2012 |
November 30, 2011 |
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Assets | ||||||||
Current assets: |
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Cash and cash equivalents |
$ | 647,104 | $ | 308,148 | ||||
Short-term investments |
205 | 225 | ||||||
Accounts receivable, net of allowances of $5,508 and $5,868 |
175,436 | 196,419 | ||||||
Prepaid expenses and other current assets |
64,862 | 61,864 | ||||||
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Total current assets |
887,607 | 566,656 | ||||||
Property and equipment, net |
93,526 | 89,871 | ||||||
Goodwill |
516,687 | 451,821 | ||||||
Acquired intangible assets, net |
140,156 | 97,258 | ||||||
Long-term deferred income tax assets |
114,267 | 78,656 | ||||||
Other assets |
64,069 | 48,676 | ||||||
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Total assets |
$ | 1,816,312 | $ | 1,332,938 | ||||
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Liabilities and Equity | ||||||||
Current liabilities: |
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Accounts payable |
$ | 24,921 | $ | 25,802 | ||||
Accrued liabilities |
118,281 | 129,168 | ||||||
Accrued restructuring costs |
997 | 6,792 | ||||||
Deferred revenue |
231,634 | 210,234 | ||||||
Current portion of long-term debt |
2,463 | 2,397 | ||||||
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Total current liabilities |
378,296 | 374,393 | ||||||
Accrued restructuring costs, less current portion |
966 | 1,050 | ||||||
Long-term deferred revenue |
21,904 | 14,876 | ||||||
Long-term deferred income tax liabilities |
58,173 | 4,540 | ||||||
Long-term income tax liabilities |
24,174 | 20,772 | ||||||
Other long-term liabilities |
2,542 | 2,445 | ||||||
Long-term debt, less current portion |
34,463 | 65,711 | ||||||
Convertible senior notes, net |
516,998 | | ||||||
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Total liabilities |
1,037,516 | 483,787 | ||||||
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Commitments and contingencies (Note 10) |
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Equity: |
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Common stock, $0.001 par value; 1,200,000 shares authorized; 161,885 and 166,287 shares issued and outstanding |
162 | 166 | ||||||
Additional paid-in capital |
820,071 | 856,190 | ||||||
Accumulated other comprehensive income (loss) |
(42,504 | ) | (21,032 | ) | ||||
Retained earnings |
| 12,742 | ||||||
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Total TIBCO Software Inc. stockholders equity |
777,729 | 848,066 | ||||||
Noncontrolling interest |
1,067 | 1,085 | ||||||
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Total equity |
778,796 | 849,151 | ||||||
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Total liabilities and equity |
$ | 1,816,312 | $ | 1,332,938 | ||||
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See accompanying Notes to Condensed Consolidated Financial Statements
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenue: |
||||||||||||||||
License |
$ | 92,581 | $ | 81,974 | $ | 174,896 | $ | 152,059 | ||||||||
Service and maintenance |
154,782 | 134,447 | 298,169 | 249,703 | ||||||||||||
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Total revenue |
247,363 | 216,421 | 473,065 | 401,762 | ||||||||||||
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Cost of revenue: |
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License |
9,401 | 9,710 | 18,441 | 18,637 | ||||||||||||
Service and maintenance |
59,486 | 52,017 | 116,536 | 96,037 | ||||||||||||
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Total cost of revenue |
68,887 | 61,727 | 134,977 | 114,674 | ||||||||||||
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Gross profit |
178,476 | 154,694 | 338,088 | 287,088 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
38,605 | 36,175 | 75,926 | 68,861 | ||||||||||||
Sales and marketing |
78,923 | 68,909 | 154,641 | 131,432 | ||||||||||||
General and administrative |
17,407 | 15,573 | 35,002 | 28,490 | ||||||||||||
Amortization of acquired intangible assets |
5,653 | 5,030 | 10,201 | 9,921 | ||||||||||||
Acquisition related and other |
929 | 278 | 1,325 | 823 | ||||||||||||
Restructuring adjustments |
(400 | ) | | (519 | ) | (33 | ) | |||||||||
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Total operating expenses |
141,117 | 125,965 | 276,576 | 239,494 | ||||||||||||
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Income from operations |
37,359 | 28,729 | 61,512 | 47,594 | ||||||||||||
Interest income |
221 | 448 | 476 | 930 | ||||||||||||
Interest expense |
(4,395 | ) | (951 | ) | (5,860 | ) | (1,997 | ) | ||||||||
Other income (expense), net |
572 | (1,136 | ) | 1,548 | (1,426 | ) | ||||||||||
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Income before provision for income taxes and noncontrolling interest |
33,757 | 27,090 | 57,676 | 45,101 | ||||||||||||
Provision for income taxes |
7,200 | 6,000 | 10,500 | 7,996 | ||||||||||||
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Net income |
26,557 | 21,090 | 47,176 | 37,105 | ||||||||||||
Less: Net income attributable to noncontrolling interest |
65 | 44 | 43 | 106 | ||||||||||||
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Net income attributable to TIBCO Software Inc. |
$ | 26,492 | $ | 21,046 | $ | 47,133 | $ | 36,999 | ||||||||
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Net income per share attributable to TIBCO Software Inc.: |
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Basic |
$ | 0.17 | $ | 0.13 | $ | 0.29 | $ | 0.23 | ||||||||
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Diluted |
$ | 0.16 | $ | 0.12 | $ | 0.28 | $ | 0.21 | ||||||||
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Shares used to compute net income per share attributable to TIBCO Software Inc.: |
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Basic |
160,437 | 161,911 | 160,949 | 161,207 | ||||||||||||
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Diluted |
169,477 | 174,666 | 170,173 | 174,076 | ||||||||||||
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See accompanying Notes to Condensed Consolidated Financial Statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months
Ended May 31, |
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2012 | 2011 | |||||||
Operating activities: |
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Net income |
$ | 47,176 | $ | 37,105 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation of property and equipment |
7,050 | 6,310 | ||||||
Amortization of acquired intangible assets |
17,365 | 19,664 | ||||||
Amortization of debt discount and transaction costs |
2,210 | 386 | ||||||
Stock-based compensation |
29,718 | 23,268 | ||||||
Deferred income tax |
(9,281 | ) | (9,342 | ) | ||||
Tax benefits related to stock benefit plans |
9,406 | 10,739 | ||||||
Excess tax benefits from stock-based compensation |
(16,484 | ) | (26,737 | ) | ||||
Other non-cash adjustments, net |
531 | (146 | ) | |||||
Changes in assets and liabilities, net of acquisitions: |
||||||||
Accounts receivable |
16,751 | 17,516 | ||||||
Prepaid expenses and other assets |
4,290 | 3,237 | ||||||
Accounts payable |
(981 | ) | (1,222 | ) | ||||
Accrued liabilities and restructuring costs |
(20,373 | ) | (21,504 | ) | ||||
Deferred revenue |
29,563 | 24,064 | ||||||
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Net cash provided by operating activities |
116,941 | 83,338 | ||||||
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Investing activities: |
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Acquisitions, net of cash acquired |
(131,611 | ) | (22,579 | ) | ||||
Purchases of property and equipment |
(11,224 | ) | (3,837 | ) | ||||
Restricted cash pledged as security |
(1,149 | ) | (1,852 | ) | ||||
Other investing activities, net |
414 | 1,348 | ||||||
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Net cash used in investing activities |
(143,570 | ) | (26,920 | ) | ||||
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Financing activities: |
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Proceeds from issuance of convertible debt, net |
584,450 | | ||||||
Proceeds from revolving credit facility, net |
116,648 | | ||||||
Principal payments on debt |
(151,182 | ) | (1,119 | ) | ||||
Proceeds from issuance of common stock |
17,298 | 33,324 | ||||||
Repurchases of the Companys common stock |
(188,508 | ) | (72,329 | ) | ||||
Withholding taxes related to restricted stock net share settlement |
(15,116 | ) | (15,024 | ) | ||||
Excess tax benefits from stock-based compensation |
16,484 | 26,737 | ||||||
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Net cash provided by (used in) financing activities |
380,074 | (28,411 | ) | |||||
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Effect of foreign exchange rate changes on cash and cash equivalents |
(14,489 | ) | 6,491 | |||||
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Net increase in cash and cash equivalents |
338,956 | 34,498 | ||||||
Cash and cash equivalents at beginning of period |
308,148 | 243,989 | ||||||
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Cash and cash equivalents at end of period |
$ | 647,104 | $ | 278,487 | ||||
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Supplemental disclosures: |
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Interest paid |
$ | 2,027 | $ | 1,473 | ||||
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Income taxes paid |
$ | 1,268 | $ | 7,466 | ||||
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See accompanying Notes to Condensed Consolidated Financial Statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | BASIS OF PRESENTATION |
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by TIBCO Software Inc. (TIBCO, the Company, we or us) in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in Consolidated Financial Statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted in accordance with such rules and regulations. The condensed consolidated balance sheet data as of November 30, 2011 was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our financial position and our results of operations and cash flows. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our 2011 Annual Report on Form 10-K for the fiscal year ended November 30, 2011.
Our fiscal year ends on November 30th of each year. For purposes of presentation, we have indicated the second quarter of fiscal years 2012 and 2011 as ended on May 31, 2012 and May 31, 2011, respectively; whereas in fact, the second quarter of fiscal years 2012 and 2011 actually ended on June 3, 2012 and May 29, 2011, respectively. There were 91 days in the second quarter of both fiscal years 2012 and 2011.
The Condensed Consolidated Financial Statements include the accounts of us and our wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. For majority-owned subsidiaries, we reflect the noncontrolling interest of the portion we do not own on our Condensed Consolidated Balance Sheets in Equity and our Condensed Consolidated Statements of Operations.
The results of operations for the three and six months ended May 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2012, or any other future period, and we make no representations related thereto.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Our significant accounting policies and recent accounting pronouncements were described in Note 2 to our Consolidated Financial Statements included in our 2011 Annual Report on Form 10-K for the fiscal year ended November 30, 2011. There have been no significant changes in our accounting policies since November 30, 2011.
Revenue Recognition
License revenue consists principally of revenue earned under software license agreements. License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable and collection of the resulting receivable is probable. When contracts contain multiple software and software-related elements (for example, software license, maintenance, and professional services) wherein Vendor-Specific Objective Evidence (VSOE) exists for all undelivered elements, we account for the delivered elements in accordance with the Residual Method. VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. VSOE of fair value of consulting and training services is based upon stand-alone sales of those services.
Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from original equipment manufacturer (OEM) customers are generally recognized upon delivery, and on-going royalty fees are generally recognized upon reports of units shipped. Revenue on shipments to resellers is recognized when all revenue criteria are met and is recorded net of related costs to the resellers. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.
6
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Maintenance revenue consists of fees for providing software updates on a when-and-if available basis and technical support for software products (post-contract customer support or PCS). Maintenance revenue is recognized ratably over the term of the agreement. Payments received in advance of services performed are deferred.
Professional services revenue consists primarily of revenue received for assisting with the implementation of our software, on-site support, training and other consulting services. Many customers who license our software also enter into separate professional services arrangements with us. In determining whether professional services revenue should be accounted for separately from license revenue, we evaluate whether the professional services are considered essential to the functionality of the software using factors such as the nature of our software products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenue is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the software license fee. Substantially all of our professional services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a proportional performance model based on actual services performed. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. Training revenue is recognized as training services are delivered. Payments received in advance of consulting or training services performed are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent month. Allowances for estimated future returns and discounts are provided for upon recognition of revenue.
For arrangements that do not qualify for separate accounting for the license and professional services revenues, including arrangements that involve significant modification or customization of the software, that include milestones or customer specific acceptance criteria that may affect collection of the software license fees, or where payment for the software license is tied to the performance of professional services, software license revenue is generally recognized together with the professional services revenue using either the percentage-of-completion or completed-contract method. The completed contract method is used for contracts where there is a risk over final acceptance by the customer or for contracts that are short term in nature. Under the percentage-of-completion method, revenue recognized is equal to the ratio of costs expended to date to the anticipated total contract costs, based on current estimates of costs to complete the project. If there are milestones or acceptance provisions associated with the contract, the revenue recognized will not exceed the most recent milestone achieved or acceptance obtained. If the total estimated costs to complete a project exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized in the current period.
In the first quarter of fiscal year 2011 we adopted the amended accounting guidance for certain multiple deliverable revenue arrangements that:
| provides updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; |
| requires an entity to allocate revenue in an arrangement using the estimated selling price (ESP) of deliverables if a vendor does not have VSOE of selling price or third-party evidence (TPE) of selling price; and |
| eliminates the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
We occasionally enter into multiple element revenue arrangements in which a customer may purchase a combination of software licenses, hosting services, maintenance, professional services and hardware. If a tangible hardware product includes software, we determine if the tangible hardware and the software work together to deliver the products essential functionality. If so, the entire product is accounted for as a non-software deliverable; otherwise the hardware product and the software are accounted for separately. For multiple element arrangements that contain non-software related elements, for example our hosting services, we allocate revenue to each non-software element based upon the relative selling price of each, and if software and software-related elements are also included in the arrangement, to those elements as a group based on our ESP for the group. When applying the relative selling price method, we determine the selling price for each deliverable using VSOE of selling price, if it exists, then TPE of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, we use our ESP for multiple element arrangements that include non-software components. The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine ESP by considering multiple factors, including, but not limited to, geographies, market conditions, competitive
7
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
landscape, internal costs, gross margin objectives, and pricing practices. ESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element. The manner in which we account for multiple element arrangements that contain only software and software-related elements remains unchanged.
3. | BUSINESS COMBINATIONS |
While we use our best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. We record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.
The total purchase price allocated to the tangible assets acquired is assigned based on the fair values as of the date of the acquisition. The fair value assigned to identifiable intangible assets acquired is determined using the income approach which discounts expected future cash flows to present value using estimated assumptions determined by management. We believe that these identified intangible assets will have no residual value after their estimated economic useful lives. The identifiable intangible assets are subject to amortization on a straight-line basis as this best approximates the benefit period related to these assets.
The excess of the purchase price over the identified tangible and intangible assets, less liabilities assumed, is recorded as goodwill and primarily reflects the value of the synergies expected to be generated from combining our and the acquired entities technology and operations. Generally none of the goodwill recorded in connection with the acquisitions is deductible for income tax purposes.
Acquisition of LogLogic, Inc.
On April 10, 2012, we acquired LogLogic, Inc. (LogLogic), a private company based in San Jose, California and incorporated in Delaware. LogLogic is a provider of scalable log and security management platforms. We paid $131.6 million, net of cash acquired, to acquire all of the outstanding shares of capital stock of LogLogic. We have also incurred $0.7 million of transaction costs associated with the acquisition. As a result of the acquisition, we assumed facility leases, certain liabilities and commitments of LogLogic. Management is currently evaluating the purchase price allocation for this transaction.
The preliminary allocation of the purchase price for the LogLogic acquisition, as of the date of the acquisition, is as follows (in thousands):
Cash |
$ | 5,018 | ||
Accounts receivable (approximate contractual value) |
5,359 | |||
Other assets |
1,524 | |||
Identifiable intangible assets |
61,200 | |||
Goodwill |
73,189 | |||
Liabilities |
(7,006 | ) | ||
Deferred Revenue |
(7,297 | ) | ||
Deferred income tax asset, net |
4,642 | |||
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Total preliminary purchase price |
$ | 136,629 | ||
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8
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Identifiable intangible assets (in thousands, except amortization period):
Gross Amount at Acquisition Date |
Weighted Average Amortization Period |
|||||||
Existing technology |
$ | 32,800 | 6.0 years | |||||
Customer contracts |
3,200 | 7.0 years | ||||||
Maintenance agreements |
22,300 | 6.0 years | ||||||
Trademarks |
2,900 | 7.0 years | ||||||
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$ | 61,200 | 6.5 years | ||||||
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Nimbus Partners Limited
On August 30, 2011, TIBCO International Holdings B.V., one of our indirect wholly-owned subsidiaries, acquired Nimbus Partners Limited (Nimbus), a private company organized under the laws of England and Wales and a provider of business process discovery and analysis applications that help companies drive adoption of business process initiatives. We paid $42.0 million of cash to acquire the outstanding equity of Nimbus. We have also incurred $1.0 million of acquisition related and other expenses associated with the acquisition. As a result of the acquisition, we assumed facility leases, certain liabilities and commitments of Nimbus. We are evaluating the purchase price allocation following consummation of the transaction.
The preliminary allocation of the purchase price for the Nimbus acquisition, as of the date of the acquisition, is as follows (in thousands):
Cash |
$ | 971 | ||
Accounts receivable (approximate contractual value) |
3,634 | |||
Other assets |
763 | |||
Identifiable intangible assets |
19,800 | |||
Goodwill |
28,194 | |||
Liabilities |
(6,693 | ) | ||
Deferred income tax liabilities, net |
(4,669 | ) | ||
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Total preliminary purchase price |
$ | 42,000 | ||
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Identifiable intangible assets (in thousands, except amortization period):
Gross Amount at Acquisition Date |
Weighted Average Amortization Period |
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Existing technology |
$ | 13,900 | 5.0 years | |||||
Subscriber base |
1,200 | 5.0 years | ||||||
Customer base |
700 | 5.0 years | ||||||
Maintenance agreements |
3,100 | 7.0 years | ||||||
Trademarks |
900 | 5.0 years | ||||||
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$ | 19,800 | 5.3 years | ||||||
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LoyaltyLab, Inc.
On December 7, 2010, we acquired LoyaltyLab, Inc. (Loyalty Lab), a private company incorporated in Delaware. Loyalty Lab is an independent provider of loyalty management solutions that allow marketers to manage loyalty programs from their desktop. This acquisition provides us international presence in the customer loyalty market. We paid $23.5 million in cash to acquire all of the outstanding shares of capital stock of Loyalty Lab. We have also incurred $0.4 million of acquisition related and other expenses associated with the acquisition. As a result of the acquisition, we assumed facility leases and certain liabilities and commitments of Loyalty Lab.
9
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The allocation of the purchase price for the Loyalty Lab acquisition is as follows (in thousands):
Cash |
$ | 905 | ||
Accounts receivable (approximate contractual value) |
5,118 | |||
Deferred income tax assets, net |
3,758 | |||
Other assets |
729 | |||
Identifiable intangible assets |
6,600 | |||
Goodwill |
11,966 | |||
Liabilities |
(5,590 | ) | ||
|
|
|||
Total purchase price |
$ | 23,486 | ||
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|
Identifiable intangible assets (in thousands, except amortization period):
Gross Amount at Acquisition Date |
Weighted Average Amortization Period |
|||||||
Existing technology |
$ | 2,000 | 5.0 years | |||||
Customer base |
4,100 | 5.0 years | ||||||
Trademarks |
500 | 5.0 years | ||||||
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$ | 6,600 | 5.0 years | ||||||
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Pro Forma Adjusted Summary
The results of operations of LogLogic, Nimbus and Loyalty Lab have been included in the Consolidated Financial Statements subsequent to the acquisition dates. The following unaudited pro forma adjusted summary for the three and six months ended May 31, 2012 and 2011 assumes LogLogic, Nimbus and Loyalty Lab had been acquired at the beginning of fiscal year 2011 (in thousands, except per share data):
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Pro forma adjusted total revenue |
$ | 250,334 | $ | 230,028 | $ | 485,870 | $ | 428,975 | ||||||||
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Pro forma adjusted net income attributable to TIBCO Software Inc. |
$ | 24,939 | $ | 18,604 | $ | 42,035 | $ | 32,116 | ||||||||
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Pro forma adjusted net income per share attributable to TIBCO Software Inc.: |
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Basic |
$ | 0.16 | $ | 0.11 | $ | 0.26 | $ | 0.20 | ||||||||
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Diluted |
$ | 0.15 | $ | 0.11 | $ | 0.25 | $ | 0.18 | ||||||||
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The unaudited pro forma results presented include amortization charges for acquired intangible assets, adjustments for incremental compensation expense related to the post-combination service arrangements entered into with the continuing employees and related tax effects. The unaudited pro forma adjusted summary combines the historical results for TIBCO for those periods with the historical results for LogLogic, Nimbus and Loyalty Lab for the same periods. The summary is presented for informational purposes only and is not intended to be indicative of future results of operations or whether similar results would have been achieved if the acquisition had taken place at the beginning of fiscal year 2011.
10
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. | INVESTMENTS |
Marketable securities, which are classified as available-for-sale and included either in cash and cash equivalents if their maturities were three months or less or in short term investments on the Condensed Consolidated Balance Sheet, are summarized below as of May 31, 2012 and November 30, 2011 (in thousands):
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Aggregate Fair Value |
|||||||||||||
As of May 31, 2012: |
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Money market funds |
$ | 441,427 | $ | | $ | | $ | 441,427 | ||||||||
Term deposits |
542 | | | 542 | ||||||||||||
Mortgage-backed securities |
187 | 55 | (37 | ) | 205 | |||||||||||
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$ | 442,156 | $ | 55 | $ | (37 | ) | $ | 442,174 | ||||||||
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As of November 30, 2011: |
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Money market funds |
$ | 16,664 | $ | | $ | | $ | 16,664 | ||||||||
Term deposits |
560 | | | 560 | ||||||||||||
Mortgage-backed securities |
200 | 51 | (26 | ) | 225 | |||||||||||
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$ | 17,424 | $ | 51 | $ | (26 | ) | $ | 17,449 | ||||||||
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5. | FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS |
Fair Value Measurements
FASB guidance for fair value measurements clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, we measure certain financial assets and liabilities at fair value, including our marketable securities and foreign currency contracts.
Our cash equivalents and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most money market securities and are generally classified within Level 1 of the fair value hierarchy.
The types of instruments valued based on other observable inputs include investment-grade corporate bonds, mortgage-backed and asset-backed products and state, municipal and provincial obligations. Such instruments are generally classified within Level 2 of the fair value hierarchy.
We execute our foreign currency contracts primarily in the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large multi-national and regional banks. Our foreign currency contracts valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.
11
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The fair value hierarchy of our cash equivalents, marketable securities and foreign currency contracts is as follows (in thousands):
Fair Value Measurements at Reporting Date using |
||||||||||||
Description |
Total Fair Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant other Observable Inputs (Level 2) |
|||||||||
As of May 31, 2012: |
||||||||||||
Assets: |
||||||||||||
Money market funds |
$ | 441,427 | $ | 441,427 | $ | | ||||||
Term deposits |
542 | | 542 | |||||||||
Mortgage-backed securities |
205 | | 205 | |||||||||
Liabilities: |
||||||||||||
Foreign currency forward contracts |
$ | 152 | $ | | $ | 152 | ||||||
As of November 30, 2011: |
||||||||||||
Assets: |
||||||||||||
Money market funds |
$ | 16,664 | $ | 16,664 | $ | | ||||||
Term deposits |
560 | | 560 | |||||||||
Mortgage-backed securities |
225 | | 225 | |||||||||
Foreign currency forward contracts |
142 | | 142 | |||||||||
Liabilities: |
||||||||||||
Foreign currency forward contracts |
$ | 142 | $ | | $ | 142 |
Derivative Instruments
We conduct business in the Americas; Europe, the Middle East and Africa (EMEA); and Asia Pacific and Japan (APJ). As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or changes in economic conditions in foreign markets. The U.S. dollar is our major transaction currency; we also transact business in approximately 25 foreign currencies worldwide, of which the most significant to our operations is the Euro. We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies, and these forward contracts are generally settled monthly. Our forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. We do not enter into derivative financial instruments for trading purposes. Gains and losses on forward contracts are included in Other Income (Expense) in our Condensed Consolidated Statements of Operations.
