-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T2pVI0mKes3fQa7eJLyz3CJt1Yf5skux1UhJ+Vz2M0iTpmcrx7qkfQFs13ygm++E dUPHN1PAs538ZLenTEkU0A== 0001012870-00-000959.txt : 20000228 0001012870-00-000959.hdr.sgml : 20000228 ACCESSION NUMBER: 0001012870-00-000959 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIBCO SOFTWARE INC CENTRAL INDEX KEY: 0001085280 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 770449727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26579 FILM NUMBER: 552851 BUSINESS ADDRESS: STREET 1: 3165 PORTER DRIVE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6508465000 MAIL ADDRESS: STREET 1: 3165 PORTER DRIVE CITY: PALO ALTO STATE: CA ZIP: 94304 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 1999 Commission File Number: 000-26579 ---------------- TIBCO SOFTWARE INC. (Exact name of registrant as specified in its charter) Delaware 77-0289509 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3165 Porter Drive, Palo Alto, CA 94304 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (650) 846-5000 ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share (Title of Class) ---------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of December 15, 1999, there were 181,228,026 shares of the Registrant's Common Stock outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on the Nasdaq National Market on December 15, 1999) was approximately $2,297,428,775. Shares of common stock held by each executive officer and director and by each entity that owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. DOCUMENTS INCORPORATED BY REFERENCE Certain sections of the Registrant's Annual Report to Stockholders for the year ended November 30, 1999 (the "1999 Annual Report") are incorporated by reference in Parts II and IV of this Form 10-K to the extent stated herein. Also, certain sections of the Registrant's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on April 12, 2000 are incorporated by reference in Part III of this Form 10-K to the extent stated herein. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TIBCO Software Inc. Form 10-K For the Fiscal Year Ended November 30, 1999 TABLE OF CONTENTS Part I Item 1. Business................................................... 3 Item 2. Properties................................................. 13 Item 3. Legal Proceedings.......................................... 13 Item 4. Submission of Matters to a Vote of Security Holders........ 13 Part II Item 5. Market for the Company's Common Stock and Related Stockholders Matters....................................... 14 Item 6. Selected Financial Data.................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 14 Item 7A. Quantitative and Qualitative Disclosure About Market Risk.. 14 Item 8. Financial Statements and Supplementary Data................ 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................... 14 Part III Item 10. Directors and Executive Officers of TIBCO Software Inc..... 15 Item 11. Executive Compensation..................................... 15 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................. 15 Item 13. Certain Relationships and Related Transactions............. 15 Part IV Item 14. Exhibits, Financial Statements Schedule, and Reports on Form 8-K................................................... 16 Signatures................................................. 18 Financial Statement Schedule............................... 18 Exhibit Index.............................................. 19
2 PART I Item 1. Business The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Predictions of future events are inherently uncertain. Actual events could differ materially from those predicted in the forward-looking statements as a result of the risks set forth in the following discussion and, in particular, the risks discussed below under the caption "Factors that May Affect Operating Results." Overview We are a leading provider of eBusiness infrastructure software products that enable business-to-business, business-to-consumer and business-to-employee solutions. Our software products that enable businesses to link internal operations, business partners and customer channels in real-time. Our software products allow multiple distinct applications, web sites, databases and other content sources to be integrated and managed within a common framework. Our products also enable enterprises to extend their information technology infrastructures and business processes across the Internet to conduct all forms of electronic business using the Internet: business-to-business, business-to- consumer and business-to-employee. Our core technology, known as The Information Bus or the TIB, is an integration platform that enables enterprises and users to automatically transmit, receive, filter and personalize digital information in real-time. The Information Bus also facilitates real-time, two- way communications between distributed computer networks and mobile information devices such as hand-held computers, pagers and digital cellular phones. Our products are currently in use by over 300 companies in diverse markets such as telecommunications, manufacturing, energy, financial services and internet portals. Driven by accelerating competition and the increasing demands of customers, many enterprises today are seeking to expand and improve the scope, speed and efficiency of their business processes by using the Internet to become eBusinesses. An eBusiness is a company that integrates its disparate applications and information sources, connects with customers, partners and employees using the Internet and engages in commerce with business-to-business, or B2B, or business-to-consumer, or B2C and business-to-employee, or B2E communities. Just as markets are becoming increasingly global and corporate relationships become increasingly complex, the business environment today demands a more tightly integrated network of supplier, customer and partner relationships. Emerging challenges and opportunities are