We had the following forward contracts outstanding as of May 31, 2012 (in thousands):
Notional Value Local Currency |
Notional Value USD |
Fair Value Gain (Loss) USD |
||||||||||
Forward contracts denominated in United States dollars sold: |
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Brazilian real |
(1,700 | ) | $ | (833 | ) | $ | 4 | |||||
British Pound |
12,400 | 19,063 | (141 | ) | ||||||||
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$ | (137 | ) | ||||||||||
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12
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Notional Value Local Currency |
Notional Value EURO |
Fair Value Gain (Loss) USD |
||||||||||
Forward contracts denominated in Euros sold: |
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Australian dollar |
(2,100 | ) | | (1,642 | ) | $ | 4 | |||||
British pound |
1,800 | 2,237 | (19 | ) | ||||||||
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$ | (15 | ) | ||||||||||
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Derivatives not Designated as Hedging Instruments |
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May 31, 2012 |
November 30, 2011 |
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Foreign currency forward contracts, fair value included in: |
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Other Current Assets |
$ | | $ | 142 | ||||
Accrued Liabilities |
152 | 142 |
Amount of Gain or (Loss) Recognized In Income on Derivative |
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Three Months Ended May 31, |
Six Months
Ended May 31, |
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Derivatives not Designated as Hedging Instruments |
Location |
2012 | 2011 | 2012 | 2011 | |||||||||||||
Foreign Currency Contracts |
Other income/(exp.) |
$ | (438 | ) | $ | (3,135 | ) | $ | (1,795 | ) | $ | (7,569 | ) |
6. | GOODWILL AND ACQUIRED INTANGIBLE ASSETS |
The change in the carrying value of goodwill for the six months ended May 31, 2012 is as follows (in thousands):
Balance as of November 30, 2011 |
$ | 451,821 | ||
Goodwill recorded for the LogLogic acquisition |
73,189 | |||
Post-acquisition goodwill adjustment for the Nimbus acquisition (1) |
1,077 | |||
Foreign currency translation |
(9,400 | ) | ||
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Balance as of May 31, 2012 |
$ | 516,687 | ||
|
|
(1) | Pursuant to the business combinations accounting guidance, we record goodwill adjustments for the effect from changes to net assets acquired during the measurement period (up to one year from the date of an acquisition). Goodwill adjustments were not significant to our previously reported operating results or financial position. |
Certain of our intangible assets were recorded in foreign currencies, and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments. The carrying values of our amortized acquired intangible assets as of May 31, 2012 and November 30, 2011 are as follows (in thousands):
May 31, 2012 | November 30, 2011 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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Developed technologies |
$ | 176,044 | $ | (106,439 | ) | $ | 69,605 | $ | 146,289 | $ | (102,034 | ) | $ | 44,255 | ||||||||||
Customer base |
57,806 | (39,026 | ) | 18,780 | 56,165 | (37,376 | ) | 18,789 | ||||||||||||||||
Patents/core technologies |
27,315 | (22,455 | ) | 4,860 | 27,922 | (21,542 | ) | 6,380 | ||||||||||||||||
Trademarks |
12,514 | (7,498 | ) | 5,016 | 9,771 | (7,077 | ) | 2,694 | ||||||||||||||||
Non-compete agreements |
580 | (580 | ) | | 580 | (580 | ) | | ||||||||||||||||
Maintenance agreements |
82,360 | (42,108 | ) | 40,252 | 61,677 | (38,237 | ) | 23,440 | ||||||||||||||||
In-process research and development |
1,700 | (57 | ) | 1,643 | 1,700 | | 1,700 | |||||||||||||||||
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|
|
|
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Total intangible assets |
$ | 358,319 | $ | (218,163 | ) | $ | 140,156 | $ | 304,104 | $ | (206,846 | ) | $ | 97,258 | ||||||||||
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13
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. | ACCRUED RESTRUCTURING AND EXCESS FACILITIES COSTS |
In order to achieve cost efficiencies and realign our resources and operations, our Board of Directors approved restructuring plans initiated by management in fiscal years 2011 and 2010. The following is a summary of activities in accrued restructuring and excess facilities costs for the six months ended May 31, 2012 under these plans (in thousands):
Excess Acquisition Integration |
Accrued Facilities Restructuring |
Accrued Severance and Other |
Total | |||||||||||||
As of November 30, 2011 |
$ | 41 | $ | 2,782 | $ | 5,019 | $ | 7,842 | ||||||||
Restructuring adjustment |
| (32 | ) | (487 | ) | (519 | ) | |||||||||
Adjustment to acquisition integration costs |
(3 | ) | (420 | ) | 170 | (253 | ) | |||||||||
Cash Utilized |
| (806 | ) | (4,301 | ) | (5,107 | ) | |||||||||
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As of May 31, 2012 |
$ | 38 | $ | 1,524 | $ | 401 | $ | 1,963 | ||||||||
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The remaining accrued excess facilities costs represent the estimated loss on abandoned excess facilities, net of estimated sublease income, which is expected to be paid over the next two years. As of May 31, 2012, $1.0 million of the $2.0 million accrued restructuring and excess facilities costs were classified as long-term liabilities.
8. | LONG-TERM DEBT AND CREDIT FACILITIES |
Mortgage Note
In connection with the purchase of our corporate headquarters in June 2003, we recorded a $54.0 million mortgage note to a financial institution collateralized by the commercial real property acquired. The balance on the mortgage note was $36.9 million and $38.1 million as of May 31, 2012 and November 30, 2011, respectively.
The mortgage note carries a 20-year amortization and a fixed annual interest rate of 5.50%. The $34.4 million principal balance that will be remaining at the end of the 10-year term will be due as a final lump sum payment on July 1, 2013. Under the currently applicable terms of the mortgage note agreements, we are prohibited from acquiring another company without prior consent from the lender unless we maintain at least $50.0 million of cash or cash equivalents and meet other non-financial terms as defined in the agreements. In addition, we are subject to certain non-financial covenants as provided in the agreements. As of May 31, 2012, we were in compliance with all covenants under the mortgage note agreements.
Credit Facility
In November 2009, we entered into a three year $150.0 million unsecured revolving credit facility (the 2009 Credit Facility). In December 2011, we and one of our subsidiaries entered into an Amended and Restated Credit Agreement (the 2011 Credit Facility). In May 2012, we amended certain covenants and other terms of the 2011 Credit Facility. The 2011 Credit Facility matures on December 19, 2016 and provides for borrowings of up to $250.0 million with a sublimit for swing line loans of up to $10.0 million and standby letters of credit in a face amount of up to $50.0 million. We have an option to request that the lenders increase the available commitments by up to an additional $100.0 million for total borrowings of up to $350.0 million.
Revolving loans accrue interest at a per annum rate based on, at our option, either (i) the base rate plus a margin ranging from 0.25% to 1.25%, depending on TIBCOs consolidated leverage ratio or (ii) the London Interbank Offered Rate (LIBOR) rate plus a margin ranging from 1.25% to 2.25%, depending on TIBCOs consolidated leverage ratio, for various interest periods. The base rate is defined as the highest of (i) the administrative agents prime rate, (ii) the federal funds rate plus a margin equal to 0.50%, and (iii) the LIBOR rate for a one month interest period plus a margin of 1.00%. We are also obligated to pay commitment fees for the unused amount of the 2011 Credit Facility, letter of credit fees and other customary fees. Loan origination fees and issuance costs of approximately $3.4 million were incurred since consummation of the 2011 Credit Facility which will be amortized through interest expense over a period of five years. Under certain circumstances, a default interest rate of 2.00% above the applicable interest rate will apply on all obligations during the existence of an event of default under the 2011 Credit Facility.
14
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
We must maintain a minimum consolidated interest coverage ratio of 3.5:1.0 and a maximum consolidated leverage ratio of 3.25:1.00 in addition to other customary affirmative and negative covenants. The maximum consolidated leverage ratio decreases to 3.00:1.00 and then to 2.75:1.00 at the beginning of the second fiscal quarter of our fiscal years 2013 and 2014, respectively. As of May 31, 2012, we were in compliance with all covenants under this facility.
As of May 31, 2012, we had no outstanding borrowings under the 2011 Credit Facility.
Line of Credit
We also have a $20.0 million revolving line of credit that matures in June 2013 (the Line of Credit). The revolving Line of Credit is available for cash borrowings and for the issuance of letters of credit up to $20.0 million. The Line of Credit contains financial covenants substantially identical to those of the 2011 Credit Facility, as well as other customary affirmative and negative covenants. As of May 31, 2012, we were in compliance with all covenants under the Line of Credit.
In connection with the mortgage note payable, we entered into an irrevocable letter of credit in the amount of $13.0 million collateralized under the Line of Credit which renews for successive one-year periods until the mortgage note payable has been satisfied in full. In addition, we have $1.4 million of irrevocable letters of credit outstanding in connection with revenue transactions.
As of May 31, 2012, no other borrowings were outstanding under the Line of Credit.
Guarantee Credit Line
We have a revolving guarantee credit line of approximately $12.4 million available for the issuance of bank guarantees denominated in foreign currency. Issued bank guarantees were approximately $11.9 million and $11.4 million as of May 31, 2012 and November 30, 2011, respectively, and were collateralized by pledging the equivalent amount under restricted cash as required under our guarantee credit line. Other various contractual commitments also require us to pledge cash as security and record this cash under restricted cash. As of May 31, 2012 and November 30, 2011, we had restricted cash of $13.9 million and $13.8 million, respectively, which is included in Other Assets on our Condensed Consolidated Balance Sheets.
9. | CONVERTIBLE SENIOR NOTES |
Description of Convertible Senior Notes
In April 2012, we issued convertible senior notes (the Notes) in an aggregate principal amount of $600.0 million due May 1, 2032. The Notes bear interest at a rate of 2.25% per annum. The Notes do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us. Each $1,000 principal amount of Notes is initially convertible, at the option of the holders, at a rate of 19.7750 shares of our common stock, which represents an initial conversion price of approximately $50.57 per share, which is subject to adjustment upon the occurrence of certain events specified in the indenture. On conversion of a Note, we will deliver cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, for any conversion value greater than the principal amount, we will deliver shares of common stock. Holders may convert Notes prior to February 1, 2032, and other than during the period from February 1, 2017 to May 5, 2017, under the following circumstances: (1) if the Notes are called for redemption, at any time prior to the redemption date; (2) during any fiscal quarter commencing after the fiscal quarter ending on September 2, 2012, if our last reported sale price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (3) during any five consecutive trading day period when the trading price per $1,000 principal amount of Notes is less than 98% of the product of the last reported sale price of a share of common stock and the conversion rate; and (4) upon the occurrence of certain distributions or corporate events as specified in the indenture governing the Notes. From February 1, 2017 to May 5, 2017, and from February 1, 2032 until the maturity date, holders may convert Notes at any time, regardless of the foregoing circumstances.
After May 5, 2017, we may redeem for cash all or part of the Notes. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. Holders may require us to repurchase all or a portion of their Notes on May 5, 2017, May 1, 2022 and May 1, 2027 in cash at a price equal to the principal amount, plus accrued and unpaid interest.
15
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Upon the occurrence of a fundamental change under the indenture for the Notes such as in the event of a change in control, the holders may require us to repurchase all or a portion of their Notes at the principal amount of the Notes plus accrued and unpaid interest. Following certain corporate transactions that constitute a change of control, the conversion rate may increase for a holder who elects to convert the Notes. Upon conversion, we will deliver an amount of cash and a number of shares of common stock, if any, equal to the sum of the daily settlement amounts for each daily volume weighted average price in the 35 day observation period for such Note as determined pursuant to the indenture for the Notes.
We used approximately $121.0 million of the net proceeds from the offering to repurchase 3.6 million shares of our common stock concurrently with the offering of the Notes.
Accounting of Convertible Senior Notes
Accounting guidance requires that convertible debt that can be settled for cash, such as the Notes, be separated into the liability and equity component at issuance and each be assigned a value. The value assigned to the liability component is the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. The difference between the cash proceeds and estimated fair value of the liability component, representing the value of the conversion premium assigned to the equity component, is recorded as a debt discount on the issuance date. This debt discount is amortized to interest expense using the effective interest method over the period from the issuance date through the first stated put date on May 5, 2017. We estimated the straight debt borrowing rates at debt origination to be 5.50% for the Notes and determined the debt discount to be $84.6 million. As a result, a conversion premium after tax of $52.6 million was recorded in additional paid-in capital.
As of May 31, 2012, the carrying value of the Notes was $517.0 million, which consisted of $600.0 million outstanding principal amount net of $83.0 million unamortized debt discount.
In connection with the issuance of the Notes, we incurred $15.6 million of issuance costs, which primarily consisted of investment banker fees and legal and other professional service fees. Deferred issuance costs of $13.4 million attributable to the liability component are being amortized to interest expense through May 1, 2017, and $2.2 million ($1.4 million net of tax) of transaction costs attributable to the equity component were netted with the equity component in additional paid-in capital at the issuance date. The deferred debt issuance costs are recorded within other assets in accordance with short- and long-term classification. If the holders require conversion of some or all of the Notes when the conversion requirements are met, we would accelerate amortization of the pro rata share of the unamortized balance of the issuance cost to additional paid-in capital on such date.
For the second quarter ended May 31, 2012, we recognized interest expense of $3.3 million related to the Notes, comprised of $1.4 million for the contractual coupon interest, $1.6 million related to the amortization of debt discount and $0.3 million related to the amortization of deferred debt issuance costs.
The Notes are carried at face value less any unamortized debt discount and also require disclosure of an estimate of fair value. The fair value of the Notes at each balance sheet date is determined based on recent quoted market prices or dealer quotes for the Notes, if available. Otherwise, the fair value is determined using cash-flow models of the scheduled payments discounted at market interest rates for comparable debt without the conversion feature. As of May 31, 2012, the estimated fair value of the Notes approximated their carrying value.
10. | COMMITMENTS AND CONTINGENCIES |
Prepaid Land Lease
In June 2003, we entered into a 51-year lease of the land upon which our corporate headquarters is located. The lease was paid in advance for a total of $28.0 million, but is subject to adjustments every ten years based upon changes in market condition. Should it become necessary, we have the option to prepay any rent increases due as a result of a change in fair market value. This prepaid land lease is being amortized using the straight-line method over the life of the lease; the portion to be amortized over the next twelve months is included in prepaid expenses and other current assets, and the remainder is included in other assets on our Condensed Consolidated Balance Sheets.
16
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Commitments
At various locations worldwide, we lease office space and equipment under non-cancelable operating leases with various expiration dates through May 2019. Rental expense was $3.4 million and $3.6 million for the three months ended May 31, 2012 and 2011, respectively, and $7.2 million and $6.8 million for the six month periods ended May 31, 2012 and 2011, respectively.
As of May 31, 2012, contractual commitments associated with indebtedness, lease obligations and restructuring were as follows (in thousands):
Total | Remainder of 2012 |
2013 | 2014 | 2015 | 2016 | Thereafter | ||||||||||||||||||||||
Commitments: |
||||||||||||||||||||||||||||
Debt principal |
$ | 637,513 | $ | 1,802 | $ | 35,711 | $ | | $ | | $ | | $ | 600,000 | ||||||||||||||
Debt interest |
70,602 | 8,569 | 14,783 | 13,500 | 13,500 | 13,500 | 6,750 | |||||||||||||||||||||
Operating leases (1) |
34,455 | 5,421 | 9,807 | 6,946 | 4,735 | 3,553 | 3,993 | |||||||||||||||||||||
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Total commitments |
$ | 742,570 | $ | 15,792 | $ | 60,301 | $ | 20,446 | $ | 18,235 | $ | 17,053 | $ | 610,743 | ||||||||||||||
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(1) | Operating leases included future minimum rent payments, net of estimated sublease income, for facilities that we have vacated pursuant to our restructuring activities, as discussed in Note 7. |
Future minimum lease payments under restructured non-cancelable operating leases are included in Accrued Restructuring Costs on our Condensed Consolidated Balance Sheets.
The above commitment table does not include approximately $24.2 million of long-term income tax liabilities due to the fact that we are unable to reasonably estimate the timing of these potential future payments.
Indemnification
Our software license agreements typically provide for indemnification of customers for intellectual property infringement claims. We also warrant to customers that software products operate substantially in accordance with the software products specifications. Historically, we have incurred minimal costs related to product warranties, and, as such, no accruals for warranty costs have been made. In addition, we indemnify our officers and directors under the terms of indemnity agreements entered into with them, as well as pursuant to our certificate of incorporation, bylaws and applicable Delaware law.
11. | LEGAL PROCEEDINGS |
JuxtaComm v. TIBCO, et al.
On January 21, 2010, JuxtaComm-Texas Software, LLC (JuxtaComm) filed a complaint for patent infringement against us and other defendants in the United States District Court for the Eastern District of Texas, Case No. 6:10-CV-00011-LED. On April 22, 2010, JuxtaComm filed an amended complaint in which it alleges that certain TIBCO offerings, including TIBCO ActiveMatrix Business Works, TIBCO iProcess Suite, TIBCO Business Studio and TIBCO ActiveMatrix® Service Bus infringe U.S. Patent No. 6,195,662 (662 patent). JuxtaComm seeks injunctive relief and unspecified damages. On May 6, 2010, we filed an answer and counterclaims in which we denied JuxtaComms claims and asserted counterclaims for declaratory relief that the asserted patent is invalid and not infringed.
On May 12, 2011, the U.S. Patent & Trademark Office (PTO) issued a Final Office Action rejecting all asserted claims of the 662 patent in a separate re-examination proceeding before the PTO. On September 9, 2011, JuxtaComm filed a Notice of Appeal to the Board of Patent Appeals and Interferences (BPAI), challenging the Final Office Action. JuxtaComms Appeal before the BPAI is currently pending.
17
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On May 15, 2012, the Court in the Eastern District of Texas granted the defendants motion for summary judgment on invalidity of the asserted claims. On May 16, 2012, the Court issued an order staying all deadlines and vacating the trial date in light of the Courts grant of summary judgment of invalidity. On July 5, 2012, the Court issued an order containing its opinion supporting the Courts grant of summary judgment.
We will continue to defend the action vigorously. While we believe that we have valid defenses to JuxtaComms claims, and the Court granted the motion for summary judgment, litigation is inherently unpredictable and we cannot make any predictions as to the outcome of this litigation. It is possible that our business, financial position, or results of operations could be negatively affected by an unfavorable resolution of this action, however, we are unable to estimate a range of potential loss at this time.
InvestPic, LLC v. TIBCO, et al.
On November 24, 2010, InvestPic, LLC (InvestPic) filed a complaint for patent infringement against us and fourteen other defendants in the United States District Court for the District of Delaware, Case No. 1:10cv01028-SLR. The complaint alleges that TIBCO Spotfire® S+® and other similar products infringe U.S. Patent No. 6,349,291 (the 291 patent). On March 29, 2011, defendant SAS Institute Inc. (SAS) filed a motion to dismiss the complaint for failure to state a claim for relief on the basis that all the asserted claims of the 291 patent are invalid as being directed to unpatentable subject matter. On May 13, 2011, TIBCO, along with other defendants, filed a motion to dismiss the complaint on the same grounds as SAS motion. On September 30, 2011, the Court denied this motion to dismiss. However, the Court declined to address the merits of defendants arguments that the claims of the 291 patent are directed to unpatentable subject matter, in the absence of discovery or claim construction. On May 3, 2012, defendants SAS, Algorithmics (U.S.), Inc. and International Business Machines Corp. filed a motion to stay the litigation pending the reexamination of the 291 patent. On July 10, 2012, the Court entered an order to stay the litigation and administratively close the case during the pendency of the reexamination of the 291 patent.
InvestPic seeks injunctive relief and unspecified damages. We intend to defend the action vigorously. While we believe that we have valid defenses to InvestPics claims, litigation is inherently unpredictable and we cannot make any predictions as to the outcome of this litigation. It is possible that our business, financial position, or results of operations could be negatively affected by an unfavorable resolution of this action. As InvestPic has made no specific demand for damages in this matter other than injunctive relief, we cannot currently estimate a reasonably possible range of loss for this action.
Vasudevan Software, Inc. v. TIBCO, et al.
On December 23, 2011, Vasudevan Software, Inc. (Vasudevan) filed a complaint for patent infringement against us and Spotfire Inc. in the United States District Court for the Northern District of California, Case No. 3:11-cv-06638-RS. The complaint alleges that TIBCO directly, indirectly, and willfully infringes U.S. Patent No. 7,167,864 B1 based on Spotfire Analytics and other products. Vasudevan further alleges in its infringement contentions that the accused products include at least the TIBCO Spotfire Platform (e.g., TIBCO Spotfire Professional, TIBCO Spotfire Server, TIBCO Spotfire Web Player, TIBCO Spotfire Enterprise Player, TIBCO Spotfire for the Apple iPad, TIBCO Spotfire Application Data Services, TIBCO Spotfire Developer, TIBCO Spotfire Metrics, TIBCO Spotfire Network Analytics, TIBCO Spotfire Operations Analytics Bundle, and TIBCO Silver Spotfire) at least versions 4.0 to 2.1, as well as any TIBCO products and services that utilize the TIBCO Spotfire Platform. Vasudevan amended its complaint on March 6, 2012, but continues to accuse the same products of infringement. Vasudevan seeks injunctive relief and unspecified damages. On May 18, 2012, the Court dismissed Vasudevans indirect and willful infringement claims.
The Court issued a case management scheduling order on April 27, 2012, including a September 12, 2012 claim construction hearing, a fact discovery deadline of February 15, 2013, and an expert discovery deadline of May 3, 2013. A trial date for the case has not yet been scheduled. We intend to defend the action vigorously. While we believe that we have valid defenses to Vasudevans claims, litigation is inherently unpredictable and we cannot make any predictions as to the outcome of this litigation. It is possible that our business, financial position, or results of operations could be negatively affected by an unfavorable resolution of this action. As Vasudevan has made no specific demand for relief in this matter other than injunctive relief, we cannot currently estimate a reasonably possible range of loss for this action.
18
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
YYZ, LLC v. TIBCO Software Inc.
On February 10, 2012, YYZ, LLC (YYZ) filed a complaint for patent infringement against us in the United States District Court for the District of Delaware, Case No. 1:12-cv-00170-SLR. On April 18, 2012, YYZ filed a first amended complaint for patent infringement. YYZ alleges that certain TIBCO offerings, including at least TIBCO Business Studio, infringe U.S. Patent No. 8,046,747 (the 747 patent). On May 7, 2012, we filed an answer and counterclaims to YYZs first amended complaint in which we denied YYZs claims and asserted counterclaims for declaratory relief that the 747 patent is invalid and not infringed.
Discovery has recently commenced and trial has been set for June 2, 2014.
YYZ seeks injunctive relief and unspecified damages. We intend to defend the action vigorously. While we believe that we have valid defenses to YYZs claims, litigation is inherently unpredictable and we cannot make any predictions as to the outcome of this litigation. It is possible that our business, financial position, or results of operations could be negatively affected by an unfavorable resolution of this action, however, we are unable to estimate a range of potential loss at this time.
12. | STOCK-BASED COMPENSATION |
Stock-based compensation cost for the three months ended May 31, 2012 and 2011 was $14.4 million and $11.8 million, respectively. Stock-based compensation cost for the six months ended May 31, 2012 and 2011 was $29.7 million and $23.3 million, respectively. The deferred tax benefit from stock-based compensation expenses for the three months ended May 31, 2012 and 2011 was $4.8 million and $3.9 million, respectively. The deferred tax benefit on stock-based compensation expenses for the six months ended May 31, 2012 and 2011 was $9.9 million and $7.9 million, respectively.
The following table summarizes additional information pertaining to our stock-based compensation from stock options and stock awards which are comprised of restricted stock, restricted stock units and performance-based restricted stock units (in thousands, except grant-date fair value and recognition period):
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Stock options: |
||||||||||||||||
Weighted-average grant-date fair value |
$ | 11.60 | $ | 11.61 | $ | 9.83 | $ | 11.11 | ||||||||
Options granted |
1 | 1,453 | 173 | 1,784 | ||||||||||||
Options exercised |
(629 | ) | (1,634 | ) | (1,637 | ) | (3,742 | ) | ||||||||
Total intrinsic value of stock options exercised |
$ | 14,605 | $ | 34,010 | $ | 31,864 | $ | 63,122 | ||||||||
Total unrecognized compensation expense |
$ | 22,927 | $ | 29,036 | $ | 22,927 | $ | 29,036 | ||||||||
Weighted-average remaining recognition period |
2.4 years | 2.7 years | 2.4 years | 2.7 years | ||||||||||||
Stock awards: |
||||||||||||||||
Weighted-average grant-date fair value |
$ | 32.37 | $ | 29.44 | $ | 29.99 | $ | 26.71 | ||||||||
Stock awards granted |
179 | 1,189 | 964 | 1,752 | ||||||||||||
Stock awards vested |
(1,241 | ) | (1,316 | ) | (1,688 | ) | (1,846 | ) | ||||||||
Total unrecognized compensation expense |
$ | 84,540 | $ | 105,551 | $ | 84,540 | $ | 105,551 | ||||||||
Weighted-average remaining recognition period |
2.0 years | 2.6 years | 2.0 years | 2.6 years |
19
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
13. | COMPREHENSIVE INCOME (LOSS) |
Our comprehensive income (loss) includes net income and other comprehensive income (loss), which consists of unrealized gains and losses on available-for-sale securities and cumulative translation adjustments. A summary of the comprehensive income (loss) for the periods indicated is as follows (in thousands):
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income |
$ | 26,557 | $ | 21,090 | $ | 47,176 | $ | 37,105 | ||||||||
Cumulative translation adjustment |
(25,087 | ) | 6,530 | (21,526 | ) | 22,656 | ||||||||||
Unrealized gain on available-for-sale securities |
3 | 25 | (7 | ) | 58 | |||||||||||
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Comprehensive income (loss) |
1,473 | 27,645 | 25,643 | 59,819 | ||||||||||||
Comprehensive (income) loss attributable to noncontrolling interest |
84 | (57 | ) | 18 | (143 | ) | ||||||||||
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Comprehensive income (loss) attributable to TIBCO Software Inc. |
$ | 1,557 | $ | 27,588 | $ | 25,661 | $ | 59,676 | ||||||||
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The comprehensive income (loss) of the noncontrolling interest includes the portion of net income and translation adjustment related of our majority-owned subsidiaries.
14. | PROVISION FOR INCOME TAXES |
The effective tax rate was approximately 21% and 22% for the three months ended May 31, 2012 and 2011, respectively, and approximately 18% and 18% for the six months ended May 31, 2012 and 2011, respectively.
In the three months ended February 28, 2012, we recognized a discrete benefit of $1.8 million primarily related to the lapse of various statutes of limitations and a true-up for prior period withholding taxes. In the three months ended February 28, 2011, we recognized a discrete benefit of $3.2 million tax benefit primarily related to lapses of statutes of limitations and the reinstatement of the federal research and development credit.
In the three months ended May 31, 2012, we recognized a discrete provision of $3.1 million primarily related to estimated withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit. We recognize these as discrete items because of the high variability of withholding tax rates by country and the difficulty in forecasting the exact country of future revenue.
The provision for the six month periods ended May 31, 2012 and 2011 reflects a forecasted annual tax rate of 16% and 26%, respectively, offset by discrete items which are booked in the period they occur. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, the release of the valuation allowance on certain domestic tax assets (fiscal year 2011), domestic manufacturing incentives, and federal and state research and development credits (federal R&D credit expired on December 31, 2011), partially offset by the impact of certain stock compensation charges and state income taxes.
For California state taxation we elected the single sales factor apportionment; we expect that the election will reduce our future taxable income and thus may affect the extent to which we can benefit from $10.0 million in deferred tax assets from research and development credit carryforwards. If we determine that it is more likely than not that we will not be able to fully utilize these credits, we will be required to book a valuation allowance against theses deferred tax assets.
During the three months ended May 31, 2012, the amount of gross unrecognized tax benefits increased by approximately $2.9 million primarily due to current period exposures. The total amount of gross unrecognized tax benefits was $48.2 million as of May 31, 2012, of which $29.0 million would benefit tax expense if realized. We elected to include interest expense and penalties accrued on unrecognized tax benefits as a component of our income tax expense. We do not expect any significant changes to the amount of unrecognized tax benefit within the next twelve months.
20
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
We are subject to periodic corporate income tax audits in both the United States and foreign jurisdictions. As of May 31, 2012 we have several tax audits at various stages of completion. We believe that we have provided adequate reserves to cover any potential audit adjustments. The statute of limitations for our fiscal years 1994 through 2011 remains open for U.S. purposes. Most foreign jurisdictions have statutes of limitations that range from three to six years.
15. | NET INCOME PER SHARE |
The following table sets forth the computation of basic and diluted net income per share for the periods indicated (in thousands, except per share data):
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net income attributable to TIBCO Software Inc. |
$ | 26,492 | $ | 21,046 | $ | 47,133 | $ | 36,999 | ||||||||
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Weighted-average shares of common stock used to compute basic net income per share |
160,437 | 161,911 | 160,949 | 161,207 | ||||||||||||
Effect of dilutive common stock equivalents: |
||||||||||||||||
Stock options |
7,140 | 10,197 | 7,224 | 10,226 | ||||||||||||
Stock awards |
1,879 | 2,558 | 1,989 | 2,643 | ||||||||||||
ESPP |
21 | | 11 | | ||||||||||||
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Weighted-average shares of common stock used to compute diluted net income per share |
169,477 | 174,666 | 170,173 | 174,076 | ||||||||||||
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Net income per share attributable to TIBCO Software Inc.: |
||||||||||||||||
Basic |
$ | 0.17 | $ | 0.13 | $ | 0.29 | $ | 0.23 | ||||||||
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Diluted |
$ | 0.16 | $ | 0.12 | $ | 0.28 | $ | 0.21 | ||||||||
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The following potential common stock equivalents are not included in the diluted net income per share calculation above because their effect was anti-dilutive for the periods indicated (in thousands):
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Stock options |
1,612 | 886 | 1,762 | 634 | ||||||||||||
Stock awards |
17 | 540 | 20 | 270 | ||||||||||||
Convertible senior notes |
5,346 | | 2,615 | | ||||||||||||
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Total anti-diluted common stock equivalents |
6,975 | 1,426 | 4,397 | 904 | ||||||||||||
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In fiscal year 2010, we granted 4.1 million performance-based restricted stock units (PRSUs) that contain performance metrics based on the attainment and maintenance of specified non-GAAP EPS goals. If the performance criteria are achieved, these PRSUs will be considered outstanding for the purpose of computing diluted EPS if the effect is dilutive. The dilutive impact of these awards will be deferred until the performance criteria have been met which at the earliest is as of the first quarter of fiscal year 2013.
Anti-dilutive potential common stock equivalents for the three and six months ended May 31, 2012 include the weighted effect of the 11.9 million shares that could be issued under the Notes if we experience substantial increases in our common stock price. Under the treasury stock method, the Notes will generally have a dilutive impact on net income per share if our average stock price for the period exceeds the conversion price for the Notes. On conversion of a Note, however, we will deliver cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, only for any conversion value greater than the principal amount, we will deliver shares of common stock.
21
TIBCO SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
16. | SEGMENT INFORMATION |
We operate our business in one operating segment: the development and marketing of a suite of infrastructure software. Our chief operating decision maker is our Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.
Our revenue, organized by the following geographic regions: (i) Americas; (ii) Europe, the Middle East and Africa (EMEA); and (iii) Asia Pacific and Japan (APJ), based on the location at which each sale originates, is summarized as follows (in thousands):
Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Americas: |
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United States |
$ | 121,588 | $ | 103,849 | $ | 229,192 | $ | 199,537 | ||||||||
Other Americas |
9,860 | 8,867 | 19,386 | 19,792 | ||||||||||||
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Total Americas |
131,448 | 112,716 | 248,578 | 219,329 | ||||||||||||
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EMEA: |
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United Kingdom |
21,929 | 22,019 | 46,333 | 38,361 | ||||||||||||
Other EMEA |
62,589 | 59,249 | 127,062 | 103,972 | ||||||||||||
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Total EMEA |
84,518 | 81,268 | 173,395 | 142,333 | ||||||||||||
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APJ |
31,397 | 22,437 | 51,092 | 40,100 | ||||||||||||
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$ | 247,363 | $ | 216,421 | $ | 473,065 | $ | 401,762 | |||||||||
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Our property and equipment by major country are summarized as follows (in thousands):
May 31, 2012 |
November 30, 2011 |
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Property and equipment, net: |
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United States |
$ | 83,283 | $ | 83,500 | ||||
United Kingdom |
1,173 | 1,386 | ||||||
Other |
9,070 | 4,985 | ||||||
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$ | 93,526 | $ | 89,871 | |||||
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17. | STOCK REPURCHASE PROGRAMS |
On March 29, 2012, we announced that our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $300.0 million of our outstanding common stock from time to time in the open market or through privately negotiated transactions. In connection with the approval of this program, our Board of Directors also terminated our previous $300.0 million stock repurchase program from December 2010, and the remaining authorized amount of $38.4 million under the December 2010 stock repurchase program was canceled.
During the six months ended May 31, 2012, we repurchased 6.5 million shares for $188.5 million under the stock repurchase programs, including 3.6 million shares for $121.0 million in connection with our issuance of the Notes during the three months ended May 31, 2012.
In connection with the repurchase activities during the six months ended May 31, 2012, we classified $59.9 million of the excess purchase price over the par value of our common stock to retained earnings.
22
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements relate to expectations concerning future events or matters that are not historical facts. Words such as projects, believes, anticipates, plans, expects, intends, strategy, continue, will, estimate, forecast, and similar words and expressions are intended to identify forward-looking statements, although these words are not the only means of identifying these statements. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including, but not limited to, the factors set forth in Part II, Item 1A. Risk Factors. This discussion should be read in conjunction with our Consolidated Financial Statements and accompanying notes and with our Annual Report on Form 10-K for the year ended November 30, 2011 and with our quarterly Condensed Consolidated Financial Statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q . All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ.
Executive Overview
Our products are currently licensed by companies worldwide in diverse industries such as energy, financial services, government, insurance, life sciences, logistics, manufacturing, retail, telecommunications and transportation. We sell our products through a direct sales force and through alliances with leading software vendors and system integrators.
Our revenue consists primarily of license and maintenance fees from our customers, distributors and partners (including system integrators, resellers, professional service organizations and business partners) who embed our software in their products. In addition, we receive fees from our customers for providing consulting services. Our revenue is generally derived from a diverse customer base. No single customer represented greater than 10% of our total revenue for the first six months of fiscal year 2012. As of May 31, 2012, no single customer had a balance in excess of 10% of our net accounts receivable. We establish allowances for doubtful accounts based on our evaluation of collectability and an allowance for returns and discounts based on specifically identified credits and historical experience.
For the second quarter of fiscal year 2012, we recorded total revenue of $247.4 million, an increase of 14% from the second quarter of fiscal year 2011. License revenue was $92.6 million, an increase of 13% from the second quarter of fiscal year 2011. In addition, we generated cash flow from operations of $116.9 million in the second quarter of fiscal year 2012. Diluted earnings per share under generally accepted accounting principles in the United States of America (GAAP) was $0.16 in the second quarter of fiscal year 2012 as compared to $0.12 for the second quarter of fiscal year 2011. We ended the quarter with $647.3 million in cash, cash equivalents and short-term investments. We issued $600 million of convertible senior notes and spent $121.0 million to repurchase shares of our common stock during the second fiscal quarter.
During the second fiscal quarter, we also acquired LogLogic, Inc. (LogLogic), a provider of scalable log and security management platforms for $131.6 million, net of cash acquired.
We currently intend to grow our business by pursuing key initiatives to: broaden our product platform through internal development and acquisitions; increase our sales capacity by expanding our direct sales organization and developing our channel partnerships; expand our product offerings to new vertical markets; and employ marketing programs to increase awareness of us and our products among existing and prospective customers. Whether or not we are successful depends on our ability to: appropriately manage our expenses as we grow our organization; identify or acquire companies or assets at attractive valuations; enter into beneficial channel relationships; develop new products; and successfully execute our marketing and sales strategies.
Critical Accounting Policies, Judgments and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different
23
assumptions or conditions. On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. We also discuss our critical accounting estimates on a regular basis with the Audit Committee of our Board of Directors.
We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, returns and discounts, stock-based compensation, business combination, impairment of goodwill, intangible and long-lived assets, and accounting for income taxes have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. In addition in our second quarter, we estimated the discount rate based on market interest rates to determine the discount on the convertible senior notes which will be amortized as interest expense over the term of the notes. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results. The critical accounting estimates associated with these policies are described in Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations of our 2011 Annual Report on Form 10-K for the fiscal year ended November 30, 2011.
Recent Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 2 to our Consolidated Financial Statements included in our 2011 Annual Report on Form 10-K for the fiscal year ended November 30, 2011.
24
Results of Operations
For purposes of presentation, we have indicated the second quarter of fiscal years 2012 and 2011 as ended on May 31, 2012 and May 31, 2011, respectively; whereas in fact, the second quarter of fiscal years 2012 and 2011 actually ended on June 3, 2012 and May 29, 2011, respectively. There were 91 days in the second quarter of fiscal years 2012 and 2011. All amounts presented in the tables in the following sections of our Results of Operations are stated in thousands of dollars, except for percentages and unless otherwise stated.
The following table sets forth the components of our Results of Operations as percentages of total revenue for the periods indicated:
Three Months Ended May 31, |
Six Months Ended May 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenue: |
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License |
37 | % | 38 | % | 37 | % | 38 | % | ||||||||
Service and maintenance |
63 | 62 | 63 | 62 | ||||||||||||
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Total revenue |
100 | 100 | 100 | 100 | ||||||||||||
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Cost of revenue: |
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License |
4 | 5 | 4 | 5 | ||||||||||||
Service and maintenance |
24 | 24 | 25 | 24 | ||||||||||||
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Total cost of revenue |
28 | 29 | 29 | 29 | ||||||||||||
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Gross profit |
72 | 71 | 71 | 71 | ||||||||||||
Operating expenses: |
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Research and development |
16 | 17 | 16 | 17 | ||||||||||||
Sales and marketing |
32 | 32 | 33 | 33 | ||||||||||||
General and administrative |
7 | 7 | 7 | 7 | ||||||||||||
Amortization of acquired intangible assets |
2 | 2 | 2 | 2 | ||||||||||||
Acquisition related and other |
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Restructuring adjustment |
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Total operating expenses |
57 | 58 | 58 | 59 | ||||||||||||
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Income from operations |
15 | 13 | 13 | 12 | ||||||||||||
Interest income |
| | | | ||||||||||||
Interest expense |
(2 | ) | | (1 | ) | (1 | ) | |||||||||
Other income (expense), net |
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Income before provision for income taxes and noncontrolling interest |
13 | 13 | 12 | 11 | ||||||||||||
Provision for income taxes |
2 | 3 | 2 | 2 | ||||||||||||
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Net income |
11 | 10 | 10 | 9 | ||||||||||||
Less: Net income attributable to noncontrolling interest |
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Net income attributable to TIBCO Software Inc. |
11 | % | 10 | % | 10 | % | 9 | % | ||||||||
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Our Results of Operations include incremental revenue and costs related to the acquisitions of LogLogic, Nimbus and Loyalty Lab. In connection with these acquisitions, we have incurred additional expenses, including amortization of intangible assets and acquired technology; stock-based compensation; personnel and related costs; facility and infrastructure costs; and other charges.
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Total Revenue
Our total revenue consisted primarily of license, service and maintenance fees from our customers, distributors and partners.
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Total revenue |
$ | 247,363 | $ | 216,421 | 14 | % | $ | 473,065 | $ | 401,762 | 18 | % |
Total revenue in the second quarter of fiscal year 2012 increased by $30.9 million, or 14%, compared to the same quarter last year. The increase was primarily comprised of a $10.6 million, or 13%, increase in license revenue and a $20.3 million, or 15%, increase in service and maintenance revenue. Total revenue for the six months ended May 31, 2012 increased by $71.3 million, or 18%, compared to the same period last year.
For the six months ended May 31, 2012, we experienced an increase in total revenue in all geographic regions compared to the same periods last year. See Note 16 to our Condensed Consolidated Financial Statements for total revenue by region. The percentages of total revenue from the geographic regions are summarized as follows:
Three Months Ended May 31, |
Six Months Ended May 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Americas |
53 | % | 52 | % | 52 | % | 55 | % | ||||||||
EMEA |
34 | 38 | 37 | 35 | ||||||||||||
APJ |
13 | 10 | 11 | 10 | ||||||||||||
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100 | % | 100 | % | 100 | % | 100 | % | |||||||||
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License Revenue
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
License revenue |
$ | 92,581 | $ | 81,974 | 13 | % | $ | 174,896 | $ | 152,059 | 15 | % | ||||||||||||
Percentage of total revenue |
37 | % | 38 | % | 37 | % | 38 | % |
Our license revenue for the three months and six months ended May 31, 2012 and 2011 was derived from the following three product lines: service oriented architecture (SOA) and core infrastructure; business optimization; and process automation and collaboration. The percentages of license revenue from the three product lines are summarized as follows:
Three Months Ended May 31, |
Six Months Ended May 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
SOA and core infrastructure |
55 | % | 57 | % | 56 | % | 56 | % | ||||||||
Business optimization |
31 | 34 | 32 | 34 | ||||||||||||
Process automation and collaboration |
14 | 9 | 12 | 10 | ||||||||||||
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100 | % | 100 | % | 100 | % | 100 | % | |||||||||
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26
Our license revenue in a particular period is dependent upon the timing, number and size of license deal. Selected data about our license deals recognized for the respective periods is summarized as follows:
Three Months Ended May 31, |
Six Months Ended May 31, |
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2012 | 2011 | 2012 | 2011 | |||||||||||||
Number of license deals of $1.0 million or more |
20 | 21 | 40 | 35 | ||||||||||||
Number of license deals of $0.1 million or more |
137 | 119 | 239 | 227 | ||||||||||||
Average size of license deals of $0.1 million or more (in millions) |
$ | 0.6 | $ | 0.6 | $ | 0.7 | $ | 0.6 |
Cost of License Revenue
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Cost of license revenue |
$ | 9,401 | $ | 9,710 | (3 | %) | $ | 18,441 | $ | 18,637 | (1 | %) | ||||||||||||
Percentage of total revenue |
4 | % | 5 | % | 4 | % | 5 | % | ||||||||||||||||
Percentage of license revenue |
10 | % | 12 | % | 11 | % | 12 | % |
Cost of license revenue mainly consisted of amortization of developed technology acquired through acquisitions and royalty costs. Cost of license revenue in the second quarter of fiscal year 2012 decreased by $0.3 million, or 3%, compared to the same quarter last year. Cost of license revenue for the six months ended May 31, 2012 decreased by $0.2 million, or 1%, compared to the same period last year.
Service and Maintenance Revenue and Cost
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Service and maintenance revenue |
$ | 154,782 | $ | 134,447 | 15 | % | $ | 298,169 | $ | 249,703 | 19 | % | ||||||||||||
Percentage of total revenue |
63 | % | 62 | % | 63 | % | 62 | % | ||||||||||||||||
Cost of service and maintenance revenue |
$ | 59,486 | $ | 52,017 | 14 | % | $ | 116,536 | $ | 96,037 | 21 | % | ||||||||||||
Percentage of total revenue |
24 | % | 24 | % | 25 | % | 24 | % | ||||||||||||||||
Percentage of service and maintenance revenue |
38 | % | 39 | % | 39 | % | 38 | % |
Service and maintenance revenue in the second quarter of fiscal year 2012 increased by $20.3 million, or 15%, compared to the same quarter last year. Service and maintenance revenue for the six months ended May 31, 2012 increased by $48.5 million, or 19%, compared to the same period last year. Maintenance revenue was 63% and professional services and training revenue was 37% of total service and maintenance revenue for both the three and six months ended May 31, 2012. The increase for the three months and six months ended May 31, 2012 was primarily due to continued growth in our installed software base and an increase in both the number and size of consulting engagements, reflecting our increased focus on providing more services to our customers.
Cost of service and maintenance consisted primarily of compensation for professional services, customer support personnel and third-party contractors and associated expenses related to providing consulting services.
Cost of service and maintenance in the second quarter of fiscal year 2012 increased by $7.5 million, or 14%, compared to the same quarter last year. The increase in absolute dollars was primarily due to a $6.4 million increase in employee-related expenses.
Cost of service and maintenance for the six months ended May 31, 2012 increased by $20.5 million, or 21%, compared to the same period last year. The increase was primarily due to a $15.2 million increase in employee related expenses, a $1.6 million increase in travel costs, a $1.1 million increase in sub-contract costs and a $1.0 million increase in facility expenses.
27
The increase in employee-related expenses for both periods was primarily due to increased headcount and an increase in professional services and customer support staff related to increased professional services projects and services revenue compared to the same period last year.
Research and Development Expenses
Research and development expenses consisted primarily of employee-related expenses, including salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support, third-party contractor fees and related costs associated with the development and enhancement of our products.
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Research and development expenses |
$ | 38,605 | $ | 36,175 | 7 | % | $ | 75,926 | $ | 68,861 | 10 | % | ||||||||||||
Percentage of total revenue |
16 | % | 17 | % | 16 | % | 17 | % |
Research and development expenses in the second quarter of fiscal year 2012 increased by $2.4 million, or 7%, compared to the same quarter last year. The increase was primarily due to a $1.3 million increase in employee-related expenses.
Research and development expenses for the six months ended May 31, 2012 increased by $7.1 million, or 10%, compared to the same period last year. The increase was primarily due to a $5.6 million increase in employee-related expenses.
The increase in employee-related expenses for both periods compared to last year was primarily due to an increase in headcount, partly due to recent acquisitions.
Sales and Marketing Expenses
Sales and marketing expenses consisted primarily of employee-related expenses, including sales commissions, salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support, related costs of our direct sales force and marketing staff, and the costs of marketing programs, including customer conferences, promotional materials, trade shows, advertising and related travel expenses.
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Sales and marketing expenses |
$ | 78,923 | $ | 68,909 | 15 | % | $ | 154,641 | $ | 131,432 | 18 | % | ||||||||||||
Percentage of total revenue |
32 | % | 32 | % | 33 | % | 33 | % |
Sales and marketing expenses in the second quarter of fiscal year 2012 increased by $10.0 million, or 15%, compared to the same quarter last year. The increase was primarily due to a $6.8 million increase in employee-related expenses and a $1.4 million increase in travel expenses.
Sales and marketing expenses for the six months ended May 31, 2012 increased by $23.2 million, or 18%, compared to the same period last year. The increase was primarily due to a $16.4 million increase in employee-related expenses, a $3.5 million increase in travel costs and a $1.4 million increase in marketing costs.
The increase in employee-related expenses for both periods compared to last year was primarily due to an increase in headcount. The increase in travel and marketing expenses was due to an expansion of sales and marketing activities.
General and Administrative Expenses
General and administrative expenses consisted primarily of employee-related expenses, including salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support and related costs for general corporate functions including executive, legal, finance, accounting and human resources, and also included accounting, tax and legal fees and charges.
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
General and administrative expenses |
$ | 17,407 | $ | 15,573 | 12 | % | $ | 35,002 | $ | 28,490 | 23 | % | ||||||||||||
Percentage of total revenue |
7 | % | 7 | % | 7 | % | 7 | % |
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General and administrative expenses in the second quarter of fiscal year 2012 increased by $1.8 million, or 12%, compared to the same quarter last year. The increase was primarily due to a $2.7 million increase in employee-related expenses.