forcing businesses to become more efficient, in many cases by adjusting their operations and strategies in real-time. The timely exchange of information across intranets and the Internet provides opportunities to leverage management resources, create manufacturing efficiencies and improve customer service. For example, real-time business process integration and information exchange with suppliers and customers over the Internet expedites order fulfillment, decreases inventory carrying costs, and provides enhanced sales opportunities through direct customer interaction. Our solution allows multiple computer applications and platforms to communicate in real-time across the Internet and intranets. The TIB technology facilitates the distribution of information and the integration of business processes by connecting each application to the network through a single interface, instead of linking each application directly to all others. The benefits of the TIB technology are realized through our integrated suite of software products. These products provide support for a broad range of key eBusiness technologies such as eXtensible Markup Language, or XML, an emerging standard for sharing data over the Internet, and related XML e-Commerce frameworks, such as RosettaNet. 3 Our objective is to establish the TIB technology as the leading software solution for eBusiness infrastructure. The core elements of our strategy include enhancing our position as a provider of portal infrastructure, pursuing a license driven business strategy, leveraging our vertical market expertise, capitalizing on the presence of Reuters in the financial services industry, expanding our international presence and continuing to enhance our technology and products. The TIB Products TIB Product Suite The TIB products can be deployed individually or as an integrated solution. Support for eBusiness protocols and standards such as XML, along with XML eCommerce frameworks such as RosettaNet, is incorporated throughout our products. Our products provide the following key elements of eBusiness infrastructure: . Messaging--enables the movement of information and facilitates transactions between applications, databases and portals. . Connectivity--integrates various legacy and third party applications by connecting them to a common eBusiness infrastructure. . Information Transformation and Flow Management--manages the conversion and translation of data and controls the flow of information and the interaction of business processes within and between enterprises. . Monitoring and Management--provides the means for the enterprise to administer its applications environment and ensure reliable operations. . Content Display--provides the display console through which users are notified of and view business event information. Messaging (Events, Data & Transactions) Our messaging products are the foundation of our product suite. These products simplify the problem of integrating diverse computer applications by connecting each application to the network with a single interface, instead of linking each application directly to all others. Our products support a wide range of communication models, including the use of XML-based messages. Our three complementary messaging products are described below: . TIB/Rendezvous is our flagship messaging product. TIB/Rendezvous supports publish/subscribe as well as request/reply messaging, and facilitates personalized information delivery. TIB/Rendezvous leverages the networking protocols of the Internet to offer a range of service levels in the delivery of information and the execution of transactions. TIB/Rendezvous provides efficient, reliable information delivery and high scalability, and can be embedded in an enterprise's existing information system. . TIB/ETX is a transaction-based messaging system designed for use in environments that require a greater degree of transaction management and control than is provided by a standard messaging solution. TIB/ETX provides a transactional form of publish/ subscribe messaging similar to traditional computer transaction models. . TIB/ObjectBus is our object request broker, or ORB. ORBs enable computer systems to operate more efficiently by employing reusable, self- contained pieces of software code known as objects. TIB/ObjectBus allows our TIB products to integrate with CORBA 2.0, a major programming standard for object-oriented applications. TIB/ObjectBus can be fully integrated with our messaging software, combining the efficiency of an object oriented computing model with the scalability, performance and ease of use benefits of TIB/Rendezvous. 4 Connectivity TIB/Adapters are our software components that link applications to the TIB environment, thus enabling these applications to communicate with each other. We take an innovative approach to application integration by using a TIB/Adapter as the single point of integration for the application. Our TIB/Adapter products connect leading enterprise applications and complementary middleware products to the TIB environment. We offer a series of standard TIB/Adapters designed to link applications and other software developed by SAP, Siebel Systems, PeopleSoft, IBM and Oracle, among others, to the TIB. We also have a software toolkit, the TIB/Adapter SDK, that allows our customers and systems integrators to build custom TIB/Adapters to link applications to the TIB environment. The TIB/Adapter SDK product provides a common framework for the rapid development of new TIB/Adapters. Information Transformation and Flow Management In order to facilitate the efficient movement of information across enterprise applications, a solution must have the ability to translate content from one format to another--including XML and proprietary message types--and to effectively govern the manner in which information flows between applications. Our transformation and process flow management products translate data from each application into a format that is understood by other applications as described below: . TIB/MessageBroker is our scalable message routing and transformation system. TIB/MessageBroker combines and transforms data from applications into formats that can be understood by other applications, and routes data according to pre-defined rules. TIB/MessageBroker also allows an enterprise to conduct transactions and exchange information with customers and business partners. Unlike many competing technologies, TIB/MessageBroker requires no independent database or third-party messaging system. . TIB/IntegrationManager controls the flow of information and system-to- system communication among applications and components in the TIB environment. TIB/IntegrationManager allows the enterprise to define business rules that govern information processing between applications and where information should go and under what conditions. TIB/IntegrationManager coordinates the message transport and transformation functions of the TIB products for internal process automation and B2B trading systems. . TIB/InConcert allows the definition of document-oriented process workflow, as specified through graphical user interfaces. TIB/IntegrationManager manages and executes automated system-to-system processes, while TIB/InConcert manages and executes the document- oriented workflows that involve human and computer processes. Together TIB/InConcert and TIB/IntegrationManager span the full range of requirements for process and workflow automation and execution within and between enterprises. . TIB/BusinessConnect, scheduled for release in the second quarter of fiscal 2000, is a server software product built around TIB/Integration- Manager and TIB/MessageBroker that will enhance our capabilities for B2B trading activities and simplify the implementation of B2B solutions. TIB/BusinessConnect is used to define trading relationships through a graphical user interface and then execute the resulting transactions between trading partners. TIB/BusinessConnect supports the core technologies and standards for B2B eCommerce. Content Display To conduct business in real-time, an enterprise must have the ability to provide a simple display tool for users to access and view business event information. Our products in this area are designed to combine information from the TIB environment with content from external sources, such as web pages, to create an 5 integrated display that can be personalized to the specific needs of the end- user. Our content display products are described below: . TIB/ContentBroker aggregates information from enterprise applications, corporate web sites and other content sources based on an enterprise's preferences, and delivers the requested information directly to users' desktops as soon as it becomes available. TIB/ContentBroker reduces the need for enterprises to support multiple end-user interfaces when users request information from various sources. . TIB/EventConsole is a display for users to view the content aggregated by TIB/ContentBroker. TIB/EventConsole provides personalized notifications from enterprise information sources, including databases, document servers, web servers, enterprise resource planning systems and legacy systems, directly to the desktop computers of the appropriate users. TIB/EventConsole also enables users to receive up-to-date information remotely. Monitoring and Management TIB/Hawk is our product for monitoring and managing applications. Through an intuitive graphical user interface, TIB/Hawk can be configured to monitor systems and applications in a local or wide area network and act autonomously when pre-defined conditions occur. TIBCO.NET and TIBCO Portal Products TIBCO.net As part of our strategy to extend the reach of our products, TIBCO.net provides a solution for the creation, monitoring and administration of demanding, high-performance platforms for eBusiness services, such as Internet or enterprise portals or corporate web sites. Using our TIB products we can create real-time, scalable information systems for our customers, such as the financial information system we created for Yahoo!. TIBCO.net allows our customers to combine internal business systems with external content, such as news or market pricing data. Our customers in turn can bundle this information for real-time delivery to their customers, suppliers, partners and employees. In addition, TIBCO.net provides our customers with the ability to integrate and deliver business information in real-time across the Internet through our reliable multicast technology. TIBCO.net represents a further evolution of the TIB products for use in Internet-enabled businesses. TIBCO.net is offered to our customers either as a TIBCO-hosted service, providing time-to-market advantages, or as a package of products and services for implementation at the customer's site. TIBCO.net, through its implementation of the TIBproducts, supports a broad range of communications methods and protocols enabling the delivery of information through a wide range of devices and presentation technologies, including Internet browsers, pagers, hand-held computers and digital cellular phones. TIB/PortalBuilder TIB/PortalBuilder, released in November 1999, provides the tools to create and build eBusiness portals. TIB/Portal Builder provides portal users with the ability to determine which content sources and services are delivered through a portal and to configure how the content is displayed to portal users. TIB/Portal builder can also work in conjunction with our TIB products to create and manage the integration of content and services within a portal. TIB/PortalBuilder allows personalized views of the portal to be created and stored for each portal user. A graphical user interface is provided to business users to make it easy to configure and define the content and services of a portal. The first customer of TIB/PortalBuilder was mySAP.com. TIB/PortalPaks TIB/PortalPaks are packaged software components for connecting content sources such as financial data, news, weather and sports. TIB/PortalPaks are designed to reduce the time-to-market and effort for portal creation. 