General and administrative expenses for the six months ended May 31, 2012 increased by $6.5 million, or 23%, compared to the same period last year. The increase was primarily due to a $4.9 million increase in employee-related costs, a $1.1 million increase in fees and charges and a $1.0 million increase in sub-contract costs.
The increase in employee-related expenses was primarily due to an increase in headcount. The increase in fees and charges and sub-contract costs was due to increased consulting projects, professional services, and other fees and charges.
Amortization of Acquired Intangible Assets
Intangible assets acquired through corporate acquisitions are comprised of the expected value of developed technologies, patents, trademarks, established customer bases and non-compete agreements, as well as maintenance and OEM customer royalty agreements. Amortization of developed technologies is recorded as a cost of revenue, and amortization of other acquired intangible assets is included in operating expenses.
Three Months Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Amortization of acquired intangible assets: |
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In cost of revenue |
$ | 3,899 | $ | 4,948 | $ | 7,164 | $ | 9,743 | ||||||||||||||||
In operating expenses |
5,653 | 5,030 | 10,201 | 9,921 | ||||||||||||||||||||
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Total amortization |
$ | 9,552 | $ | 9,978 | (4 | )% | $ | 17,365 | $ | 19,664 | (12 | )% | ||||||||||||
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Percentage of total revenue |
4 | % | 5 | % | 4 | % | 5 | % |
Acquisition Related and Other Expenses
Acquisition related and other expenses consisted of costs incurred after the issuance of a definitive term sheet for a particular transaction (whether or not such transaction is ultimately completed, remains in-process or is not completed) and included legal, banker, accounting and other advisory fees of third parties and severance costs for employees of the acquired company that are terminated within 90 days of the acquisition date.
Three Months Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Acquisition related and other expenses: |
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Transitional and other employee related costs |
$ | | $ | | $ | | $ | 10 | ||||||||||||||||
Professional services fees and other |
929 | 278 | 1,325 | 813 | ||||||||||||||||||||
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Total acquisition related and other expenses |
$ | 929 | $ | 278 | 2 | % | $ | 1,325 | $ | 823 | 60 | % | ||||||||||||
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Percentage of total revenue |
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Restructuring Charges (Adjustment)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
May 31, | May 31, | |||||||||||||||||||||||
2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Restructuring charges (adjustment) |
$ | (400 | ) | $ | | * | % | $ | (519 | ) | $ | (33 | ) | * | % | |||||||||
As percent of total revenue |
| % | | % | | % | | % |
* | Percentage change has been excluded as it is not meaningful for comparison purposes. |
29
Stock-Based Compensation Cost
Stock-based compensation cost is included in our Condensed Consolidated Statements of Operations corresponding to the same functional lines as cash compensation paid to the same employees in the respective departments as follows:
Three Months
Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Stock-based compensation costs: |
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Cost of revenue |
1,116 | 957 | 2,397 | 1,831 | ||||||||||||||||||||
Research and development |
3,353 | 3,003 | 7,359 | 5,652 | ||||||||||||||||||||
Sales and marketing |
4,694 | 4,077 | 9,986 | 8,290 | ||||||||||||||||||||
General and administrative |
5,231 | 3,750 | 9,976 | 7,495 | ||||||||||||||||||||
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Total in operating expenses |
13,278 | 10,830 | 27,321 | 21,437 | ||||||||||||||||||||
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Total |
$ | 14,394 | $ | 11,787 | 22 | % | $ | 29,718 | $ | 23,268 | 28 | % | ||||||||||||
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Percentage of total revenue |
6 | % | 5 | % | 6 | % | 6 | % |
Total stock-based compensation costs in the second quarter of fiscal year 2012 increased by $2.6 million, or 22%, compared to the same quarter last year primarily due to a $2.2 million increase in stock-based compensation costs related to performance-based restricted stock units (PRSUs).
Total stock-based compensation costs for the six months ended May 31, 2012 increased by $6.5 million, or 28%, compared to the same period last year. The increase was primarily due to a $3.5 million increase in stock-based compensation costs related to PRSUs and a $2.1 million increase in stock-based compensation costs related to grants of service-based stock awards.
Interest Income
Three Months Ended May 31, |
Six Months Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Interest income |
$ | 221 | $ | 448 | (51 | )% | $ | 476 | $ | 930 | (49 | )% | ||||||||||||
Percentage of total revenue |
| % | | % | | % | | % |
Interest Expense
Three Months Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Interest expense |
$ | 4,395 | $ | 951 | 362 | % | $ | 5,860 | $ | 1,997 | 193 | % | ||||||||||||
Percentage of total revenue |
2 | % | | % | 1 | % | | % |
Interest expense is primarily related to the outstanding borrowings under our convertible senior notes, mortgage note and credit facility.
Interest expense increased in the second quarter of fiscal year 2012 compared to the same quarter last year by $3.4 million, or 362%, due to the issuance of the convertible senior notes and our borrowing under the credit facility. See Note 8 and Note 9 to our Condensed Consolidated Financial Statements for further detail on the credit facility, mortgage note and the convertible senior notes.
30
Other Income (Expense), Net
Other income (expense) included foreign exchange gains and losses, realized gains and losses on investments, and other miscellaneous income and expense items.
Three Months Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Other income (expense), net: |
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Foreign exchange gain (loss) |
$ | 566 | $ | (1,146 | ) | $ | 1,104 | $ | (1,452 | ) | ||||||||||||||
Realized gain (loss) on investments |
3 | 6 | 425 | 20 | ||||||||||||||||||||
Other income (expense) |
3 | 4 | 19 | 6 | ||||||||||||||||||||
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Total other income (expense), net |
$ | 572 | $ | (1,136 | ) | 150 | % | $ | 1,548 | $ | (1,426 | ) | 209 | % | ||||||||||
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Percentage of total revenue |
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Other income (expense) increased in the second quarter of fiscal year 2012 compared to the same quarter last year by $1.7 million primarily due to a $1.7 million difference in foreign exchange gains. Other income (expense) increased by $3.0 million for the six months ended May 31, 2012 compared to the same period last year primarily due to a $2.6 million difference in foreign exchange gains for the first six months of fiscal year 2012.
Provision for Income Taxes
Three Months Ended May 31, |
Six Months
Ended May 31, |
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2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
Provision for income |
$ | 7,200 | $ | 6,000 | 20 | % | $ | 10,500 | $ | 7,996 | 31 | % | ||||||||||||
Effective tax rate |
21 | % | 22 | % | 18 | % | 18 | % |
In the three months ended May 31, 2012 we recognized a discrete provision of $3.1 million primarily related to estimated withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit. We recognize these as discrete items because of the high variability of withholding tax rates by country and the difficulty in forecasting the exact country of future revenue.
In the three months ended February 28, 2012, we recognized a discrete benefit of $1.8 million primarily related to the lapse of various statutes of limitations and a true-up for prior period withholding taxes. In the three months ended February 28, 2011, we recognized a discrete benefit of $3.2 million tax benefit primarily related to lapses of statutes of limitations and the reinstatement of the federal research and development credit.
The tax expense for the six-month periods ended May 31, 2012 and 2011 reflects a forecasted tax rate of 16% and 26%, respectively, offset by discrete items which are recognized in the period they are incurred. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, a release of the valuation allowance on certain domestic tax assets (fiscal year 2011), domestic manufacturing incentives, and research and development credits (federal R&D credit expired on December 31, 2011), partially offset by the impact of certain stock compensation charges and state income taxes.
We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differences in the timing of the recognition of revenue and expense for tax and financial statement purposes. Our temporary differences primarily relate to stock-based compensation charges, amortization of intangible assets, fixed asset depreciation, deferred revenue and other similar items. For California state taxation we elected the single sales factor apportionment which might reduce our future taxable income and thus affect the extent to which we can benefit from $10.0 million in deferred tax assets from research and development credit carryforwards. If we determine that it is more likely than not that we will not be able to fully utilize these credits, we will be required to book a valuation allowance against the deferred tax assets.
With the exception of our subsidiaries in the United Kingdom and Japan, net undistributed earnings of our foreign subsidiaries are generally considered to be indefinitely reinvested, and accordingly, no provision for U.S. income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, we will be subject to U.S. income taxes to the extent that available net operating loss carryovers and foreign tax credits are not sufficient to eliminate the additional tax liability.
31
During the second quarter of fiscal year 2012, the amount of gross unrecognized tax benefits increased by approximately $2.9 million primarily due to current period exposures. The total amount of gross unrecognized tax benefits was $48.2 million as of May 31, 2012, of which $29.0 million would benefit tax expense if realized. We elected to include interest expense and penalties accrued on unrecognized tax benefits as a component of our income tax expense. The change in accrued interest and penalties during the second quarter of fiscal year 2012 was not material. We do not expect any significant changes to the amount of unrecognized tax benefit within the next twelve months. Recent statements from the Internal Revenue Service have indicated their intent to seek greater disclosure by companies of their reserves for uncertain tax positions.
We are subject to periodic corporate income tax audits in both the United States and foreign jurisdictions and there are several tax audits at various stages of completion as of May 31, 2012. We believe that we have provided adequate reserves to cover any potential audit adjustments. The statute of limitations for our fiscal years 1994 through 2011 remains open for U.S. purposes. Most foreign jurisdictions have statutes of limitations that range from three to six years.
Effective December 1, 2010, we changed our organizational operating structure which resulted in the centralization of the majority of our international operations in the Netherlands. As a result of the change, we anticipate that a portion of our consolidated pre-tax income will be subject to foreign tax at comparatively lower tax rates than the United States federal statutory tax rate. Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if the relative mix of United States and international income changes for any reason. Accordingly, there can be no assurance that our income tax rate will be less than the United States federal statutory rate in future periods.
Liquidity and Capital Resources
Current Cash Flows
As of May 31, 2012, we had cash and cash equivalents totaling $647.1 million, representing an increase of $339.0 million from November 30, 2011. As of May 31, 2012, $236.5 million of our cash and cash equivalents were held by our foreign subsidiaries in our foreign operations. Our current intention is to permanently reinvest the majority of our earnings from foreign operations. Our current plans do not anticipate a need to repatriate cash to fund our domestic operations. In the event cash from foreign operations in our foreign operations is needed to fund operations in the U.S., we would be subject to additional income taxes in the United States reduced by any foreign taxes paid on these earnings.
Net cash provided by operating activities in the six months ended May 31, 2012 was $116.9 million, resulting from net income of $47.2 million, $40.5 million in non-cash charges and $29.3 million net change in assets and liabilities. The non-cash charges primarily included depreciation and amortization, stock-based compensation and tax benefits related to stock benefit plans, less deferred income tax and excess tax benefits from stock-based compensation which are recorded in financing activities. Net change in assets and liabilities for the first six months of fiscal year 2012 included a decrease in accounts receivable, a decrease in prepaid expenses and other assets, a decrease in accounts payable, a decrease in accrued liabilities and restructuring costs and an increase in deferred revenue.
To the extent that non-cash items increase or decrease our future operating results, there will be no corresponding impact on our cash flows. After excluding the effects of these non-cash charges, the primary changes in cash flows relating to operating activities result from changes in working capital. Our primary source of operating cash flows is the collection of accounts receivable from our customers, including maintenance which is typically invoiced annually in advance. Our operating cash flows are also impacted by the timing of payments to our vendors for accounts payable and other liabilities. We generally pay our vendors and service providers in accordance with the invoice terms and conditions. The timing of cash payments in future periods will be impacted by the terms of our accounts payable arrangements.
Net cash used in investing activities was $143.6 million for the six months ended May 31, 2012, resulting primarily from cash used, net of cash acquired, of $131.6 million for the LogLogic acquisition, $11.2 million in capital expenditures and $1.1 million in restricted cash pledged as security.
Net cash provided by financing activities was $380.1 million for the six months ended May 31, 2012, resulting primarily from $584.5 million in net cash received in the issuance of the convertible senior notes, $116.6 million in net cash received from the
32
2011 Credit Facility, $17.3 million for the exercise of stock options and the sale of our common stock under our ESPP and $16.5 million in excess tax benefits from stock-based compensation, which were partially offset by $188.5 million of repurchases of shares of our common stock, $151.2 million payment of debt and $15.1 million in withholding taxes related to restricted stock net share settlement.
In April 2012, we issued convertible senior notes (the Notes) with an aggregate principal amount of $600.0 million due in 2032. We used approximately $121.0 million of the net proceeds from the offering to fund the purchase of approximately 3.6 million shares of our common stock concurrently with the offering of the Notes and approximately $150 million of the net proceeds to repay indebtedness outstanding under the 2011 Credit Facility, which was originally incurred to fund repurchases of our common stock and our acquisition of LogLogic.
On March 29, 2012, we announced that our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $300.0 million of our outstanding common stock from time to time in the open market or through privately negotiated transactions. The repurchase of shares of our common stock concurrent with the issuance of the Notes during the second quarter of fiscal year 2012 was made pursuant to this stock repurchase program. In connection with the approval of this program, our Board of Directors also terminated our previous $300.0 million stock repurchase program from December 2010, and the remaining authorized amount of $38.4 million under the December 2010 stock repurchase program available for repurchasing common stock was canceled.
We currently anticipate that our operating expenses will grow in absolute dollars for the foreseeable future, and we intend to fund our operating expenses primarily through cash flows from operations. We believe that our current cash, cash equivalents and short-term investments and amounts available under our line of credit together with expected cash flows from operations will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures, and currently approved stock repurchases for at least the next twelve months. Should demand for our products and services significantly decline over the next twelve months, the available cash provided by operations could be adversely impacted.
Convertible Senior Notes
In April 2012, we issued convertible senior notes in an aggregate principal amount of $600.0 million due May 1, 2032. The Notes bear interest at a rate of 2.25% per annum. The Notes do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by us. Each $1,000 principal amount of Notes is initially convertible, at the option of the holders, at a rate of 19.7750 shares of our common stock, which represents an initial conversion price of approximately $50.57 per share, which is subject to adjustment upon the occurrence of certain events specified in the indenture. On conversion of a Note, we will deliver cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, for any conversion value greater than the principal amount, we will deliver shares of common stock. Holders may convert Notes prior to February 1, 2032, and other than during the period from February 1, 2017 to May 5, 2017, under the following circumstances: (1) if the Notes are called for redemption, at any time prior to the redemption date; (2) during any fiscal quarter commencing after the fiscal quarter ending on September 2, 2012, if our last reported sale price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (3) during any five consecutive trading day period when the trading price per $1,000 principal amount of Notes is less than 98% of the product of the last reported sale price of a share of Common Stock and the conversion rate; and (4) upon the occurrence of certain distributions or corporate events as specified in the indenture governing the Notes. From February 1, 2017 to May 5, 2017, and from February 1, 2032 until the maturity date, holders may convert Notes at any time, regardless of the foregoing circumstances.
After May 5, 2017, we may redeem for cash all or part of the Notes. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. Holders may require us to repurchase all or a portion of their Notes on May 5, 2017, May 1, 2022 and May 1, 2027 in cash at a price equal to the principal amount, plus accrued and unpaid interest.
Upon the occurrence of a fundamental change under the indenture for the Notes, such as in the event of a change in control, the holders may require us to repurchase all or a portion of their Notes at the principal amount of the Notes plus accrued and unpaid interest. Following certain corporate transactions that constitute a change of control, the conversion rate may increase for a holder who elects to convert the Notes. Upon conversion, we will deliver an amount of cash and a number of shares of common stock, if any, equal to the sum of the daily settlement amounts for each daily volume weighted average price in the 35 day observation period for such Note as determined pursuant to the indenture for the Notes.
Credit Facility
In November 2009, we entered into the three year $150.0 million unsecured revolving credit facility. In December 2011, we and one of our subsidiaries entered into an Amended and Restated Credit Agreement. The 2011 Credit Facility matures on December 19, 2016 and provides for borrowings of up to $250.0 million with a sublimit for swing line
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loans of up to $10.0 million and standby letters of credit in a face amount of up to $50.0 million. We have an option to request that the lenders increase the available commitments by up to an additional $100.0 million for total borrowings of up to $350 million. In May 2012, we amended certain covenants and other terms of the 2011 Credit Facility.
Revolving loans accrue interest at a per annum rate based on, at our option, either (i) the base rate plus a margin ranging from 0.25% to 1.25%, depending on TIBCOs consolidated leverage ratio or (ii) the LIBOR rate plus a margin ranging from 1.25% to 2.25%, depending on TIBCOs consolidated leverage ratio, for various interest periods. The base rate is defined as the highest of (i) the administrative agents prime rate, (ii) the federal funds rate plus a margin equal to 0.50%, and (iii) the LIBOR rate for a one month interest period plus a margin of 1.00%. We are also obligated to pay commitment fees for the unused amount of the 2011 Credit Facility, letter of credit fees and other customary fees. Loan origination fees and issuance costs of approximately $3.4 million were incurred since consummation of the 2011 Credit Facility which will be amortized through interest expense over a period of five years. Under certain circumstances, a default interest rate of 2.00% above the applicable interest rate will apply on all obligations during the existence of an event of default under the 2011 Credit Facility.
We must maintain a minimum consolidated interest coverage ratio of 3.5:1.0 and a maximum consolidated leverage ratio of 3.25:1.00 in addition to other customary affirmative and negative covenants. The maximum consolidated leverage ratio decreases to 3.00:1.00 and then to 2.75:1.00 at the beginning of the second fiscal quarter of our fiscal years 2013 and 2014, respectively. As of May 31, 2012, we were in compliance with all covenants under this facility.
Line of Credit
We also have a $20.0 million revolving line of credit that matures in June 2013. The revolving Line of Credit is available for cash borrowings and for the issuance of letters of credit up to $20.0 million. The Line of Credit, as amended, contains financial covenants substantially identical to those of the 2011 Credit Facility, as well as other customary affirmative and negative covenants. As of May 31, 2012, we were in compliance with all covenants under the Line of Credit.
In connection with the mortgage note payable, we entered into an irrevocable letter of credit in the amount of $13.0 million collateralized under the Line of Credit which renews for successive one-year periods until the mortgage note payable has been satisfied in full. In addition, we have approximately $1.4 million of irrevocable letters of credit outstanding in connection with revenue transactions.
As of May 31, 2012, no other borrowings were outstanding under the Line of Credit.
Guarantee Credit Line
We have a revolving guarantee credit line of approximately $12.4 million available for the issuance of bank guarantees denominated in foreign currency. Issued bank guarantees were approximately $11.9 million and $11.4 million as of May 31, 2012 and November 30, 2011, respectively, and were collateralized by pledging the equivalent amount under restricted cash as required under our guarantee credit line. Other various contractual commitments also require us to pledge cash as security and record this cash under restricted cash. As of May 31, 2012 and November 30, 2011, we had restricted cash of $13.9 million and $13.8 million, respectively, which is included in other assets on our Condensed Consolidated Balance Sheets.
Commitments
In June 2003, we purchased our corporate headquarters with a $54.0 million mortgage note to lower our operating costs. The mortgage note carries a 20-year amortization and a fixed annual interest rate of 5.50%. The principal balance of $34.4 million that will be remaining at the end of the 10-year term will be due as a final lump sum payment on July 1, 2013. Under the applicable terms of the mortgage note agreements, we are prohibited from acquiring another company without prior consent from the lender unless we maintain at least $50.0 million of cash or cash equivalents and comply with other non-financial terms as defined in the agreements. We were in compliance with all covenants under the mortgage note agreements as of May 31, 2012.
In conjunction with the purchase of our corporate headquarters, we entered into a 51-year lease of the land upon which the property is located. The lease was paid in advance for a total of $28.0 million, but is subject to adjustments every 10 years based upon changes in fair market value of the land. Should it become necessary, we have the option to prepay any rent increases as a result of a change in fair market value.
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As of May 31, 2012, our contractual commitments associated with indebtedness, lease obligations and restructuring were as follows (in thousands):
Remainder of 2012 |
Thereafter | |||||||||||||||||||||||||||
Total | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||||||||||
Commitments: |
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Debt principal |
$ | 637,513 | $ | 1,802 | $ | 35,711 | $ | | $ | | $ | | $ | 600,000 | ||||||||||||||
Debt interest |
70,602 | 8,569 | 14,783 | 13,500 | 13,500 | 13,500 | 6,750 | |||||||||||||||||||||
Operating leases (1) |
34,455 | 5,421 | 9,807 | 6,946 | 4,735 | 3,553 | 3,993 | |||||||||||||||||||||
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Total commitments |
$ | 742,570 | $ | 15,792 | $ | 60,301 | $ | 20,446 | $ | 18,235 | $ | 17,053 | $ | 610,743 | ||||||||||||||
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(1) | Operating leases included future minimum rent payments net of estimated sublease income for facilities that we have vacated pursuant to our restructuring activities. |
Future minimum lease payments under restructured non-cancelable operating leases are included in Accrued Restructuring Costs in our Condensed Consolidated Balance Sheets.
The above commitment table does not include approximately $24.2 million of long-term income tax liabilities due to the fact that we are unable to reasonably estimate the timing of these potential future payments.
Indemnification
Our indemnification obligations are summarized in Note 10 to our Condensed Consolidated Financial Statements.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to the impact of foreign currency fluctuations and interest rate changes.
Foreign Currency Risk
We conduct business in the Americas, EMEA and APJ and transact business in approximately 25 foreign currencies worldwide. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or changes in economic conditions in foreign markets.
We enter into forward contracts with financial institutions to manage our currency exposure related to net assets and liabilities denominated in foreign currencies, and these forward contracts are generally settled monthly. We do not enter into derivative financial instruments for trading purposes. We use natural hedges, for example, by offsetting exposures in net assets for one entity with net liabilities of the same currency for another entity. Generally, we manage our currency risk so that an increase or decrease in the value of our forward contracts would offset a corresponding decrease or increase in the US dollar value of net assets or liabilities exposed to the shift in that particular currency, thereby minimizing the impact on earnings. As of May 31, 2012, we had two outstanding forward contracts denominated in United States dollars and two outstanding forward contracts denominated in Euros that resulted in a net loss of $0.1 million.
We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries financial statements into U.S. dollars will lead to translation gains or losses, which are recorded net as a component of other comprehensive income.
Interest Rate Risk
Our investment policy is designed to protect and preserve invested funds by limiting default, market and investment risk. Our exposure to market rate risk for changes in interest rates relates primarily to interest paid on our credit facility and our investments.
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Currently, we maintain our cash in current accounts or money market funds. In general, money market funds are not considered to be subject to interest rate risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of May 31, 2012, our cash and cash equivalents totaled $647.1 million, of which $441.4 million was held in money market funds. As of May 31, 2012, a hypothetical 100 basis point increase in interest rates would not have a significant impact on the fair value of our investments.
Interest on borrowings under the 2011 Credit Facility is based at specified margins above either LIBOR or a base rate defined in the 2011 Credit Facility, whereas the interest rate on our Notes is fixed over its term. Our exposure to interest rate risk under the 2011 Credit Facility will depend on the extent to which we utilize such facility. As of May 31, 2012, the 2011 Credit Facility had a borrowing capacity of $250.0 million and with no outstanding borrowings. A hypothetical 100 basis point increase in the LIBOR or Prime Rate-based interest rate on the 2011 Credit Facility would result in an increase in our interest expense by $1.0 million per year for every $100.0 million borrowed. See Note 8 for a discussion of the 2011 Credit Facility.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, the design of a control system must reflect that there are resource constraints, thus, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the probability of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1. | LEGAL PROCEEDINGS |
Our legal proceedings are detailed in Note 11 to our Condensed Consolidated Financial Statements.
ITEM 1A. | RISK FACTORS |
In addition to the factors discussed elsewhere in this Form 10-Q, the following risk factors, as well as other factors of which we may be unaware or do not currently view as significant, could materially and adversely affect our future operating results and could cause actual events to differ materially from those predicted in the forward-looking statements we make about our business. These risk factors should be read in conjunction with the other information contained in our other SEC filings, including our Form 10-K for the fiscal year ended November 30, 2011.
Our future revenue is unpredictable, and we expect our quarterly operating results to fluctuate, which may cause our stock price to decline.
As a result of the evolving nature of the markets in which we compete and the size of our customer agreements, we have difficulty accurately forecasting our revenue in any given period. In addition to the factors discussed elsewhere in this section, a number of factors may cause our revenue to fall short of our expectations, or those of stock market analysts and investors, or cause fluctuations in our operating results, including:
| the relatively long sales cycles for many of our products; |
| the timing of our new products or product enhancements or any delays in such introductions; |
| the delay or deferral of customer implementation of our products; |
| changes in customer budgets and decision making processes that could affect both the timing and size of any transaction; |
| reduced spending in the industries that license our products; |
| our dependence on large deals, which, if such deals do not close, can greatly impact revenues for a particular quarter; |
| the timing, size and mix of orders from customers; |
| the deferral of license revenue to future periods due to the timing of the execution of an agreement or our ability to deliver the products; |
| the impact of our provision of services and customer-required contractual terms on our recognition of license revenue; |
| any unanticipated difficulty we encounter in integrating acquired businesses, products or technologies; |
| the tendency of some of our customers to wait until the end of a fiscal quarter or our fiscal year before placing an order in the hope of obtaining more favorable terms; |
| adverse economic or market conditions; |
| the amount and timing of operating costs and capital expenditures relating to the expansion of our operations and the evaluation of strategic transactions; and |
| changes in accounting rules, such as recording expenses for employee stock option grants and tax accounting, including accounting for uncertain tax positions. |
A substantial portion of our product license orders are usually received in the last month of each fiscal quarter, with a concentration of such orders in the final two weeks of the quarter. While we typically ship product licenses shortly after the receipt of an order, we may have license orders that have not shipped at the end of any given quarter. Because the amount of such product license orders may vary, the amount, if any, of such orders at the end of a particular quarter is not a reliable predictor of our future performance.
Because it is difficult for us to predict our quarterly operating results, period-to-period comparisons of our operating results may not be a good indication of our future performance. If, as a result of these difficulties, our revenues and operating results do not meet the expectations of our investors or securities analysts or fall below guidance we may provide to the market, the price of our common stock may decline.
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Uneven growth and periods of contraction in the infrastructure software market have caused our revenue to decline in the past and could cause our revenue or results of operations to fall below expectations in the future.
We earn a substantial portion of our revenue from licenses of our infrastructure software, including application integration software and sales of related services. We expect to earn substantially all of our revenue in the foreseeable future from sales of this software and the related services. Our future financial performance will depend on continued growth in the number of organizations demanding software and services for application integration and information delivery and companies seeking outside vendors to develop, manage and maintain this software for their critical applications. Lower spending by corporate and governmental customers around the world, which has had a disproportionate impact on information technology spending, has led to a reduction in sales in the past and may continue to do so in the future. Many of our potential customers have made significant investments in internally developed systems and would incur significant costs in switching to third-party products, which may substantially inhibit the growth of the market for infrastructure software. If the market fails to grow, or grows more slowly than we expect, our sales will be adversely affected. Also, even if corporate and governmental spending increases and companies make greater investments in information technology and infrastructure software, our revenue may not grow at the same pace.
Our success depends on our ability to overcome significant competition.
The market for our products and services is extremely competitive and subject to rapid change. We compete with a variety of large and small providers of infrastructure software, SOA, business optimization and process automation and collaboration, including companies such as IBM, Oracle, Pegasystems, Progress Software, SAP, and Software AG. We also face competition for certain aspects of our product and service offerings from major systems integrators, and our customers have alternatives to our proprietary software from open source software providers that provide software and intellectual property, typically without charging license fees, or from other competitors offering products through alternative business models, such as software as a service. Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition, and larger customer bases than we do. This may allow our present or future competitors to develop products comparable or superior to those we offer; adapt more quickly than we do to new technologies, evolving industry trends or customer requirements; or devote greater resources to the development, promotion and sale of their products than we do. For example, some of our competitors offer products outside our segment and routinely bundle these products with their infrastructure software products. Also, some of our competitors are expanding their competitive product offerings and strengthening their market position through increases in capital expenditures for internal research and development. Accordingly, we may not be able to compete effectively in our markets or against existing and future competitors, which could adversely affect our business and operating results.
Additionally, consolidation in the software industry has been a trend in recent years and is continuing at a rapid pace. Our current and potential competitors could make additional strategic acquisitions, consolidate their operations, or establish cooperative relationships among themselves or with other solution providers, allowing them to broaden their offerings of products and solutions and more effectively address the needs of our prospective customers, including acting as sole-source vendors for our customers. If any of this were to occur, it could adversely affect our business and operating results.
Our strategy contemplates future acquisitions that may result in our incurring unanticipated expenses or additional debt, difficulty in integrating our operations and dilution to our stockholders and may harm our operating results.
Our success depends in part on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. We have acquired and expect to continue to acquire complementary businesses, products or technologies as part of our corporate strategy. In this regard, we have made a number of strategic acquisitions in recent years. We do not know if we will be able to complete any future acquisitions or that we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees. Integrating any newly acquired business, product or technology could be expensive and time-consuming, could disrupt our ongoing business and financial performance, could distract our management, could increase our debt to finance such acquisition, could increase our capital expenditures to support such new business and could require us to manage larger and more complex operations. Therefore, we may not be able, either immediately post-acquisition or ever, to replicate the pre-acquisition revenues achieved by companies that we acquire or achieve the benefits of the acquisition we anticipated in valuing the businesses, products or technologies we acquire. Furthermore, the costs of integrating acquired companies in international transactions can be particularly high, due to, among other things, local laws and regulations. If we are unable to integrate any newly acquired entity, products or technology effectively, our business, financial condition and operating results would suffer. In addition, any amortization or impairment of acquired intangible assets, stock-based compensation or other charges resulting from the costs of acquisitions could harm our operating results.
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In addition, we may face competition for acquisition targets from larger and more established companies with greater financial resources. Also, in order to finance any acquisition, we may need to raise additional funds through public or private financings or use our cash reserves. In that event, we may not be able to raise additional funds or we could be forced to obtain equity or debt financing on terms that are not favorable to us or that result in dilution to our stockholders. Use of our cash reserves for acquisitions could limit our financial flexibility in the future. The terms of existing or future loan agreements may place limits on our ability to incur additional debt to finance acquisitions. If we are not able to acquire strategically attractive businesses, products or technologies, we may not be able to remain competitive in our industry or achieve our overall growth plans.
We may not be able to achieve our key initiatives and grow our business as anticipated.
While we currently intend to grow our business by pursuing key initiatives to: broaden our product platform through internal development and acquisitions; increase our sales capacity by expanding our direct sales organization and developing our channel partnerships; expand our product offerings to new vertical markets; and employ marketing programs to increase awareness of our company and our products among existing and prospective customers, we cannot assure you that we will be able to achieve these key initiatives. Our success depends on our ability to: appropriately manage our expenses as we grow our organization; identify or acquire companies or assets at attractive valuations; enter into beneficial channel relationships; develop new products; and successfully execute our marketing and sales strategies. If we are not able to execute on these actions, our business may not grow as we anticipated, and our operating results could be adversely affected.
Our intellectual property or proprietary rights could be misappropriated, which could force us to become involved in expensive and time-consuming litigation and could harm our business and results of operations.
We regard our intellectual property as critical to our success. Accordingly, we rely upon a combination of copyrights, service marks, trademarks, trade secret rights, patents, confidentiality agreements and licensing agreements to protect our intellectual property. Despite these protections, a third party could misappropriate our intellectual property. Any misappropriation of our proprietary information by third parties could harm our business, financial condition and operating results.
In addition, the laws of some countries do not provide the same level of protection of our proprietary information as do the laws of the United States. If our proprietary information or material were misappropriated or challenged, we might have to engage in litigation to protect it. We might not succeed in protecting our proprietary information if we initiate intellectual property litigation, and, in any event, such litigation would be expensive and time-consuming, could divert our managements attention away from running our business and could seriously harm our business.
Claims by others that our products may infringe their intellectual property rights may cause us to incur unexpected costs or prevent us from selling our products.
Third parties may claim that certain of our products infringe their patents or other intellectual property rights. In addition, our use of open source software components in our products may make us vulnerable to claims that our products infringe third-party intellectual property rights, in particular because many of the open source software components we may incorporate with our products may be developed by numerous independent parties over whom we exercise no supervision or control. Open source software is software that is covered by a license agreement which permits the user to liberally copy, modify and distribute the software, typically free of charge. Further, because patent applications in the United States and many other countries are not publicly disclosed at the time of filing, applications covering technology used in our software products may have been filed without our knowledge. We may be subject to legal proceedings and claims from time to time, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our licensees in connection with their use of our products. Our software license agreements typically provide for indemnification of our customers for intellectual property infringement claims. Intellectual property litigation, with or without merit, is expensive and time consuming, could cause product shipment delays and could divert our managements attention away from running our business and seriously harm our business. If we were to discover that our products violated the intellectual property rights of others, we would have to obtain licenses from these parties, which could require the payment of royalty or licensing fees, in order to continue marketing our products without substantial reengineering. We might not be able to obtain the necessary licenses on acceptable terms or at all, and if we could not obtain such licenses, we might not be able to reengineer our products successfully or in a timely fashion. If we fail to address any infringement issues successfully, we would be forced to incur significant costs, including damages and potentially satisfying indemnification obligations that we have to our customers, and we could be prevented from selling certain of our products.
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We operate internationally and face risks attendant to those operations.
We earn a significant portion of our total revenues from international sales generated through our foreign direct and indirect operations. As a result of these sales operations, we face a variety of risks, including:
| local political and economic instability; |
| tariffs, quotas and trade barriers and other varying regulatory or contractual requirements or limitations; |
| the engagement of activities by our employees, contractors, partners and agents, especially in countries with developing economies, that are prohibited by international and local trade and labor laws and other laws prohibiting corrupt payments to government officials, including the Foreign Corrupt Practices Act, the UK Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws; |
| restrictions on the transfer of funds; |
| currency exchange rate fluctuations; |
| increased expense and experience in developing, testing and making localized versions of our products; |
| managing our international operations; and |
| longer payment cycles, collecting receivables in a timely fashion and repatriating earnings. |
Any of these factors, either individually or in combination, could materially impact our international operations and adversely affect our business as a whole.
Economic and market conditions have in the past adversely affected, and may in the future adversely affect, our operating results.
We are subject to risks arising from adverse changes and uncertainty in domestic and global economies. For example, past domestic and global economic downturns resulted in reduced demand for information technology, including enterprise software and services. The direction and relative strength of the global economy continues to be uncertain and volatile, and could be adversely affected by, among other things, concerns regarding Europes potential sovereign-debt crisis and other potential financial issues, unrest in the Middle East, tightening in the credit markets, downturns in the financial industry, issues related to the United States debt and budget, and other geopolitical factors, and makes it difficult for us to forecast operating results and to make decisions about future investments. We cannot predict the duration of these economic conditions or the impact they may have on our customers or business. Information technology spending has historically declined or been postponed as general economic and market conditions have worsened. During challenging and uncertain economic times and in tight credit markets, many customers delay or reduce technology purchases. Contract negotiations may become more protracted or difficult if customers institute additional internal approvals for technology purchases or require more negotiation of contract terms and conditions. These economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control and could result in reductions in sales of our products, longer sales cycles, difficulties in collection of accounts receivable or delayed payments, slower adoption of new technologies, increased price competition and reductions in the rate at which our customers renew their maintenance agreements and procure consulting services.
Increases in consulting services revenue may decrease overall margins.
We have historically realized, and may continue in the future to realize, an increasingly high percentage of our revenue from services, which has a lower profit margin than license or maintenance revenue. As a result, if consulting and training services revenue increases as a percentage of total revenue, our overall profit margin may decrease, which could impact our stock price.
Changes in foreign currency exchange rates could negatively affect our operating results.
In addition to receiving revenue and incurring expenses in U.S. dollars, we also receive revenue and incur expenses in approximately twenty-five foreign currencies. As a result of these international sales and operations, our revenue, expenses and net income are impacted by foreign exchange rate fluctuations against the U.S. dollar. For example, any strengthening of the U.S. dollar against foreign currencies would result in lower revenues from our international sales when sales are calculated into U.S. dollars, although these decreases may be partially offset by lower operating expenses. Additionally, customers in foreign
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countries that incur higher costs due to the strengthening of the U.S. dollar may elect to delay payments or default on credit extended to them. Any material delay or default in our collection of significant accounts could have a negative result on our results of operations. Additionally, any strengthening of the U.S. dollar could require us to offer discounts, reduce pricing or offer other incentives to mitigate any negative effects on demand from such rise in the U.S. dollar. Further, in the event that the U.S. dollar weakens compared to foreign currencies, we may incur higher operating expenses in those locations and, therefore, our business, financial condition and operating results could suffer. As our international operations continue to grow, or if large fluctuations in foreign exchange rates continue, our revenue, operating expenses and income may be adversely affected.
We enter into foreign currency forward contracts, the majority of which mature within approximately one month, in an effort to manage our exposure from changes in value of certain foreign currency denominated net assets and liabilities. Our foreign currency forward contracts are intended to reduce, but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in which we conduct business. In addition, our hedging program may not reduce the impact of short-term or long-term volatility in foreign exchange rates. Accordingly, amounts denominated in such foreign currencies may fluctuate in value and produce significant earnings and cash flow volatility.
We may not be able to successfully offer products and enhancements that respond to emerging technological trends and customers needs.
If we are not successful in developing enhancements to existing products and new products in a timely manner, achieving customer acceptance for our existing and new product offerings or generating higher average selling prices, our gross margins may decline, and our business and operating results may suffer. Furthermore, any of our new product offerings or significant enhancements to current product offerings could cause some customers to delay making new or additional purchases while they fully evaluate any new offerings we might have introduced to the market, which in turn may slow sales and adversely affect operating results for an indeterminate period of time. Also, we may not execute successfully on our product plans because of errors in product planning or timing or acceptance by the marketplace, technical hurdles that we fail to overcome in a timely fashion or a lack of appropriate resources. This could result in competitors providing those solutions before we do and loss of market share, net sales and earnings.
Our stock price may be volatile, which could cause investors to incur significant losses.
The stock market in general and the stock prices of technology companies in particular, have experienced volatility which has often been unrelated to the operating performance of any particular company or companies. Some of the factors that may affect our common stock price other than our operating results include:
| uncertainty about global economic or political conditions; |
| general volatility in the capital markets; |
| business developments by us or our competitors, including material acquisitions or dispositions and strategic investments; |
| industry developments and announcements by us or our competitors; |
| changes in estimates and recommendations by securities analysts; |
| speculation in the press or investment community; and |
| changes in the accounting rules. |
Since December 1, 2010 through the end of our second fiscal quarter of fiscal year 2012, our stock price has fluctuated between a low of $18.43 and a high of $34.67. If market or industry-based fluctuations continue, our stock price could decline in the future regardless of our actual operating performance and investors could incur significant losses.
If we cannot successfully recruit, retain and integrate highly skilled employees, we may not be able to execute our business strategy effectively.
If we fail to retain and recruit key management, sales and other skilled employees, our business and our ability to obtain new customers, develop new products and provide acceptable levels of customer service could suffer. As we grow, we must
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invest significantly in building our sales, marketing and engineering groups. Competition for these people in the software industry is intense, and we may not be able to successfully recruit, train or retain qualified personnel. We are competing against companies with greater financial resources and name recognition for these employees, and as such, there is no assurance that we will be able to meet our hiring needs or hire the most qualified candidates. The success of our business is also heavily dependent on the leadership of our key management personnel, including Vivek Ranadivé, our Chairman and Chief Executive Officer. The loss of one or more key employees could adversely affect our continued operations.
In addition, we must successfully integrate new employees into our operations and generate sufficient revenues to justify the costs associated with these employees. If we fail to successfully integrate employees or to generate the revenue necessary to justify employee-related expenses, we may be forced to reduce our headcount, which could force us to incur significant expenses and could harm our business and operating results.
The inability to upsell to our current customers or the loss of any significant customer could harm our business and cause our stock price to decline.
We do not have long-term sales contracts with any of our customers. Our customers may choose not to purchase our products or not to use our services in the future. As a result, a customer that generates substantial revenue for us in one period may not be a source of revenue in subsequent periods. Any inability on our part to upsell to and generate revenues from our existing customers or the loss of a significant customer could adversely affect our business and operating results.
The use of open source software in our products may expose us to additional risks.
Certain open source software is licensed pursuant to license agreements that require a user who distributes the open source software as a component of the users software to disclose publicly part or all of the source code to the users software. This effectively renders what was previously proprietary software open source software. As competition in our markets increases, we must strive to be cost-effective in our product development activities. Many features we may wish to add to our products in the future may be available as open source software and our development team may wish to make use of this software to reduce development costs and speed up the development process. While we carefully monitor the use of all open source software and try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product, such use could inadvertently occur. Additionally, if a third party has incorporated certain types of open source software into its software but has failed to disclose the presence of such open source software and we embed that third party software into one or more of our products, we could, under certain circumstances, be required to disclose the source code to our product. This could have a material adverse effect on our business.
Market acceptance of new platforms, standards and technologies may require us to undergo the expense of developing and maintaining compatible product solutions.
Our software products can be licensed for use with a variety of platforms, standards and technologies, and we are constantly evaluating the feasibility of adding new platforms, standards and technologies. There may be future or existing platforms, standards and technologies that achieve popularity in the marketplace which may not be architecturally compatible with our software products. In addition, the effort and expense of developing, testing and maintaining software products will increase as more platforms, standards and technologies achieve market acceptance within our target markets. If we are unable to achieve market acceptance of our software products or adapt to new platforms, standards and technologies, our sales and revenues will be adversely affected.
Developing and maintaining different software products could place a significant strain on our resources and software product release schedules, which could harm our revenue and financial condition. If we are not able to develop software for accepted platforms, standards and technologies, our license and service revenues and our gross margins could be adversely affected. In addition, if the platforms, standards and technologies we have developed software for are not accepted, our license and service revenues and our gross margins could be adversely affected.
Any unauthorized, and potentially improper, actions of our personnel could adversely affect our business, operating results and financial condition.
The recognition of our revenue depends on, among other things, the terms negotiated in our contracts with our customers. Our personnel may act outside of their authority and negotiate additional terms without our knowledge. We have implemented policies to help prevent and discourage such conduct, but there can be no assurance that such policies will be followed. For instance, in the event that our sales personnel negotiate terms that do not appear in the contract and of which we are unaware,
42
whether such additional terms are written or verbal, we could be prevented from recognizing revenue in accordance with our plans. Furthermore, depending on when we learn of unauthorized actions and the size of the transactions involved, we may have to restate revenue for a previously reported period, which would seriously harm our business, operating results and financial condition.
We may incur impairments to goodwill, intangible or long-lived assets.
We review our goodwill, intangible and long-lived assets for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Significant negative industry or economic trends, a decline in the market price of our common stock, reduced estimates of future cash flows or disruptions to our business could indicate that goodwill, intangible or long-lived assets might be impaired. If, in any period, our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period.
Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. We operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from results. Additionally, if our analysis results in an impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during a period in which such impairment is determined to exist.
Any of these factors could have a negative impact on our operating results.
Our debt agreements contain certain restrictions that may limit our ability to operate our business.
The agreements governing some of our debt contain, and any other future debt agreement we enter into may contain, restrictive covenants that limit our ability to operate our business, including, in each case subject to certain exceptions, restrictions on our ability to:
| incur indebtedness; |
| incur indebtedness at the subsidiary level; |
| grant liens; |
| enter into certain mergers or sell all or substantially all of our assets; |
| make certain payments on our equity, including paying dividends; |
| make dispositions; |
| make investments; |
| change our business; |
| enter into transactions with our affiliates; and |
| enter into certain restrictive agreements. |
In addition, our debt agreements contain financial covenants and additional affirmative and negative covenants. Our ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. If we are not able to comply with all of these covenants for any reason and we have debt outstanding at the time of such failure, some or all of our outstanding debt could become immediately due and payable and the incurrence of additional debt under the credit facilities would not be allowed. If our cash is utilized to repay any outstanding debt, depending on the amount of debt outstanding, we could experience an immediate and significant reduction in working capital available to operate our business. In the event of an acceleration of our debt obligations, we may also not have or be able to obtain sufficient funds to make any accelerated payments, including under our convertible senior notes.
As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be beneficial to us, such as strategic acquisitions or joint ventures.
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The conversion provisions of our convertible senior notes require us to deliver cash and, in certain circumstances, common stock upon conversion and could dilute the ownership interests of stockholders. In addition, the increase in our debt level from the issuance of the convertible senior notes could adversely affect our liquidity and impede our ability to raise additional capital which may also be affected by the tightening of the capital markets.
In April 2012, we issued $600.0 million aggregate principal amount of convertible senior notes due 2032 (the Notes). All of the Notes were outstanding as of May 31, 2012. The Note holders can convert the Notes, under certain circumstances, into cash in an amount generally equal to the lesser of the conversion value and the principal amount of each Note and, for any conversion value greater than the principal amount, into shares of common stock at any time before the Notes mature or we redeem or repurchase them. Upon certain dates (May 5, 2017, May 1, 2022, and May 1, 2027) or the occurrence of certain events including a change in control, the Note holders can require us to repurchase some or all of the Notes.
Upon any conversion of the Notes, we would be required to make cash payments up to the principal amount of any converted Notes. Additionally, our basic earnings per share would be expected to decrease to the extent we are required to issue shares upon conversion because such underlying shares would be included in the basic earnings per share calculation and the conversion would result in dilution to our stockholders. Any new issuance of equity securities, including the issuance of shares upon the conversion of the Notes, could dilute the interests of our then-existing stockholders, including holders who receive shares upon conversion of their Notes, and could decrease the trading price of our common stock and the Notes.
Given that events constituting a change in control can trigger repurchase obligations, the existence of such repurchase obligations may delay or discourage a merger, acquisition, or other consolidation.
Our ability to service our debt obligations, make cash payments upon conversion and meet our repurchase or repayment obligations of the Notes will depend upon our future performance, which is subject to economic, competitive, financial, and other factors affecting our industry and operations, some of which are beyond our control. Further, we may not be able to generate sufficient cash flows to enable us to meet our expenses and service our debt, as well as to meet any cash conversion, repurchase or repayment obligations of the Notes. This could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate. If we are unable to meet the obligations out of cash flows from operations or other available funds, we may need to raise additional funds through public or private debt or equity financings. We may not be able to borrow money or sell more of our equity securities to meet our cash needs for various reasons, including the tightening of the capital markets. Even if we are able to do so, it may not be on terms that are favorable or reasonable to us. Any of these events could reduce the availability of cash flow to us to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes, which could have an adverse effect on our business, operating results and financial condition.
Any losses we incur as a result of our exposure to the credit risk of our customers and partners could harm our results of operations.
We monitor individual customer payment capability in granting credit arrangements, seek to limit credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. As we have grown our revenue and customer base, our exposure to credit risk has increased. Any material losses we incur as a result of customer defaults could have an adverse effect on our business, operating results and financial condition.
We may have exposure to additional tax liabilities.
As a multinational corporation, we are subject to income taxes in the United States and various foreign jurisdictions. Significant judgment is required in determining our global provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Additionally, we may be subject to additional tax expenses to the extent we repatriate cash from our foreign jurisdictions into the United States, and the cost of such repatriation may have the effect of restricting our ability to use our cash as we would like. Our income tax returns are routinely subject to audits by tax authorities. Although we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine our tax estimates, a final determination of tax audits or tax disputes could have an adverse effect on our results of operations and financial condition.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes in the United States and various foreign jurisdictions. We are regularly under audit by tax authorities with respect to these non-income taxes and may have exposure to additional non-income tax liabilities which could have an adverse effect on our results of operations and financial condition.