6 Services Professional Services Our professional services offerings include a wide range of consulting services such as systems planning, architecture and design, custom development and systems integration for the rapid deployment of our TIB products. We offer professional services with the initial deployment of our products, as well as on an ongoing basis to address the continuing needs of our customers. Our professional services staff is primarily located in Palo Alto, Virginia, London and Sydney, enabling us to perform installations and respond to customer demands rapidly across the Americas, Europe and Asia. As of November 30, 1999, our professional services group consisted of 115 employees, including individuals with domain expertise in the telecommunications, energy and other industries. Many of our professional services employees have advanced degrees and/or substantial industry expertise in systems architecture and design. We expect that the number of service professionals and the scope of the services offered will increase as we continue to address the expanding eBusiness infrastructure needs of large organizations. We have relationships with resellers, professional service organizations and system integrators, including Deloitte Consulting, EDS, Ernst & Young, KPMG, and Sapient, to cooperate in the deployment of our products to clients. These relationships help promote our TIB products and provide additional technical expertise to enable us to provide the full range of professional services our customers require to deploy our products. Maintenance and Support We offer an array of software maintenance and support services to our customers. Our support organization provides services seven days a week, twenty-four hours a day. We have a worldwide support organization with key operations centers in Palo Alto, London and Sydney to ensure global coverage for our customers. These centers provide the infrastructure for our around-the- clock call centers and hotline support. We offer a range of support packages that allow our customers to choose the level of support that fits the needs and budgets of their organizations. Customers also have access to on-site support which is charged on a time and materials basis. Training We provide training for customer personnel at our main office as well as at customer locations. We also provide training for our professional services partners to enhance their effectiveness in integrating our products. In addition, we develop custom education programs to address the specific needs of individual customers and partners. Sales and Marketing Sales We currently market our software and services primarily through a direct sales organization, complemented by indirect sales channels. As of November 30, 1999, our direct sales force included 40 commissioned sales representatives located in 11 U.S. cities and in 12 locations internationally across North America, Europe and Asia. We have established distribution and licensing relationships with several strategic hardware vendors, database providers, software and toolset developers, systems integrators and implementation consultants. We have also developed alliances with key solution providers to target vertical industry sectors, including energy, telecommunications, manufacturing and Internet portals. Under the terms of our license agreement with Reuters, we generally cannot sell our products directly into the financial services market. Accordingly, we generally sell our products to companies in the financial services industry through third-party distributors and systems integrators. Reuters is the preferred distributor of our 7 products in that market. We believe that our distribution relationship with Reuters, a global news and information group, has strengthened the penetration of our products in the financial services industry. Product fees from Reuters on its sales of our products in the financial services industry accounted for 16% of our revenue in fiscal 1999, 6% of our revenue in fiscal 1998 and less than 1% of our revenue in fiscal 1997. Marketing We utilize a wide variety of marketing programs which are intended to attract potential customers and to promote TIBCO Software and its brand names. We use a mix of market research, analyst updates, seminars, direct mail, print advertising, trade shows, speaking engagements, public relations, customer newsletters, and web site marketing in order to achieve these goals. Our marketing department also produces collateral material for distribution to potential customers including presentation materials, white papers, brochures, and fact sheets. We also host annual user conferences for our customers and provide support to our channel partners with a variety of programs and training and product marketing support materials. Product Development We have been granted a perpetual, royalty-free license to the underlying TIB messaging technology as it existed on December 31, 1996. We have concentrated our product development efforts since then both on enhancing this licensed technology and on developing new products. We expect that most of our enhancements to existing products and new products will be developed internally. However, we will evaluate on an ongoing basis the acquisition of externally developed technologies for integration into our product lines. We expect that a substantial majority of our research and development activities will be enhancing and extending our TIB products. Historically, our product development efforts were focused on creating our core product solutions. Our development focus has now shifted to expanding the number of available TIB/Adapters and developing additional packaged integration solutions for specific markets. As of November 30, 1999, there were 149 employees in our research and development organization. We expect that we will continue to commit significant resources to product development in the future. To date, all product development costs have been