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In addition, our future effective tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities, changes in the geographical allocation of our business, or changes in tax laws or their interpretation. Such changes could have a material adverse effect on our financial results.
Changes in existing financial accounting standards or practices, or taxation rules or practices may adversely affect our results of operations.
Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practice could have a significant adverse effect on our results of operations or the manner in which we conduct our business. Further, such changes could potentially affect our reporting of transactions completed before such changes are effective. A change in existing financial accounting standards or practices may even retroactively adversely affect previously reported transactions.
In addition, the Financial Accounting Standards Board is currently working with the International Accounting Standards Board (IASB) to converge certain accounting principles and to facilitate more comparable financial reporting between companies that are required to follow GAAP and those that are required to follow International Financial Reporting Standards (IFRS). These projects may result in different accounting principles under GAAP, which may have a material impact on the way in which we report financial results in areas including, but not limited to, principles for recognizing revenue, lease accounting, and financial statement presentation. A change in accounting principles from GAAP to IFRS may have a material impact on our financial statements should IFRS be incorporated into the financial reporting system for U.S. companies.
Compliance with changing regulations of corporate governance and public disclosure may result in additional expenses.
Because we are a publicly-traded company, we are subject to certain federal, state and other rules and regulations, including those required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, new regulations promulgated by the SEC and the rules of the Nasdaq Marketplace. These and other laws relating to corporate governance and public disclosure have increased our general and administrative expenses. These new or changed laws, regulations and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards result in different outcomes from those intended by regulatory or governing bodies, our business may be harmed.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
Section 404 of the Sarbanes-Oxley Act requires that management report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control and financial reporting environment. If management identifies any material weaknesses, their correction could require remedial measures which could be costly and time-consuming. In addition, the presence of material weaknesses could result in financial statement errors which in turn could require us to restate our operating results. Any identification by us or our independent registered public accounting firm of material weaknesses, even if quickly remedied, could damage investor confidence in the accuracy and completeness of our financial reports, which could affect our stock price and potentially subject us to litigation.
The continuous process of maintaining and adapting our internal controls and complying with Section 404 is expensive and time-consuming, and requires significant management attention. We cannot be sure that our internal control measures will continue to provide adequate control over our financial processes and reporting and ensure compliance with Section 404. Any failure by us to comply with Section 404 could subject us to a variety of administrative sanctions and harm our reputation, which could reduce our stock price.
The outcome of litigation pending against us could require us to expend significant resources and could harm our business and financial resources.
Note 11 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q describes the litigation pending against us and our directors and officers. The uncertainty associated with substantial unresolved lawsuits or future
45
lawsuits could harm our business, financial condition and reputation. The defense of the lawsuits could result in the diversion of our managements time and attention away from business operations, which could harm our business. Negative developments with respect to the lawsuits could cause our stock price to decline. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the resolution of the current lawsuits or any future lawsuit by settlement or otherwise, any such payment could seriously harm our financial condition and liquidity.
Our software may have defects or errors that could lead to a loss of revenues or product liability claims.
Our products and platforms use complex technologies and, despite extensive testing and quality control procedures, may contain defects or errors, especially when first introduced or when new versions or enhancements are released. If defects or errors are discovered after commercial release of either new versions or enhancements of our products and platforms:
| potential customers may delay purchases; |
| customers may react negatively, which could reduce future sales; |
| our reputation in the marketplace may be damaged; |
| we may have to defend against product liability claims; |
| we may be required to indemnify our customers, distributors, original equipment manufacturers or other resellers; |
| we may incur additional service and warranty costs; and |
| we may have to divert additional development resources to correct the defects and errors, which may result in the delay of new product releases or upgrades. |
If any or all of the foregoing occur, we may lose revenues, incur higher operating expenses and lose market share, any of which could severely harm our financial condition and operating results.
Any failure by us to meet the requirements of current or newly-targeted customers may have a detrimental impact on our business or operating results.
We may wish to expand our customer base into markets in which we have limited experience. In some cases, customers in different markets, such as financial services or government, have specific regulatory or other requirements which we must meet. For example, in order to maintain contracts with the United States government, we must comply with specific rules and regulations relating to and that govern such contracts. Government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business. If we fail to meet such requirements in the future, we could be subject to civil or criminal liability or a reduction of revenue which could harm our business, operating results and financial condition.
Aspects of our business are subject to privacy concerns and a variety of U.S. and international laws regarding data protection.
Aspects of our business are subject to federal, state and international laws regarding privacy and protection of user data. For example, in the United States regulations such as the Gramm-Leach-Bliley Act of 1999 (as amended or supplemented), which protects and restricts the use of consumer credit and financial information, and the Health Insurance Portability and Accountability Act of 1996 (as amended or supplemented), which regulates the use and disclosure of personal health information, impose significant requirements and obligations on businesses that may affect the use and adoption of our service. The European Union has also adopted a data privacy directive that requires member states to impose restrictions on the collection and use of personal data that, in some respects, are far more stringent, and impose more significant burdens on subject businesses, than current privacy standards in the United States. We post, on our website, our privacy policies and practices concerning the use and disclosure of user data. Any failure by us to comply with our posted privacy policies or other federal, state or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others which could harm our business, operating results and financial condition.
It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines and penalties, a governmental order requiring that we change our data practices could result, which in turn could harm our business, operating results and financial condition. Compliance with these regulations may involve significant costs or require changes in business practices that result in reduced revenue. Noncompliance could result in penalties being imposed on us or orders that we cease conducting the noncompliant activity.
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We face a variety of risks in doing business with the U.S. and foreign governments, various state and local governments, and agencies, including risks related to the procurement process, budget constraints and cycles, termination of contracts and audits.
Our customers include the U.S. government and a number of state and local governments or agencies. There are a variety of risks in doing business with government entities, including:
Procurement. Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring that we incur significant up-front time and expense without any assurance that we will win a contract.
Budgetary Constraints and Cycles. Demand and payment for our products and services are impacted by public sector budgetary cycles and funding availability, with funding reductions or delays adversely impacting public sector demand for our products and services.
Termination of Contracts. Public sector customers often have contractual or other legal rights to terminate current contracts for convenience or due to a default. If a contract is terminated for convenience, which can occur if the customers needs change, we may only be able to collect payment for products or services delivered prior to termination and settlement expenses. If a contract is terminated because of default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative products or services.
Audits. The U.S. government and state and local governments and agencies routinely investigate and audit government contractors for compliance with a variety of complex laws, regulations, and contract provisions relating to the formation, administration or performance of government contracts, including provisions governing reports of and remittances of fees based on sales under government contracts, price protection, compliance with socio-economic policies, and other terms that are particular to government contracts. If, as a result of an audit or review, it is determined that we have failed to comply with such laws, regulations or contract provisions, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, refunds of a portion of fees received, suspension of payments, cost associated with the triggering of price reduction clauses, fines and suspensions or debarment from future government business, and we may suffer harm to our reputation if we are found to have violated terms of our government contracts.
Our customers also include a number of foreign governments and agencies. Similar procurement, budgetary, contract and audit risks also apply to our doing business with these foreign entities. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources. In certain jurisdictions our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could adversely affect our business and results of operations.
Natural or other disasters could disrupt our business and result in loss of revenue or in higher expenses.
Natural disasters, terrorist activities and other business disruptions could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters and many of our operations are located in California, a seismically active region. In addition, many of our current and potential customers are concentrated in a few geographic areas. A natural disaster in one of these regions could have a material adverse impact on our U.S. and foreign operations, operating results and financial condition. Further, any unanticipated business disruption caused by Internet security threats, damage to global communication networks or otherwise could have a material adverse impact on our operating results.
Some provisions in our certificate of incorporation and bylaws, as well as our stockholder rights plan, may have anti-takeover effects.
We have a stockholder rights plan providing for one right for each outstanding share of our common stock. Each right, when exercisable, entitles the registered holder to purchase certain securities at a specified purchase price. The rights plan may have the anti-takeover effect of causing substantial dilution to a person or group that attempts to acquire TIBCO on terms not approved by our Board of Directors. The existence of the rights plan could limit the price that certain investors might be willing to pay in the future for shares of our common stock and could discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. In addition, provisions of our current certificate of incorporation and bylaws, as well as Delaware corporate law, could make it more difficult for a third party to acquire us without the support of our Board of Directors, even if doing so would be beneficial to our stockholders.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Issuer Purchases of Equity Securities
On December 21, 2010, we announced that our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $300.0 million of our outstanding common stock from time to time in the open market or through privately negotiated transactions.
On March 29, 2012, we announced that our Board of Directors approved a new stock repurchase program pursuant to which we may repurchase up to $300.0 million of our outstanding common stock from time to time in the open market or through privately negotiated transactions. In connection with the approval of this program, our Board of Directors also terminated our previous $300.0 million stock repurchase program from December 2010, and the remaining authorized amount of approximately $38.4 million under the December 2010 stock repurchase program was canceled.
The following table provides information about the repurchase of our common stock during the second quarter of fiscal year 2012 (in thousands, except per share amounts):
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
March 1, 2012 March 31, 2012 |
| $ | | | $ | 300,000 | ||||||||||
April 1, 2012 April 30, 2012 |
3,648 | $ | 33.16 | 3,648 | $ | 179,016 | ||||||||||
May 1, 2012 May 31, 2012 |
| $ | | | $ | 179,016 | ||||||||||
|
|
|
|
|||||||||||||
Total |
3,648 | $ | 33.16 | 3,648 | ||||||||||||
|
|
|
|
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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ITEM 6. | EXHIBITS |
3.1(1) | Amended and Restated Certificate of Incorporation of Registrant. | |
3.2(2) | Amended and Restated Bylaws of Registrant. | |
4.1(3) | Indenture between TIBCO Software Inc. and U.S. Bank National Association, dated as of April 23, 2012. | |
4.2(3) | Form of 2.25% Convertible Senior Note due May 1, 2032 (included in Exhibit 4.1 hereto). | |
10.1(4) | Purchase Agreement, dated as of April 17, 2012, by and between TIBCO Software, Inc. and Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representatives of the initial purchasers. | |
10.2(4) | Waiver, dated as of April 16, 2012, by and between TIBCO Software, Inc. and Bank of America, N.A., as administrative agent, and the lenders party thereto. | |
10.3(5) | First Amendment to Credit Agreement, dated as of May 31, 2012, by and among TIBCO Software Inc., TIBCO International Holdings B.V., as Designated Borrower, each of the lenders party thereto, and Bank of America, N.A., as Administrative Agent. | |
10.4# | TIBCO Software Inc. 2008 Equity Incentive Plan (March 7, 2012 Restatement). | |
31.1 | Rule 13a-14(a) / 15d-14(a) Certification by Chief Executive Officer. | |
31.2 | Rule 13a-14(a) / 15d-14(a) Certification by Chief Financial Officer. | |
32.1 | Section 1350 Certification by Chief Executive Officer. | |
32.2 | Section 1350 Certification by Chief Financial Officer. | |
101 | Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of May 31, 2012 and November 30, 2011, (ii) the Condensed Consolidated Statement of Operations for the three months and six months ended May 31, 2012 and 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended May 31, 2012 and 2011 and (iv) the Notes to Condensed Consolidated Financial Statements.* |
(1) | Incorporated by reference to Exhibit 3.1 filed with the Registrants Registration Statement on Form 8-A, filed with the SEC on February 23, 2004. |
(2) | Incorporated by reference to Exhibit 3.1 filed with the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2009, filed with the SEC on July 9, 2009. |
(3) | Incorporated by reference to an exhibit filed with the Registrants Current Report on Form 8-K, filed with the SEC on April 27, 2012. |
(4) | Incorporated by reference to an exhibit filed with the Registrants Current Report on Form 8-K, filed with the SEC on April 18, 2012. |
(5) | Incorporated by reference to an exhibit filed with the Registrants Current Report on Form 8-K, filed with the SEC on June 6, 2012. |
# | Indicates management contract or compensatory plan or arrangement. |
* | XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
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Pursuant to the requirements 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.
TIBCO SOFTWARE INC. | ||
By: | /s/ Sydney L. Carey | |
Sydney L. Carey Executive Vice President, Chief Financial Officer (Principal Financial Officer and duly authorized officer) | ||
By: | /s/ Brent P. Hogenson | |
Brent P. Hogenson Vice President, Corporate Controller (Principal Accounting Officer and duly authorized officer) |
Date: July 13, 2012
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EXHIBIT INDEX
3.1(1) | Amended and Restated Certificate of Incorporation of Registrant. | |
3.2(2) | Amended and Restated Bylaws of Registrant. | |
4.1(3) | Indenture between TIBCO Software Inc. and U.S. Bank National Association, dated as of April 23, 2012. | |
4.2(3) | Form of 2.25% Convertible Senior Note due May 1, 2032 (included in Exhibit 4.1 hereto). | |
10.1(4) | Purchase Agreement, dated as of April 17, 2012, by and between TIBCO Software, Inc. and Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representatives of the initial purchasers. | |
10.2(4) | Waiver, dated as of April 16, 2012, by and between TIBCO Software, Inc. and Bank of America, N.A., as administrative agent, and the lenders party thereto. | |
10.3(5) | First Amendment to Credit Agreement, dated as of May 31, 2012, by and among TIBCO Software Inc., TIBCO International Holdings B.V., as Designated Borrower, each of the lenders party thereto, and Bank of America, N.A., as Administrative Agent. | |
10.4# | TIBCO Software Inc. 2008 Equity Incentive Plan (March 7, 2012 Restatement). | |
31.1 | Rule 13a-14(a) / 15d-14(a) Certification by Chief Executive Officer. | |
31.2 | Rule 13a-14(a) / 15d-14(a) Certification by Chief Financial Officer. | |
32.1 | Section 1350 Certification by Chief Executive Officer. | |
32.2 | Section 1350 Certification by Chief Financial Officer. | |
101 | Interactive data files (XBRL) pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of May 31, 2012 and November 30, 2011, (ii) the Condensed Consolidated Statement of Operations for the three months and six months ended May 31, 2012 and 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended May 31, 2012 and 2011 and (iv) the Notes to Condensed Consolidated Financial Statements.* |
(1) | Incorporated by reference to Exhibit 3.1 filed with the Registrants Registration Statement on Form 8-A, filed with the SEC on February 23, 2004. |
(2) | Incorporated by reference to Exhibit 3.1 filed with the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2009, filed with the SEC on July 9, 2009. |
(3) | Incorporated by reference to an exhibit filed with the Registrants Current Report on Form 8-K, filed with the SEC on April 27, 2012. |
(4) | Incorporated by reference to an exhibit filed with the Registrants Current Report on Form 8-K, filed with the SEC on April 18, 2012. |
(5) | Incorporated by reference to an exhibit filed with the Registrants Current Report on Form 8-K, filed with the SEC on June 6, 2012. |
# | Indicates management contract or compensatory plan or arrangement. |
* | XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
Exhibit 10.4
TIBCO SOFTWARE INC.
2008 EQUITY INCENTIVE PLAN
(March 7, 2012 Restatement)
TABLE OF CONTENTS
Page | ||||||
SECTION 1 BACKGROUND AND PURPOSE |
1 | |||||
1.1 |
Background and Effective Date |
1 | ||||
1.2 |
Purpose of the Plan |
1 | ||||
SECTION 2 DEFINITIONS |
1 | |||||
2.1 |
1934 Act |
1 | ||||
2.2 |
Affiliate |
1 | ||||
2.3 |
Award |
1 | ||||
2.4 |
Award Agreement |
2 | ||||
2.5 |
Board |
2 | ||||
2.6 |
Cause |
2 | ||||
2.7 |
Change of Control |
2 | ||||
2.8 |
Code |
2 | ||||
2.9 |
Committee |
2 | ||||
2.10 |
Company |
2 | ||||
2.11 |
Consultant |
2 | ||||
2.12 |
Covered Employee |
2 | ||||
2.13 |
Director |
2 | ||||
2.14 |
Disability |
3 | ||||
2.15 |
Employee |
3 | ||||
2.16 |
Exchange Program |
3 | ||||
2.17 |
Exercise Price |
3 | ||||
2.18 |
Fair Market Value |
3 | ||||
2.19 |
First Option |
3 | ||||
2.20 |
Fiscal Year |
3 | ||||
2.21 |
Grant Date |
3 | ||||
2.22 |
Incentive Stock Option |
3 | ||||
2.23 |
Inside Director |
3 | ||||
2.24 |
Non-Employee Director |
3 | ||||
2.25 |
Nonqualified Stock Option |
3 | ||||
2.26 |
Option |
3 | ||||
2.27 |
Other Cash-Based Award |
4 | ||||
2.28 |
Other Stock-Based Award |
4 | ||||
2.29 |
Participant |
4 | ||||
2.30 |
Performance Goals |
4 | ||||
2.31 |
Performance Period |
5 | ||||
2.32 |
Period of Restriction |
5 | ||||
2.33 |
Plan |
5 | ||||
2.34 |
Restricted Stock |
5 | ||||
2.35 |
Restricted Stock Unit or RSU |
5 | ||||
2.36 |
Retirement |
5 | ||||
2.37 |
Rule 16b-3 |
5 | ||||
2.38 |
Section 16 Person |
5 | ||||
2.39 |
Shares |
5 |
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TABLE OF CONTENTS
(continued)
Page | ||||||
2.40 |
Stock Appreciation Right or SAR |
5 | ||||
2.41 |
Subsequent Option |
5 | ||||
2.42 |
Subsidiary |
6 | ||||
2.43 |
Tax Obligations |
6 | ||||
2.44 |
Termination of Service |
6 | ||||
2.45 |
TIBCO Prior Plans |
6 | ||||
SECTION 3 ADMINISTRATION |
6 | |||||
3.1 |
The Committee |
6 | ||||
3.2 |
Authority of the Committee |
6 | ||||
3.3 |
Delegation by the Committee |
7 | ||||
3.4 |
Decisions Binding |
7 | ||||
3.5 |
Restrictions and Legends |
7 | ||||
SECTION 4 SHARES SUBJECT TO THE PLAN |
7 | |||||
4.1 |
Number of Shares |
7 | ||||
4.2 |
Full Value Awards |
7 | ||||
4.3 |
Lapsed Awards |
8 | ||||
4.4 |
Adjustments in Awards and Authorized Shares |
8 | ||||
SECTION 5 STOCK OPTIONS |
8 | |||||
5.1 |
Grant of Options |
8 | ||||
5.2 |
Award Agreement |
8 | ||||
5.3 |
Exercise Price |
9 | ||||
5.4 |
Expiration of Options |
9 | ||||
5.5 |
Exercisability of Options |
9 | ||||
5.6 |
Payment |
10 | ||||
5.7 |
Certain Additional Provisions for Incentive Stock Options |
10 | ||||
SECTION 6 STOCK APPRECIATION RIGHTS |
10 | |||||
6.1 |
Grant of SARs |
10 | ||||
6.2 |
SAR Agreement |
11 | ||||
6.3 |
Expiration of SARs |
11 | ||||
SECTION 7 RESTRICTED STOCK |
11 | |||||
7.1 |
Grant of Restricted Stock |
11 | ||||
7.2 |
Restricted Stock Agreement |
11 | ||||
7.3 |
Other Restrictions |
11 | ||||
7.4 |
Voting Rights |
12 | ||||
7.5 |
Dividends and Other Distributions |
12 | ||||
SECTION 8 RESTRICTED STOCK UNITS |
12 | |||||
8.1 |
Grant of RSUs |
12 | ||||
8.2 |
RSU Agreement |
12 |
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TABLE OF CONTENTS
(continued)
Page | ||||||
8.3 |
Section 162(m) Performance Objectives |
13 | ||||
SECTION 9 OTHER STOCK-BASED OR CASH-BASED AWARDS |
13 | |||||
9.1 |
Grant of Other Stock-Based or Cash-Based Awards |
13 | ||||
9.2 |
General Restrictions |
13 | ||||
SECTION 10 GENERAL PROVISIONS |
13 | |||||
10.1 |
Impact of Change of Control on Options, SARs, Restricted Stock Awards, Restricted Stock Unit Awards and Other Stock-Based Awards |
13 | ||||
10.2 |
Impact of Change of Control on Other Cash-Based Awards |
14 | ||||
10.3 |
Assumption of Options, SARs, Restricted Stock Awards, Restricted Stock Unit Awards, and Other Stock-Based Awards Upon Change of Control |
14 | ||||
10.4 |
Deferrals |
15 | ||||
10.5 |
No Effect on Employment or Service |
15 | ||||
10.6 |
Cancellation and Rescission of Awards |
15 | ||||
10.7 |
Participation |
16 | ||||
10.8 |
Successors |
16 | ||||
10.9 |
Beneficiary Designations |
16 | ||||
10.10 |
Limited Transferability of Awards |
16 | ||||
10.11 |
No Rights as Stockholder |
17 | ||||
10.12 |
Leaves of Absence |
17 | ||||
SECTION 11 AMENDMENT, TERMINATION, AND DURATION |
17 | |||||
11.1 |
Amendment, Suspension, or Termination |
17 | ||||
11.2 |
Duration of the Plan |
17 | ||||
SECTION 12 TAX WITHHOLDING |
17 | |||||
12.1 |
Withholding Requirements |
17 | ||||
12.2 |
Withholding Arrangements |
18 | ||||
SECTION 13 LEGAL CONSTRUCTION |
18 | |||||
13.1 |
Gender and Number |
18 | ||||
13.2 |
Severability |
18 | ||||
13.3 |
Requirements of Law |
18 | ||||
13.4 |
Securities Law Compliance |
18 | ||||
13.5 |
Code Section 409A |
18 | ||||
13.6 |
Governing Law |
18 | ||||
13.7 |
Captions |
18 |
-iii-
TIBCO SOFTWARE INC.
2008 EQUITY INCENTIVE PLAN
(March 7, 2012 Restatement)
SECTION 1
BACKGROUND AND PURPOSE
1.1 Background and Effective Date. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, and Restricted Stock Units. The Plan was originally effective as of August 1, 2008, upon approval by an affirmative vote of the holders of a majority of the Shares that were present in person or by proxy and entitled to vote at the 2008 Annual Meeting of Stockholders of the Company. The Plan was subsequently amended and restated effective as of February 26, 2010, upon approval by an affirmative vote of the holders of a majority of the Shares that were present in person or by proxy and entitled to vote at the 2010 Annual Meeting of Stockholders of the Company. This amended and restated Plan is effective as of March 7, 2012 (the Effective Date), subject to approval by an affirmative vote of the holders of a majority of the Shares present in person or by proxy and entitled to vote at the 2012 Annual Meeting of Stockholders of the Company.
1.2 Purpose of the Plan. The Plan is intended to attract, motivate, and retain (a) employees of the Company, its Subsidiaries and its Affiliates, (b) consultants who provide services to the Company, its Subsidiaries and Affiliates and (c) Non-Employee Directors. The Plan is also designed to permit the payment of compensation that qualifies as performance-based compensation under Section 162(m) of the Code. The Plan is intended to replace the TIBCO Prior Plans.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context:
2.1 1934 Act means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the 1934 Act or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
2.2 Affiliate means any corporation or any other entity (including, but not limited to, partnerships and joint ventures) controlling, controlled by, or under common control with the Company.
2.3 Award means, individually or collectively, a grant of Options, SARs, Restricted Stock, RSUs, Other Stock-Based Awards or Other Cash-Based Awards pursuant to the Plan.
2.4 Award Agreement means the written agreement, notice, or other instrument or document setting forth the terms and conditions applicable to each Award granted pursuant to the Plan.
2.5 Board means the Board of Directors of the Company.
2.6 Cause shall have the meaning set forth in the Participants employment or other agreement with the Company or any Subsidiary provided that if the Participant is not a party to any such employment or other agreement or such employment or other agreement does not contain a definition of Cause, then Cause shall have the meaning set forth in the applicable Award Agreement.
2.7 Change of Control means (i) a sale of all or substantially all of the Companys assets, (ii) any merger consolidation, or other business combination transaction of the Company with or into another corporation, entity, or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction, (iii) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company, (iv) a contested election of Directors, as a result of which or in connection with which the persons who were Directors before such election or their nominees cease to constitute a majority of the Board, or (v) a dissolution or liquidation of the Company.
2.8 Code means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any successor legislation or regulation amending, supplementing or superseding such section or regulation.
2.9 Committee means the Compensation Committee of the Board or a subcommittee thereof or such other committee as may be designated by the Board to administer the Plan.
2.10 Company means TIBCO Software Inc., a Delaware corporation, or any successor thereto.
2.11 Consultant means any consultant, independent contractor, advisor, or other person who provides services to the Company, its Subsidiaries or Affiliates, but who is neither an Employee nor a Director.
2.12 Covered Employee has the meaning set forth in Section 162(m)(3) of the Code.
2.13 Director means any individual who is a member of the Board of Directors of the Company.
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2.14 Disability means a permanent disability in accordance with a policy or policies established by the Company from time to time.
2.15 Employee means any employee of the Company or of a Subsidiary, whether such employee is so employed at the time the Plan is adopted or becomes so employed subsequent to the adoption of the Plan.
2.16 Exchange Program means a program established by the Committee under which outstanding Awards are amended to provide for a lower Exercise Price or surrendered or cancelled in exchange for (a) Awards with a lower Exercise Price, (b) a different type of Award, (c) cash, or (d) a combination of (a), (b) and/or (c). Notwithstanding the preceding, the term Exchange Program does not include any (i) action described in Section 4.4, or (ii) transfer or other disposition permitted under Section 10.10.
2.17 Exercise Price means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option.
2.18 Fair Market Value means the closing per share selling price for Shares for the date of grant on the principal securities exchange on which the Shares are traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported; if the Shares are not listed for trading on a national securities exchange, the fair market value of Shares shall be determined in good faith by the Committee. Notwithstanding the preceding, for federal, state, and local income tax reporting purposes, fair market value shall be determined by the Company in accordance with uniform and nondiscriminatory standards adopted by it from time to time.
2.19 First Option shall have the meaning set forth in Section 5.8(ii).
2.20 Fiscal Year means the fiscal year of the Company.
2.21 Grant Date means, with respect to an Award, the date that the Award was granted. The Grant Date of an Award shall not be earlier than the date the Award is approved by the Committee.
2.22 Incentive Stock Option means an Option to purchase Shares that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.
2.23 Inside Director means a Director who is an Employee.
2.24 Non-Employee Director means a Director who is not an employee of the Company, any Subsidiary or any Affiliate.
2.25 Nonqualified Stock Option means an option to purchase Shares that is not intended to be an Incentive Stock Option.
2.26 Option means an Incentive Stock Option or a Nonqualified Stock Option.
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2.27 Other Cash-Based Award means a cash-based Award granted to a Participant under Section 9.1 hereof, including cash awarded as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan.
2.28 Other Stock-Based Award means an Award granted to a Participant pursuant to Section 9.1 hereof, that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares, each of which may be subject to the attainment of Performance Goals or a period of continued employment or other terms and conditions as permitted under the Plan.
2.29 Participant means an Employee, Non-Employee Director, or Consultant who has an outstanding Award.
2.30 Performance Goals means performance goals based on one or more of the following criteria: (i) earnings including operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or extraordinary or special items or book value per share (which may exclude nonrecurring items); (ii) pre-tax income or after-tax income; (iii) earnings per common share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth or rate of revenue growth; (vi) return on assets(gross or net), return on investment, return on capital, or return on equity; (vii) returns on sales or revenues; (viii) operating expenses;(ix) stock price appreciation; (x) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (xi) implementation or completion of critical projects or processes;(xii) economic value created; (xiii) cumulative earnings per share growth; (xiv) operating margin or profit margin; (xv) common stock price or total stockholder return; (xvi) cost targets, reductions and savings, productivity and efficiencies; (xvii) intellectual property (e.g., patents); (xviii) product development; (xix) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xx) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and (xxi) any combination of, or a specified increase in, any of the foregoing. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). Each of the foregoing Performance Goals may be determined either in accordance with generally accepted accounting principles (GAAP) or on a non-GAAP basis and shall be subject to certification by the Committee; provided that, to the extent an Award is intended to satisfy the
-4-
performance-based compensation exception to the limits of Section 162(m) of the Code and then to the extent consistent with such exception, the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or the financial statements of the Company or any Subsidiary, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. Awards issued to persons who are not Covered Employees may take into account any other factors deemed appropriate by the Committee.
2.31 Performance Period means the period selected by the Committee during which the performance of the Company or any Subsidiary, division or strategic business unit thereof or any individual is measured for the purpose of determining the extent to which an Award subject to Performance Goals has been earned.
2.32 Period of Restriction means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. As provided in Section 7, such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Committee.
2.33 Plan means the TIBCO Software Inc. 2008 Equity Incentive Plan, as set forth in this instrument and as hereafter amended from time to time.
2.34 Restricted Stock means an Award granted to a Participant pursuant to Section 7.
2.35 Restricted Stock Unit or RSUmeans an Award granted to a Participant pursuant to Section 8.
2.36 Retirement means, in the case of a Non-Employee Director or an Employee a Termination of Service occurring in accordance with a policy or policies established by the Company from time to time, provided, however that with respect to a Consultant, no Termination of Service shall be deemed to be on account of Retirement.
2.37 Rule 16b-3 means Rule 16b-3 promulgated under the 1934 Act, and any future regulation amending, supplementing or superseding such regulation.
2.38 Section 16 Person means a person who, with respect to the Shares, is subject to Section 16 of the 1934 Act.
2.39 Shares means the shares of common stock of the Company.
2.40 Stock Appreciation Right or SAR means an Award, granted alone or in connection with a related Option, that pursuant to Section 6 is designated as an SAR.
2.41 Subsequent Option shall have the meaning set forth in Section 5.8(iii).
-5-
2.42 Subsidiary means any corporation in an unbroken chain of corporations beginning with the Company as the corporation at the top of the chain, but only if each of the corporations below the Company (other than the last corporation in the unbroken chain) then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2.43 Tax Obligations means income tax and social insurance contribution, payroll tax, payment on account, or other tax-related withholding obligations and requirements in connection with the Awards, including, without limitation, (a) all federal, national, state, foreign and local taxes (including the Participants FICA obligation) that are required to be withheld by the Company or the employing Affiliate or Subsidiary, (b) the Participants and, to the extent required by the Company (or the employing Affiliate or Subsidiary), the Companys (or the employing Affiliate or Subsidiarys) fringe benefit tax liability, if any, associated with the grant, vesting, exercise or sale of Shares, and (c) any other Company (or employing Affiliate or Subsidiary) taxes the responsibility for which the Participant has agreed to bear with respect to such Award (including the exercise thereof or issuance of Shares thereunder).
2.44 Termination of Service means (a) in the case of an Employee, a cessation of the employee-employer relationship between the Employee and the Company or a Subsidiary or Affiliate for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, Retirement, or the disaffiliation of a Subsidiary, but excluding any such termination where there is a simultaneous reemployment by the Company or a Subsidiary or Affiliate; (b) in the case of a Consultant, a cessation of the service relationship between the Consultant and the Company or a Subsidiary or Affiliate for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, or the disaffiliation of a Subsidiary or Affiliate, but excluding any such termination where there is a simultaneous re-engagement of the consultant by the Company or a Subsidiary or Affiliate; and (c) in the case of a Non-Employee Director, a cessation of the Directors service on the Board for any reason, including, but not by way of limitation, a termination by resignation, death, Disability, Retirement or non-reelection to the Board. For the purpose of administering the Plan, Termination of Service shall be deemed to occur when an Employee is no longer actively employed by the Company or a Subsidiary or Affiliate and will not be extended by any notice of termination period or leave period if the Employee is not actively rendering services during said period.
2.45 TIBCO Prior Plans means the Companys 1996 Stock Option Plan, as amended and restated, and the Companys 1998 Director Option Plan, as amended and restated.
SECTION 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee.
3.2 Authority of the Committee. It shall be the duty of the Committee to administer the Plan in accordance with the Plans provisions. The Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including, but not limited to, the power to (a) determine which Employees, Non-Employee Directors and Consultants shall be
-6-
granted Awards, (b) prescribe the terms and conditions of the Awards, (c) interpret the Plan and the Awards, (d) adopt such procedures and subplans as are necessary or appropriate to permit participation in the Plan by Employees, Non-Employee Directors and Consultants who are foreign nationals or employed outside of the United States, (e) adopt rules and guidelines for the administration, interpretation and application of the Plan as are consistent therewith, and (f) interpret, amend or revoke any such rules and guidelines. Notwithstanding the preceding, the Committee shall not implement an Exchange Program without the approval of the holders of a majority of the Shares that are present in person or by proxy and entitled to vote at any Annual or Special Meeting of Stockholders of the Company.
3.3 Delegation by the Committee. The Committee, on such terms and conditions as it may provide, may delegate all or any part of its authority and powers under the Plan to one or more Directors or officers of the Company. Notwithstanding the foregoing, with respect to Awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee may not delegate its authority and powers with respect to such Awards if such delegation would cause the Awards to fail to so qualify. The Committee may delegate its authority and power under the Plan to one or more officers of the Company, subject to guidelines prescribed by the Committee, but only with respect to Participants who are not Section 16 Persons.
3.4 Decisions Binding. All determinations and decisions made by the Committee, the Board, and any delegate of the Committee pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law.
3.5 Restrictions and Legends. The Committee may impose such restrictions on any Shares delivered pursuant to the Plan as it may deem advisable, including, but not limited to, restrictions on transfer or restrictions related to applicable federal securities laws, the requirements of any national securities exchange or system upon which Shares are then listed or traded, or any blue sky or state securities laws.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.4, the total number of Shares available for issuance under the Plan shall not exceed 28,000,000. Awards granted under the TIBCO Prior Plans during the period commencing on April 17, 2008 and ending on July 31, 2008, shall be deducted from the total number of Shares available for issuance under the Plan.
4.2 Full Value Awards. Any Shares subject to Awards of Restricted Stock, Restricted Stock Units, and Other Stock-Based Awards granted on or after the Effective Date shall be counted against the numerical limits of Section 4.1 as 2.00 Shares for every one Share subject thereto. Further, if Shares acquired pursuant to any Awards of Restricted Stock, Restricted Stock Units, and Other Stock-Based Awards (whether granted before, on or after the Effective Date) are forfeited or repurchased by the Company and would otherwise return to the Plan pursuant to Section 4.3, 2.00 times the number of Shares so forfeited or repurchased shall return to the Plan and shall again become available for issuance.
-7-
4.3 Lapsed Awards. If an Award or an award under either of the TIBCO Prior Plans is settled in cash, or is cancelled, terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available to be the subject of an Award or award under the Plan. Shares withheld in satisfaction of Tax Obligations pursuant to Section 12.2 as well as the Shares that represent payment of the Exercise Price shall cease to be available under the Plan. Shares that have actually been issued under the Plan under any Award shall not be returned to the Plan and shall not become available for future distribution under the Plan; provided, however, that if unvested Shares of Restricted Stock or Restricted Stock Units or Other Stock-Based Awards are repurchased by the Company or are forfeited to the Company, such Shares shall become available for future grant under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment shall not result in a reduction of the number of Shares available for issuance under the Plan. Notwithstanding the foregoing and, subject to adjustment provided in Section 4.4, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate Share number stated in Section 4.1, plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan under this Section 4.3.
4.4 Adjustments in Awards and Authorized Shares. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust the number and class of Shares that may be delivered under the Plan, the number, class, and price of Shares (or other property or cash) subject to outstanding Awards, and the numerical limits of Sections 5.1, 6.1, 7.1, 8.1 and 9.2. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. An Option represents the right to purchase a Share at an Exercise Price. Subject to the terms and provisions of the Plan, Options may be granted to Employees, Non-Employee Directors and Consultants at any time and from time to time as determined by the Committee. The Committee shall determine the number of Shares subject to each Award, provided that during any Fiscal Year, no Participant shall be granted Options (and/or SARs) covering more than a total of 2,000,000 Shares. Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted Options (and/or SARs) to purchase up to a total of an additional 2,000,000 Shares. The Committee may grant Incentive Stock Options, Nonqualified Stock Options, or a combination thereof.
5.2 Award Agreement. All Options shall be evidenced by an Award Agreement that shall specify the Exercise Price, the date on which the Options will become exercisable, the expiration date of the Options, the number of Shares, any conditions to exercise the Options, and such other terms and conditions as the Committee shall determine. The Award Agreement shall also specify whether the Options are intended to be Incentive Stock Options or a Nonqualified Stock Options.
-8-
5.3 Exercise Price.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option, the Exercise Price shall be determined by the Committee, but shall be not less than one hundred percent (100%) of the Fair Market Value on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock Option, the Exercise Price shall be not less than one hundred percent (100%) of the Fair Market Value on the Grant Date; provided, however, that if on the Grant Date, the Employee (together with persons whose stock ownership is attributed to the Employee pursuant to Section 424(d) of the Code) owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Exercise Price shall be not less than one hundred and ten percent (110%) of the Fair Market Value on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of Section 5.3.2, in the event that the Company or a Subsidiary consummates a transaction described in Section 424(a) of the Code (e.g., the acquisition of property or stock from an unrelated corporation), persons who become Employees or Consultants on account of such transaction may be granted Options in substitution for options granted by their former employer (or parent company or affiliated company of such former employer). If such substitute Options are granted, the Committee consistent with Section 424(a) of the Code, may determine that each such substitute Options shall have an Exercise Price less than one hundred percent (100%) of the Fair Market Value on the Grant Date.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate no later than the first to occur of the following events:
(a) The date for termination of the Option set forth in the written Award Agreement; or
(b) The expiration of seven (7) years from the Grant Date.
5.4.2 Death of Participant. Notwithstanding Section 5.4.1, if a Participant dies prior to the expiration of his or her Options, the Committee may provide that his or her Options shall be exercisable for up to twelve (12) months after the date of death.
5.4.3 Committee Discretion. Subject to the seven and eight-year limits of Sections 5.4.1 and 5.4.2, the Committee (a) shall provide in each Award Agreement when each Option expires and becomes unexercisable, and (b) may, after an Option is granted, extend the maximum term of the Option (subject to Section 5.7.4 regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine. After an Option is granted, the Committee may accelerate the exercisability of the Option.
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5.6 Payment. Options shall be exercised by the Participant giving notice and following such procedures as the Company (or its designee) may specify from time to time. Exercise of an Option also requires that the Participant make arrangements satisfactory to the Company for full payment of the Exercise Price for the Shares. All exercise notices shall be given in the form and manner specified by the Company from time to time.
The Exercise Price shall be payable to the Company in full (a) in cash or its equivalent, or (b) subject to the terms of the applicable Award Agreement, by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Exercise Price, or (c) by any other means which the Committee determines to both provide legal consideration for the Shares and set forth in the applicable Award Agreement, and to be consistent with the purposes of the Plan.
5.7 Certain Additional Provisions for Incentive Stock Options.
5.7.1 Exercisability. The aggregate Fair Market Value (determined on the Grant Date(s)) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Employee during any calendar year (under all plans of the Company and its Subsidiaries) shall not exceed $100,000.
5.7.2 Termination of Service. No Incentive Stock Option may be exercised more than three (3) months after the Participants Termination of Service for any reason other than Disability or death, unless (a) the Participant dies during such three-month period, and/or (b) the Award Agreement or the Committee permits later exercise (in which case the Option instead may be deemed to be a Nonqualified Stock Option). No Incentive Stock Option may be exercised more than one (1) year after the Participants Termination of Service on account of Disability, unless (a) the Participant dies during such one-year period, and/or (b) the Award Agreement or the Committee permit later exercise (in which case the option instead may be deemed to be a Nonqualified Stock Option).
5.7.3 Employees Only. Incentive Stock Options may be granted only to persons who are employees of the Company or a Subsidiary on the Grant Date.
5.7.4 Expiration. No Incentive Stock Option may be exercised after the expiration of seven (7) years from the Grant Date; provided, however, that if the Option is granted to an Employee who, together with persons whose stock ownership is attributed to the Employee pursuant to Section 424(d) of the Code, owns stock possessing more than 10% of the total combined voting power of all classes of the stock of the Company or any of its Subsidiaries, the Option may not be exercised after the expiration of five (5) years from the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. A SAR represents the right with respect to a Share to receive a payment, in cash, Shares, or both (as determined by the Committee), with a value equal to the excess of Fair Market Value on the date of exercise (or, if so specified in the Award Agreement, on the date
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immediately preceding the date of exercise) over the Awards Grant Price. Subject to the terms and conditions of the Plan, a SAR may be granted to Employees, Non-Employee Directors and Consultants at any time and from time to time as shall be determined by the Committee.
6.1.1 Number of Shares. The Committee shall determine the number of SARs, if any, granted to any Participant, provided that during any Fiscal Year, no Participant shall be granted SARs (and/or Options) covering more than a total of 2,000,000 Shares. Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted SARs (and/or Options) covering up to a total of an additional 2,000,000 Shares.
6.1.2 Exercise Price and Other Terms. The Committee, subject to the provisions of the Plan, shall determine the terms and conditions of SARs granted under the Plan. The Exercise Price of each SAR shall be determined by the Committee but shall not be less than one hundred percent (100%) of the Fair Market Value on the Grant Date. After a SAR is granted, the Committee may accelerate the exercisability of the SAR.
6.2 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Committee shall determine.
6.3 Expiration of SARs. A SAR granted under the Plan shall expire upon the date determined by the Committee and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also shall apply to SARs.
SECTION 7
RESTRICTED STOCK
7.1 Grant of Restricted Stock. Restricted Stock are Shares that are awarded to a Participant and that during the Restricted Period are forfeitable to the Company upon such conditions as set forth in the applicable Award Agreement. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Employees, Non-Employee Directors and Consultants as the Committee shall determine. The Committee shall determine the number of Shares, if any, to be granted to each Participant, provided that during any Fiscal Year, no Participant shall receive more than a total of 700,000 Shares of Restricted Stock (and/or Restricted Stock Units). Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted up to a total of an additional 700,000 Shares of Restricted Stock (and/or Restricted Stock Units).
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Committee shall determine. After an Award of Restricted Stock has been made, the Committee may waive all or any part of the applicable Period of Restriction.
7.3 Other Restrictions. The Committee may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate, in accordance with this Section 7.3.
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7.3.1 General Restrictions. The Committee may set restrictions based upon continued employment or service with the Company and its Subsidiaries, the achievement of specific performance objectives (Company-wide, departmental, or individual), applicable federal or state securities laws, or any other basis determined by the Committee.
7.3.2 Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock as performance-based compensation under Section 162(m) of the Code, the Committee may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Restricted Stock to qualify as performance-based compensation under Section 162(m) of the Code. In granting Restricted Stock which is intended to qualify under Section 162(m) of the Code, the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Restricted Stock under Section 162(m) of the Code (e.g., in determining the Performance Goals).
7.4 Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Committee determines otherwise.
7.5 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. Any such dividends or distribution shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid, unless otherwise provided in the Award Agreement. The Company may require such dividends or other distributions be deposited with the Company until such time as the restrictions on transferability of the corresponding Shares of Restricted Stock lapse.
SECTION 8
RESTRICTED STOCK UNITS
8.1 Grant of RSUs. Restricted Stock Units represent the right to receive Shares, cash, or both (as determined by the Committee) upon satisfaction of such conditions as set forth in the applicable Award agreement. Restricted Stock Units may be granted to Employees, Non-Employee Directors and Consultants at any time and from time to time, as shall be determined by the Committee. The Committee shall determine the number of Restricted Stock Units, if any, granted to each Participant, provided that during any Fiscal Year, no Participant shall be granted more than a total of 700,000 Restricted Stock Units (and/or Shares of Restricted Stock). Notwithstanding the foregoing, during the Fiscal Year in which a Participant first becomes an Employee, he or she may be granted up to a total of an additional 700,000 Restricted Stock Units (and/or Shares of Restricted Stock).
8.2 RSU Agreement. Each Award of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify any vesting conditions and/or performance objectives, the number of Restricted Stock Units granted, and such other terms and conditions as the Committee shall determine. After an Award of Restricted Stock Units has been granted, the Committee may
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waive any vesting or performance conditions. Except as provided in the applicable Award agreement, a Participant shall have with respect to such Restricted Stock Units none of the rights of a holder of Shares unless and until Shares are actually delivered in satisfaction of such Restricted Stock Units.
8.3 Section 162(m) Performance Objectives. For purposes of qualifying grants of Restricted Stock Units as performance-based compensation under Section 162(m) of the Code, the Committee may determine that the performance objectives applicable to Restricted Stock Units shall be based on the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Restricted Stock Units to qualify as performance-based compensation under Section 162(m) of the Code. In granting Restricted Stock Units that are intended to qualify under Section 162(m) of the Code, the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate to ensure qualification of the Restricted Stock Units under Section 162(m) of the Code (e.g., in determining the Performance Goals).
SECTION 9
OTHER STOCK-BASED OR CASH-BASED AWARDS
9.1 Grant of Other Stock-Based or Cash-Based Awards. The Committee is authorized to grant Awards to Participants in the form of Other Stock-Based Awards or Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. The Committee shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including the Performance Goals and Performance Periods. Shares or other securities or property delivered pursuant to an Award in the nature of a purchase right granted under this Section 9.1 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, Shares, other Awards, or other property, as the Committee shall determine, subject to any required corporate action.
9.2 General Restrictions. With respect to a Participant, (i) the maximum value of the Other Cash-Based Awards that may be granted to any Participant during any Fiscal Year is $10,000,000, and (ii) the maximum number of Shares that any Participant may be granted during any Fiscal Year with respect to Other Stock-Based Awards is 2,000,000 Shares. No payment shall be made to a Covered Employee prior to the certification by the Committee that the Performance Goals have been attained. The Committee may establish such other rules applicable to the Other Stock- or Cash-Based Awards to the extent not inconsistent with Section 162(m) of the Code. Payments earned in respect of any Cash-Based Award may be decreased or, with respect to any grantee who is not a Covered Employee, increased by the Committee based on such factors as the Committee deems appropriate.
SECTION 10
GENERAL PROVISIONS
10.1 Impact of Change of Control on Options, SARs, Restricted Stock Awards, Restricted Stock Unit Awards and Other Stock-Based Awards. Notwithstanding any other provision of the Plan or the terms of any Award of Options, SARs, Restricted Stock, RSUs and Other Stock-Based
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Awards, upon a Change of Control, in the event that Awards of Options, SARs, Restricted Stock, RSUs and Other Stock-Based Awards are not assumed by the successor corporation or its parent or a subsidiary pursuant to Section 10.3 below, then (a) Options and Stock Appreciation Rights outstanding as of the date of the Change of Control shall become fully vested and exercisable, (b) Restricted Stock Awards and Restricted Stock Unit Awards shall become fully vested and free of any restrictions (including, without limitation, any performance vesting criteria), and (c) the restrictions and other conditions applicable to any Other Stock-Based Awards or any other Awards shall lapse, and such Other Stock-Based Awards or such other Awards shall become free of all restrictions, limitations or conditions and become fully vested in full or part and transferable to the full extent of the original grant, subject in each case to any terms and conditions, if any, contained in the Award Agreement evidencing such Award, including but not limited to a condition that such treatment will apply only if the Participant remains employed on the effective date of the Change of Control or has incurred an involuntary termination of employment without cause on account of the Change of Control, as determined by the Committee in its sole discretion, within a period of up to 3 months prior to the effective date of the Change of Control. Notwithstanding any other provision of the Plan, the Committee, in its discretion, may determine that, upon the occurrence of a Change of Control, each outstanding Award shall be fully vested and terminate within a specified number of days after notice to the Participant, and such Participant shall receive, with respect to each Share subject to any such Award of Restricted Stock, RSU and Other Stock-Based Awards, an amount equal to the Fair Market Value immediately prior to the occurrence of such Change of Control, or with respect to any such Award of Options or SARs, the amount equal to the Fair Market Value immediately prior to the occurrence of such Change of Control over the exercise price per share of such Option and/or SAR; such amount in either case to be payable in cash, in one or more kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine.