expensed as incurred. Competition The market for our products and services is extremely competitive and subject to rapid change. In addition, we compete with various providers of single components of application integration solutions, including IBM, New Era of Networks, Iona and BEA with respect to messaging components and Vitria, CrossWorlds, STC and Active Software with respect to other components. We also compete in certain product areas with niche eBusiness connectivity companies such as WebMethods and other emerging companies. We believe that of these companies, IBM has the potential to offer the most complete set of products for application integration. We also compete in certain product areas with niche eBusiness connectivity companies such as WebMethods and other emerging companies. We also face competition for certain aspects of our product and service offerings from major systems integrators. We expect additional competition from other established and emerging companies. In addition, we may face pricing pressures from our current competitors and new market entrants in the future. We believe that the competitive factors affecting the market for our products and services include product functionality and features; quality of professional services offerings; product quality, performance and price; ease of product implementation; quality of customer support services; customer training and documentation; and vendor and product reputation. The relative importance of each of these factors depends upon the specific customer environment. Although we believe that our products and services currently compete favorably with respect to such factors, we may not be able to maintain our competitive position against current and potential competitors. 8 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. Our present or future competitors may be able 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. Accordingly, we may not be able to compete effectively in our markets, competition may intensify and harm our business and operating results. If we are not successful in developing enhancements to existing products and new products in a timely manner, achieving customer acceptance or generating higher average selling prices, our gross margins may decline, and our business and operating results may suffer. Our license agreement with Reuters does not prohibit Reuters from providing enterprise infrastructure software products and services in competition with us. Reuters currently sells our products to financial services companies and creates products based on the TIB technology specifically for financial services companies. In addition, pursuant to the license agreement, Reuters has access to the source code for our products. Although Reuters currently does not create TIB-based products designed for general use in all markets, if Reuters were to decide to begin providing information integration products and services in our markets, we would face additional competition for such customers. Proprietary Technology Our success is dependent upon our proprietary software technology. We license the patents for the TIB technology underlying some of our TIB products, including TIB/Rendezvous and TIB/ETX, from Reuters. Consequently, we can assert infringement of these products only through Reuters or with the consent of Reuters. While we have pending patent applications, we do not currently have any issued patents and rely principally on trade secret, copyright and trademark laws, nondisclosure and other contractual agreements to protect our technology. We also believe that factors such as the technological and creative skills of our personnel, product enhancements and new product developments are essential to establishing and maintaining a technology leadership position. We enter into confidentiality and/or license agreements with our employees, distributors and customers, and limit access to and distribution of our software, documentation and other proprietary information. Nevertheless, the steps we have taken may fail to prevent misappropriation of our technology, and the protections we have may not prevent our competitors from developing products with functionality or features similar to our products. Furthermore, third parties might independently develop competing technologies that are substantially equivalent or superior to our technologies. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. If we fail to protect our proprietary technology, our business could be seriously harmed. Although we do not believe our products infringe the proprietary rights of any third parties, third parties may nevertheless assert infringement claims against us or our customers in the future. Furthermore, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation, whether resolved in our favor or not, would cause us to incur substantial costs and divert our management resources from productive tasks, which could harm our business. Parties making claims against us could secure substantial damages, as well as injunctive or other equitable relief which could effectively block our ability to license our products in the United States or abroad. Such a judgment could seriously harm our business. If it appears necessary or desirable, we may seek licenses to intellectual property if we believe that our technology potentially infringes on such technology. We may not, however, be able to obtain such licenses on commercially reasonable terms or at all, and the terms of any offered licenses might not be acceptable to us. The failure to obtain necessary licenses or other rights could seriously harm our business. As the number of software products in our industry increases and the functionality of those products further overlaps, we believe that software developers may become increasingly subject to infringement claims. Any such claims, with or without merit, would probably be time consuming and expensive to defend, and could seriously harm our business. We are not aware of any currently pending claims that our products, trademarks or other proprietary rights infringe upon the proprietary rights of third parties. 9 "TIBCO", "The Information Bus", "TIB" and the names of our products are our trademarks or tradenames. Employees As of November 30, 1999, we employed 490 persons, including 120 in sales and marketing, 149 in research and development, 63 in finance and administration and 158 in client services and technical support. Of our 490 employees, 62 were located in Europe, and 37 in Australia and Asia. We believe that our relationship with our employees is good. 10 FACTORS THAT MAY AFFECT OPERATING RESULTS The following factors could materially and adversely affect our future operating results and could cause actual events to differ materially from those predicted in forward-looking statements related to its business. We have a history of losses and we expect future losses, and if we do not achieve and sustain profitability our business will suffer and our stock price may decline Although our revenue has increased in recent quarters, we may not be able to sustain our growth or obtain sufficient revenue to achieve and sustain profitability. We incurred net losses of approximately $4.7 million, $13.0 million, and $19.5 million in fiscal 1997, 1998 and 1999, respectively. As of November 30, 1999, we had an accumulated deficit of approximately $37.1 million. Since the beginning of fiscal 1998, we have invested significantly in building our sales and marketing organization and in our technology research and development. We expect to continue to spend substantial financial and other resources on expanding our direct sales and marketing activities and developing and introducing enhancements to our existing products and new software products. As a result, we need to generate significant revenue to achieve and maintain profitability. We expect that our sales and marketing expenses and our research and development expenses will continue to increase in absolute dollars and may increase as percentages of revenue for the foreseeable future. Our future revenue is unpredictable, and we expect our quarterly operating results to fluctuate, which may cause our stock price to decline Period-to-period comparisons of our operating results may not be a good indication of our future performance. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that event, our stock price would likely decline. As a result of our limited operating history, our new business strategy and the evolving nature of the markets in which we compete, we may 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 cause fluctuations in our operating results, including: . the announcement or introduction of new or enhanced products or services by our competitors; . the amount and timing of operating costs and capital expenditures relating to the expansion of our operations; and . the capital and expense budgeting decisions of our customers. In addition, our quarterly operating results have historically been subject to variations throughout the year due to a general slow-down in our sales in the summer months, particularly in Europe. Specifically, we generally experience relatively lower revenue in our third fiscal quarter. These seasonal variations in our operating results may lead to fluctuations in our results of operations from quarter to quarter throughout the year. Our dependence on a limited number of customers for a significant amount of our sales could lead to fluctuations in our operating results Our business depends on sales of our products to a limited number of customers, which may cause fluctuations in our operating results. We do not have long-term contracts with any of our customers. There can be no assurance that any of our customers will continue to purchase our products 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. 11 Our licensing and distribution relationship with Reuters places limitations on our ability to conduct our business We have a significant relationship with Reuters for licensing and distribution. Our relationship with Reuters involves limitations and restrictions on our business, as well as other risks, described below. Reuters has access to the intellectual property used in our products, and could use the intellectual property to compete with us. We license the underlying TIB messaging technology incorporated into some of our important TIB/ActiveEnterprise products from Reuters. We do not own this technology. Reuters is not restricted from using the TIB technology to produce products that compete with our products, and it can grant limited licenses to the TIB technology to others who may compete with us. In addition, we must license all the intellectual property and products we create through December 2011 to Reuters. This will place Reuters in a position to more easily develop products that compete with our product offerings. We must rely on Reuters and other distributors to sell our products in the financial services market, and they may not be successful in doing so. Under our agreements with Reuters, we are restricted from selling our products and providing consulting services directly to companies in the financial services market and major competitors of Reuters, and from using the TIB technology we license from Reuters to develop products specifically for use by these companies. Accordingly, we must rely on Reuters and other third-party resellers and distributors to sell our products to these companies. In fiscal 1998 and 1999, substantially all of our revenue from sales in the financial services market, excluding sales to Cedel Global Services, consisted of product fees paid to us by Reuters. Although Reuters is the preferred distributor of our products in the financial services market and is required to pay us guaranteed minimum product fee payments until the end of 2001, Reuters has no contractual obligation to distribute our products to financial services customers. Reuters and other distributors may not be successful in selling our products into the financial services