10.2 Impact of Change of Control on Other Cash-Based Awards. Notwithstanding any other provision of the Plan, the terms of any Other Cash-Based Award may provide in the Award Agreement evidencing the Award that, upon a Change of Control, in the event that the Other Cash-Based Awards are not assumed by the successor corporation or its parent or a subsidiary, (a) a pro rata portion of the Other Cash-Based Awards shall be considered to be earned and payable based on the portion of the Other Cash-Based Award Performance Period completed as of the date of the Change of Control and based on performance to such date, or if performance to such date is not determinable, based on target performance.
10.3 Assumption of Options, SARs, Restricted Stock Awards, Restricted Stock Unit Awards, and Other Stock-Based Awards Upon Change of Control. In the event of a Change of Control, the successor company may assume or substitute for an Option, SAR, Restricted Stock Award, Restricted Stock Unit Award, or Other Stock-Based Award. For the purposes of this Section 10.3, an Award of Option, SARs, Restricted Stock, RSUs, or Other Stock-Based Award shall be considered assumed or substituted for if following the Change of Control the award confers the right to purchase or receive, for each Share subject to the Option, SAR, Restricted Stock Award, Restricted Stock Unit Award, or Other Stock-Based Award immediately prior to the Change of Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change of Control by holders of Shares for each Share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of
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consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the transaction constituting a Change of Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, or Other Stock-Based Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per share consideration received by holders of Shares in the transaction constituting a Change of Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding. Notwithstanding the foregoing, unless the applicable Award Agreement expressly provides that the provisions of this sentence shall not apply to the Award, in the event of an involuntary termination of a Participants employment without Cause by such successor company within 24 months of the date of a Change of Control, each Award held by such Participant at the time of the Change of Control shall be accelerated as described in Section 10.1. For the purposes of this Section 10.3, if Cause has not been defined in any applicable Award Agreement, Cause shall mean (i) an act of fraud or personal dishonesty undertaken by a Participant in connection with the Participants responsibilities as an employee that is intended to result in substantial gain or personal enrichment of the Participant at the expense of the Company, (ii) a Participants conviction of, or plea of nolo contendere to, a felony, (iii) a Participants gross misconduct in connection with the performance or failure of performance of a material component of the Participants responsibilities as an employee that is materially injurious to the Company, or (iv) a Participants continued substantial violations of his or her employment duties after the Participant has received a written demand for performance from the Company which specifically sets forth the factual basis for the Companys belief that the Participant has not substantially performed such duties.
10.4 Deferrals. The Committee may permit a Participant to defer receipt of the payment of cash or the delivery of Shares that otherwise would be due to such Participant under an Award. Any such deferral elections shall be subject to such rules and procedures as shall be determined by the Committee.
10.5 No Effect on Employment or Service. Nothing in the Plan shall interfere with or limit in any way the right of the Company or a Subsidiary to terminate any Participants employment or service at any time, with or without cause, subject to compliance with local law. For purposes of the Plan, transfer of employment of a Participant between the Company and any one of its Subsidiaries (or between Subsidiaries) shall not be deemed a Termination of Service.
10.6 Cancellation and Rescission of Awards. The following provisions of this Section 10.6 shall apply to Awards granted to individuals who are, were or become Section 16 Persons. The Committee or the Board may cancel, rescind, forfeit, suspend or otherwise limit or restrict any unexpired Award at any time if the Section 16 Person engages in Detrimental Activity (as defined below). Furthermore, in the event a Section 16 Person engages in Detrimental Activity at any time prior to or during the six months after any exercise of an Award, lapse of a restriction under an Award or delivery of Common Stock pursuant to an Award, such exercise, lapse or delivery may be rescinded until the later of (i) two years after such exercise, lapse or delivery or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require
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the Section 16 Person to (i) deliver and transfer to the Company the shares of Stock received by the Section 16 Person upon such exercise, lapse or delivery, (ii) pay to the Company an amount equal to any realized gain received by the Section 16 Person from such exercise, lapse or delivery, (iii) pay to the Company an amount equal to the market price (as of the exercise, lapse or delivery date) of the Stock acquired upon such exercise, lapse or delivery minus the respective price paid upon exercise, lapse or delivery, if applicable or (iv) pay the Company an amount equal to any cash awarded with respect to an Award. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the Section 16 Person by the Company. As used in this Section 10.6, Detrimental Activity shall include: (i) the failure to comply with any term set forth in the Companys Employment Agreement; (ii) any activity that results in termination of the Section 16 Officers employment for Cause; or (iii) the Section 16 Person being convicted of, or entering a guilty plea with respect to a crime connected with the Company.
10.7 Participation. No Employee or Consultant shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
10.8 Successors. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Company.
10.9 Beneficiary Designations. If permitted by the Committee, a Participant under the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid Award shall be paid in the event of the Participants death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participants death shall be paid to the Participants estate and, subject to the terms of the Plan and of the applicable Award Agreement, any unexercised vested Award may be exercised by the administrator or executor of the Participants estate.
10.10 Limited Transferability of Awards. No Award granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution, to a Participants spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights or to the limited extent provided in this Section 10.10. All rights with respect to an Award granted to a Participant shall be available during his or her lifetime only to the Participant. Notwithstanding the foregoing, the Participant may, in a manner specified by the Committee, if the Committee so permits, transfer an Award by bona fide gift and not for any consideration, to (i) a member or members of the Participants immediate family, (ii) a trust established for the exclusive benefit of the Participant and/or member(s) of the Participants immediate family, (iii) a partnership, limited liability company or other entity whose only partners or members are the Participant and/or member(s) of the Participants immediate family, or (iv) a foundation in which the Participant and/or member(s) of the Participants immediate family control the management of the foundations assets. Any such transfer shall be made in accordance with such procedures as the Committee may specify from time to time.
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10.11 No Rights as Stockholder. Except to the limited extent provided in Sections 7.4 and 7.5, no Participant (nor any beneficiary) shall have any of the rights or privileges of a stockholder of the Company with respect to any Shares issuable pursuant to an Award (or exercise thereof), unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (or beneficiary).
10.12 Leaves of Absence. Unless otherwise expressly determined by the Committee or required by applicable law, vesting of Awards and/or any Shares issuable pursuant to an Award (or exercise thereof), will be treated as follows during a leave of absence of a Participant:
10.12.1 Statutory Leave of Absence. Vesting credit will continue during a leave of absence if the leave satisfies each of the following requirements: (a) the leave is approved by the Company, (b) the leave is mandated by applicable law, and (c) the Participant takes the leave in accordance with such law and complies with applicable Company leave policies (a leave meeting all such requirements being a Statutory Leave of Absence).
10.12.2 Approved Personal Leave of Absence. Vesting credit will not continue (and instead will be tolled or suspended) during any leave of absence that is not a Statutory Leave of Absence (a Personal Leave of Absence). For purposes of clarification, a Participant will not be considered to have incurred a Termination of Service during any Company-approved Personal Leave of Absence so long as the Participant complies with applicable law and applicable Company leave policies.
SECTION 11
AMENDMENT, TERMINATION, AND DURATION
11.1 Amendment, Suspension, or Termination. The Board may amend, suspend or terminate the Plan, or any part thereof, at any time and for any reason. The amendment, suspension, or termination of the Plan shall not, without the consent of the Participant, alter or impair any rights or obligations under any Award theretofore granted to such Participant. No Award may be granted during any period of suspension or after termination of the Plan.
11.2 Duration of the Plan. The Plan shall be effective as of August 1, 2008, and, subject to Section 11.1, shall remain in effect thereafter. However, without further stockholder approval, no Incentive Stock Option may be granted under the Plan after February 26, 2020.
SECTION 12
TAX WITHHOLDING
12.1 Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, national, foreign, state, and local taxes (including the Participants FICA, income tax, national insurance, social insurance, payment on account, payroll taxes or other tax-related withholding or similar insurance or tax obligations) required to be withheld with respect to such Award (or exercise thereof).
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12.2 Withholding Arrangements. The Committee, pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy his or her Tax Obligations, in whole or in part by (a) electing to have the Company withhold otherwise deliverable Shares, or (b) delivering to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld or remitted. The amount of the Tax Obligations shall be deemed to include any amount which the Committee agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant or the Company, as applicable, with respect to the Award on the date that the amount of tax or social insurance liability to be withheld or remitted is to be determined. The Fair Market Value of the Shares to be withheld or delivered shall be determined as of the date that the Tax Obligations are required to be withheld or remitted, or (c) by any other procedures set forth in the applicable Award Agreement.
SECTION 13
LEGAL CONSTRUCTION
13.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
13.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
13.3 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
13.4 Securities Law Compliance. With respect to Section 16 Persons, transactions under this Plan are intended to qualify for the exemption provided by Rule 16b-3. To the extent any provision of the Plan, Award Agreement or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable or appropriate by the Committee.
13.5 Code Section 409A. Unless otherwise specifically determined by the Committee, the Committee shall comply with Code Section 409A in establishing the rules and procedures applicable to deferrals in accordance with Section 10.4 and taking or permitting such other actions under the terms of the Plan that otherwise would result in a deferral of compensation subject to Code Section 409A.
13.6 Governing Law. The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware (with the exception of its conflict of laws provisions).
13.7 Captions. Captions are provided herein for convenience only, and shall not serve as a basis for interpretation or construction of the Plan.
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Exhibit 31.1
CERTIFICATION
I, Vivek Y. Ranadivé, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TIBCO Software Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: July 13, 2012
/s/ Vivek Y. Ranadivé |
Vivek Y. Ranadivé |
Chief Executive Officer and Chairman of the Board of Directors |
Exhibit 31.2
CERTIFICATION
I, Sydney L. Carey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TIBCO Software Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: July 13, 2012
/s/ Sydney L. Carey |
Sydney L. Carey |
Executive Vice President, Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
I, Vivek Y. Ranadivé, Chief Executive Officer of TIBCO Software Inc. (the Company), do hereby certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and 18 U.S.C. Section 1350, that, to my knowledge:
(a) | the Quarterly Report on Form 10-Q of the Company for the quarter ended June 3, 2012, as filed with the Securities and Exchange Commission (the Report), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
(b) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: July 13, 2012
/s/ Vivek Y. Ranadivé |
Vivek Y. Ranadivé |
Chief Executive Officer and Chairman of the Board of Directors |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TIBCO Software Inc. and will be retained by TIBCO Software Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION
I, Sydney L. Carey, Executive Vice President, Chief Financial Officer of TIBCO Software Inc. (the Company), do hereby certify, pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and 18 U.S.C. Section 1350, that, to my knowledge:
(a) | the Quarterly Report on Form 10-Q of the Company for the quarter ended June 3, 2012, as filed with the Securities and Exchange Commission (the Report), fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
(b) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: July 13, 2012
/s/ Sydney L. Carey |
Sydney L. Carey Executive Vice President, Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to TIBCO Software Inc. and will be retained by TIBCO Software Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Preliminary Allocation of Purchase Price for Loyalty Lab Acquisition (Detail) (Loyalty Lab, USD $)
In Thousands, unless otherwise specified |
Dec. 07, 2010
|
---|---|
Loyalty Lab
|
|
Schedule of Business Acquisitions, Purchase Price Allocation [Line Items] | |
Cash | $ 905 |
Accounts receivable (approximate contractual value) | 5,118 |
Deferred income tax assets, net | 3,758 |
Other assets | 729 |
Identifiable intangible assets | 6,600 |
Goodwill | 11,966 |
Liabilities | (5,590) |
Total preliminary purchase price | $ 23,486 |
Commitments And Contingencies - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2003
|
May 31, 2012
|
May 31, 2011
|
May 31, 2012
|
May 31, 2011
|
|
Commitments and Contingencies Disclosure [Line Items] | |||||
Land lease term | 51 years | ||||
Prepaid land lease rent | $ 28.0 | ||||
Prepaid land lease adjustments term | 10 years | ||||
Rental expense | 3.4 | 3.6 | 7.2 | 6.8 | |
Lease expiration date | 2019-05 | ||||
Long-term income tax liabilities | $ 24.2 | $ 24.2 |
Change in Carrying Value of Goodwill (Detail) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |||
---|---|---|---|---|
May 31, 2012
|
||||
Goodwill and Intangible Assets Disclosure [Line Items] | ||||
Beginning Balance | $ 451,821 | |||
Goodwill recorded for the LogLogic acquisition | 73,189 | |||
Post-acquisition goodwill adjustment for the Nimbus acquisition | 1,077 | [1] | ||
Foreign currency translation | (9,400) | |||
Ending Balance | $ 516,687 | |||
|
Foreign Currency Forward Contract Not Designated as Hedging Instruments (Detail) (USD $)
In Thousands, unless otherwise specified |
May 31, 2012
|
Nov. 30, 2011
|
---|---|---|
Other Current Assets
|
||
Derivatives, Fair Value [Line Items] | ||
Derivatives not designated as hedging instruments, assets | $ 142 | |
Accrued Liabilities
|
||
Derivatives, Fair Value [Line Items] | ||
Derivatives not designated as hedging instruments, liabilities | $ 152 | $ 142 |
SEGMENT INFORMATION (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2012
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Summary of Revenue by Geographic Region | Our revenue, organized by the following geographic regions: (i) Americas; (ii) Europe, the Middle East and Africa (“EMEA”); and (iii) Asia Pacific and Japan (“APJ”), based on the location at which each sale originates, is summarized as follows (in thousands):
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Summary of Property and Equipment by Major Country | Our property and equipment by major country are summarized as follows (in thousands):
|
Summary of Additional Information Pertaining to Stock-Based Compensation from Stock Options and Stock Awards (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
May 31, 2012
|
May 31, 2011
|
May 31, 2012
|
May 31, 2011
|
|
Stock Options
|
||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock options, Weighted-average grant-date fair value | $ 11.60 | $ 11.61 | $ 9.83 | $ 11.11 |
Stock options, Options granted | 1 | 1,453 | 173 | 1,784 |
Stock options, Options exercised | (629) | (1,634) | (1,637) | (3,742) |
Stock options, Total intrinsic value of stock options exercised | $ 14,605 | $ 34,010 | $ 31,864 | $ 63,122 |
Total unrecognized compensation expense | 22,927 | 29,036 | 22,927 | 29,036 |
Weighted-average remaining recognition period | 2 years 146 days | 2 years 256 days | 2 years 146 days | 2 years 256 days |
Stock Awards
|
||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Stock awards, Weighted-average grant-date fair value | $ 32.37 | $ 29.44 | $ 29.99 | $ 26.71 |
Stock awards, Stock awards granted | 179 | 1,189 | 964 | 1,752 |
Stock awards, Stock awards vested | (1,241) | (1,316) | (1,688) | (1,846) |
Total unrecognized compensation expense | $ 84,540 | $ 105,551 | $ 84,540 | $ 105,551 |
Weighted-average remaining recognition period | 2 years | 2 years 219 days | 2 years | 2 years 219 days |
INVESTMENTS (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2012
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Summary of Marketable Securities which are Classified as Available-for-Sale | Marketable securities, which are classified as available-for-sale and included either in cash and cash equivalents if their maturities were three months or less or in short term investments on the Condensed Consolidated Balance Sheet, are summarized below as of May 31, 2012 and November 30, 2011 (in thousands):
|
Accrued Restructuring and Excess Facilities Costs (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
May 31, 2012
|
May 31, 2012
|
May 31, 2011
|
|
Restructuring Cost and Reserve [Line Items] | |||
Beginning Balance | $ 7,842 | ||
Restructuring adjustment | (400) | (519) | (33) |
Adjustment to acquisition integration costs | (253) | ||
Cash Utilized | (5,107) | ||
Ending Balance | 1,963 | 1,963 | |
Excess Acquisition Integration
|
|||
Restructuring Cost and Reserve [Line Items] | |||
Beginning Balance | 41 | ||
Adjustment to acquisition integration costs | (3) | ||
Ending Balance | 38 | 38 | |
Accrued Facilities Restructuring
|
|||
Restructuring Cost and Reserve [Line Items] | |||
Beginning Balance | 2,782 | ||
Restructuring adjustment | (32) | ||
Adjustment to acquisition integration costs | (420) | ||
Cash Utilized | (806) | ||
Ending Balance | 1,524 | 1,524 | |
Accrued Severance and Other
|
|||
Restructuring Cost and Reserve [Line Items] | |||
Beginning Balance | 5,019 | ||
Restructuring adjustment | (487) | ||
Adjustment to acquisition integration costs | 170 | ||
Cash Utilized | (4,301) | ||
Ending Balance | $ 401 | $ 401 |
Summary of Marketable Securities which are Classified as Available-for-Sale (Detail) (USD $)
In Thousands, unless otherwise specified |
May 31, 2012
|
Nov. 30, 2011
|
---|---|---|
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | $ 442,156 | $ 17,424 |
Gross Unrealized Gains | 55 | 51 |
Gross Unrealized Losses | (37) | (26) |
Aggregate Fair Value | 442,174 | 17,449 |
Money market funds
|
||
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | 441,427 | 16,664 |
Aggregate Fair Value | 441,427 | 16,664 |
Term deposits
|
||
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | 542 | 560 |
Aggregate Fair Value | 542 | 560 |
Mortgage-backed securities
|
||
Schedule of Available-for-sale Securities [Line Items] | ||
Amortized Cost | 187 | 200 |
Gross Unrealized Gains | 55 | 51 |
Gross Unrealized Losses | (37) | (26) |
Aggregate Fair Value | $ 205 | $ 225 |
Preliminary Allocation of Purchase Price for Nimbus Acquisition (Detail) (Nimbus Partners Limited, USD $)
In Thousands, unless otherwise specified |
Aug. 30, 2011
|
---|---|
Nimbus Partners Limited
|
|
Schedule of Business Acquisitions, Purchase Price Allocation [Line Items] | |
Cash | $ 971 |
Accounts receivable (approximate contractual value) | 3,634 |
Other assets | 763 |
Identifiable intangible assets | 19,800 |
Goodwill | 28,194 |
Liabilities | (6,693) |
Deferred income tax liabilities, net | (4,669) |
Total preliminary purchase price | $ 42,000 |
Long-Term Debt and Credit Facilities - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
6 Months Ended | 12 Months Ended | 6 Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2012
|
Nov. 30, 2011
|
Apr. 30, 2012
|
Jun. 30, 2003
|
May 31, 2012
Minimum
|
May 31, 2012
Maximum
|
May 31, 2012
Through February 28, 2013
Maximum
|
May 31, 2012
Through February 28, 2014
Maximum
|
May 31, 2012
Through December 31, 2016
Maximum
|
May 31, 2012
Revolving Line Of Credit
|
Nov. 30, 2009
Unsecured Debt
|
May 31, 2012
Cash Borrowings
|
May 31, 2012
Letters Of Credit
|
May 31, 2012
Letters Of Credit
Revolving Line Of Credit
|
May 31, 2012
Swing Line Loans
|
May 31, 2012
Mortgage Note
Year
|
May 31, 2012
Revenue Transactions
|
May 31, 2012
Guarantee Credit Line
|
|
Line of Credit Facility [Line Items] | ||||||||||||||||||
Mortgage note payable | $ 36.9 | $ 38.1 | $ 54.0 | |||||||||||||||
Mortgage note payable, amortization period (years) | 20 years | |||||||||||||||||
Debt instrument, fixed annual interest rate | 2.25% | 5.50% | ||||||||||||||||
Debt principal balance | 34.4 | |||||||||||||||||
Term on principal balance (in years) | 10 | |||||||||||||||||
Minimum cash reserve for acquiring another company without consent of lender | 50.0 | |||||||||||||||||
Lines of credit facility potential maximum borrowings capacity | 350.0 | |||||||||||||||||
Revolving credit facility capacity | 20.0 | 150.0 | 250.0 | 50.0 | 20.0 | 10.0 | 12.4 | |||||||||||
Unsecured revolving credit facility maturity date | Dec. 19, 2016 | |||||||||||||||||
Lines of credit facility maximum borrowings capacity increase | 100.0 | |||||||||||||||||
Margin on base rate | 0.25% | 1.25% | ||||||||||||||||
Spread over LIBOR | 1.00% | 1.25% | 2.25% | |||||||||||||||
Margin on federal funds | 0.50% | |||||||||||||||||
Loan origination fees and issuance costs | 3.4 | |||||||||||||||||
Credit facility amortized interest expense period (in years) | 5 years | |||||||||||||||||
Default applicable interest rate on all obligations | 2.00% | |||||||||||||||||
Interest coverage ratio | 3.5 | |||||||||||||||||
Leverage ratio | 3.25 | 3.00 | 2.75 | |||||||||||||||
Revolving Line of credit maturity date | 2013-06 | |||||||||||||||||
Credit facility outstanding | 13.0 | 1.4 | ||||||||||||||||
Bank guarantees | 11.9 | 11.4 | ||||||||||||||||
Restricted cash | $ 13.9 | $ 13.8 |
Potential Common Stock Equivalents not Included in Diluted Net Income Per Share Calculation (Detail)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
May 31, 2012
|
May 31, 2011
|
May 31, 2012
|
May 31, 2011
|
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total anti-diluted common stock equivalents | 6,975 | 1,426 | 4,397 | 904 |
Stock Options
|
||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total anti-diluted common stock equivalents | 1,612 | 886 | 1,762 | 634 |
Stock Awards
|
||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total anti-diluted common stock equivalents | 17 | 540 | 20 | 270 |
Convertible Senior Notes
|
||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Total anti-diluted common stock equivalents | 5,346 | 2,615 |
Gain or (Loss) Recognized in Income on Derivatives (Detail) (Foreign Currency Contracts, Other Income/(Expense), USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
May 31, 2012
|
May 31, 2011
|
May 31, 2012
|
May 31, 2011
|
|
Foreign Currency Contracts | Other Income/(Expense)
|
||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Amount of Gain or (Loss) Recognized in Income on Derivative | $ (438) | $ (3,135) | $ (1,795) | $ (7,569) |
INVESTMENTS
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2012
|
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INVESTMENTS |
Marketable securities, which are classified as available-for-sale and included either in cash and cash equivalents if their maturities were three months or less or in short term investments on the Condensed Consolidated Balance Sheet, are summarized below as of May 31, 2012 and November 30, 2011 (in thousands):
|
Net Income Per Share - Additional Information (Detail)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|---|---|
May 31, 2012
|
May 31, 2011
|
May 31, 2012
|
May 31, 2011
|
May 31, 2012
Weighted Effect of Shares to be Issued under Convertible Notes
|
May 31, 2012
Weighted Effect of Shares to be Issued under Convertible Notes
|
Nov. 30, 2010
Performance-Based Restricted Stock Units
|
|
Net Income Loss Per Common Share [Line Items] | |||||||
Number of underlying stock awards granted | 4,100 | ||||||
Weighted effect of anti-dilutive potential common shares | 6,975 | 1,426 | 4,397 | 904 | 11,900 | 11,900 |