market, or they may elect to sell competitive third-party products into that market, either of which may adversely affect our revenue in that market. Our relationship with Reuters restricts our ability to earn revenue from sales in the financial services market. Under the license agreement, Reuters is required to pay us product fees based on a percentage of its revenue from sales of our products in the financial services market, excluding products that are embedded in any Reuters' products. These product fees may be materially less than the product fees we could obtain from other distributors or resellers in the financial services market. In addition, when we sell our products into the financial services market through third-party distributors other than Reuters, Reuters receives a share of our license revenue. Our license agreement with Reuters imposes practical restrictions on our ability to acquire other companies. The license agreement places no specific restrictions on our ability to acquire companies with all or part of their business in the financial services market. However, under the terms of the license agreement, we are prohibited from bundling or combining our products that are based on licensed technology with an acquired company's products and services and then selling the bundled or combined products directly to financial services companies. This prohibition could prevent us from realizing potential synergies with companies we acquire. Our acquisition strategy could cause financial or operational problems Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands, and competitive pressures. To this end, we may acquire new and complementary businesses, products or technologies, and we may use some of the proceeds of this offering to do so. We do not know if we will be able to complete any acquisitions or that we will be able to successfully integrate any acquired business, operate them profitably, or retain their key employees. For example, we completed the acquisitions of substantially all of the assets of InConcert, Inc. in November 1999. Integrating 12 InConcert or any other newly acquired business, product or technology could be expensive and time-consuming, could disrupt our ongoing business, and could distract our management. We may face competition for acquisition targets from larger and more established companies with greater financial resources. In addition, in order to finance any acquisitions, we might need to raise additional funds through public or private financings. In that event, we could be forced to obtain equity or debt financing on terms that are not favorable to us and, in the case of equity financing, that results in dilution to our stockholders. If we are unable to integrate InConcert or any other newly acquired entity, product or technology effectively, our business, financial condition and operating results would suffer. In addition, any amortization of goodwill or other assets or other charges resulting from the costs of acquisitions could harm our operating results. The market for enterprise infrastructure software may not grow as quickly as we anticipate, which would cause our revenues to fall below expectations The market for enterprise infrastructure software is relatively new and evolving. We earn a substantial portion of our revenue from sales of our enterprise infrastructure software, including application integration software, and related services. We expect to earn substantially all of our revenue in the foreseeable future from sales of these products and services. Our future financial performance will depend on continued growth in the number of organizations demanding software and services for application integration, e- business and information delivery, and seeking outside vendors to develop, manage and maintain this software for their critical applications. 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 enterprise infrastructure software. If this market fails to grow, or grows more slowly than we expect, our sales will be adversely affected. Our stock price may be volatile, which could cause investors to lose all or part of their investments in our stock The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility which has often been unrelated to the operating performance of any particular company or companies. If market or industry-based fluctuations continue, our stock price could decline regardless of our actual operating performance and investors could lose all or part of their investments. Item 2. Properties Our principal administrative, sales, marketing and service development facilities are located in an approximately 92,000 square feet building in Palo Alto, California pursuant to a lease which expires in 2005. In addition, we lease field support offices in 23 cities throughout the world. The field offices range from small executive offices to a 7,800 square foot facility. Lease terms range from month-to-month on certain executive offices to five years on certain direct leases. Because our professional services are generally performed at the client site, field facilities are generally small. Field facilities are generally used for periodic meetings, training and administration and by account managers. We have field facilities in Atlanta, Georgia; Baltimore, Maryland; Brussels, Belgium; Cambridge, Massachusetts; Chicago, Illinois, Dallas, Texas; Denver, Colorado; Detroit, Michigan; Dusseldorf, Germany; Houston, Texas; London, England; Madrid, Spain; Melbourne, Australia; Minneapolis, Minnesota; Munich, Germany; New York, New York; Paris, France; Stockholm, Sweden, Sydney, Australia; Taipei, Taiwan; Toronto, Canada and Woy Woy, Australia. We are continually evaluating the adequacy of existing facilities and facilities in new cities and believes that suitable additional space will be available in the future on commercially reasonable terms as needed. Item 3. Legal Proceedings We are not party to any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1999. 13 PART II Item 5. Market for Company's Common Stock and Related Stockholder Matters The information required by this item is incorporated by reference to the section entitled "Corporate Information" in the 1999 Annual Report attached as Exhibit 13.1. Item 6. Selected Financial Data The information required by this item is incorporated by reference to the section entitled "Selected Financial Data" in the 1999 Annual Report attached as Exhibit 13.1. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1999 Annual Report attached as Exhibit 13.1. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quantitative and Qualitative Disclosures about Market Risk" in the 1999 Annual Report attached as Exhibit 13.1. Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated by reference to the section entitled, "Financial Statements" in the 1999 Annual Report attached as Exhibit 13.1. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. 14 PART III Item 10. Directors and Executive Officers of the Company The information required by this item concerning the Company's directors and executive officers is incorporated by reference to the information set forth in the sections entitled "Election of Directors" and "Executive Officer Compensation" in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of the Company's fiscal year ended November 30, 1999. Item 11. Executive Compensation The information required by this item regarding executive compensation is incorporated by reference to the information set forth in the sections entitled "Election of Directors--Director Compensation" and "Executive Officer Compensation" in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of the Company's fiscal year ended November 30, 1999. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of the Company's fiscal year ended November 30, 1999. Item 13. Certain Relationships and Related Transactions The information required by this item regarding certain relationships and related transactions is incorporated by reference to the information set forth in the section entitled "Certain Transactions" in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of the Company's fiscal year ended November 30, 1999. 15 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-k (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements. The following financial statements of the Company and the Report of Independent Accountants thereon are incorporated by reference to the portions of the Company's 1999 Annual Report filed as Exhibit 13.1 to this Form 10-K: Consolidated Balance Sheets at November 30, 1999 and 1998 Consolidated Statements of Operations for each of the two years in the period ended November 30, 1999 and for eleven months ended November 30, 1997 Consolidated Statement of Stockholders' Equity for each of the two years in the period ended November 30, 1999 and for eleven months ended November 30, 1997 Consolidated Statements of Cash Flows for each of the two years in the period ended November 30, 1999 and for eleven months ended November 30, 1997 Notes to Consolidated Financial Statements Report of Independent Accountants
2. Exhibits: See Item 14(c) below. (b) Reports on Form 8-K. The registrant filed a current report on Form 8-K on November 1, 1999 to announce the registrant's acquisition of substantially all the assets of InConcert, Inc. The registrant filed a current report on Form 8-K/A on December 29, 1999 related to the registrant's acquisition of substantially all the assets of InConert, Inc. (c) Exhibits. The exhibits listed on the accompanying index to exhibits immediately following the financial statement schedule are filed as part of, or incorporated by reference into, this Form 10-K. (d) Financial Statement Schedules. None 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 24th day of February, 2000. TIBCO Software Inc. /s/ Paul G. Hansen By: _________________________________ Paul G. Hansen Executive Vice President, Finance, Chief Financial Officer, Secretary POWER OF ATTORNEY KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vivek Y. Ranadive and Paul G. Hansen and each of them, jointly and severally, his attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in- fact or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Vivek Y. Ranadive President, Chief Executive February 24, 2000 ______________________________________ Officer and Chairman of Vivek Y. Ranadive the Board (Principal Executive Officer) /s/ Paul G. Hansen Executive Vice President, February 24, 2000 ______________________________________ Finance, Chief Financial Paul G. Hansen Officer /s/ Ginger M. Kelly Corporate Controller and February 24, 2000 ______________________________________ Chief Accounting Officer Ginger M. Kelly /s/ Douglas M. Atkin Director February 24, 2000 ______________________________________ Douglas M. Atkin /s/ Yogen K. Dalal Director February 24, 2000 ______________________________________ Yogen K. Dalal Director February 24, 2000 ______________________________________ Edward R. Kozel Director February 24, 2000 ______________________________________ Donald J. Listwin /s/ Larry W. Sonsini Director February 24, 2000 ______________________________________ Larry W. Sonsini
17 Director February 24, 2000 ______________________________________ John G. Taysom Director February 24, 2000 ______________________________________ Philip K. Wood /s/ Phillip White Director February 24, 2000 ______________________________________
Phillip E. White 18 EXHIBIT INDEX
Exhibit No. Exhibits ------- -------- 3.1* Certificate of Incorporation of Registrant. 3.2* Bylaws of Registrant. 4.1* Form of Registrant's Common Stock certificate. 10.1* Form of Indemnification Agreement. 10.2* First Amended and Restated License, Maintenance and Distribution Agreement dated May 28, 1999, among Reuters Limited, TIBCO Finance Technology, Inc and Registrant 10.3* Draft Form of Third Amended and Restated Stockholders Agreement, among Reuters Nederland B.V., Reuters Limited, Cisco Systems, Inc., Mayfield IX, Mayfield Associated Fund III, Vivek Ranadive and Registrant. 10.4* 1996 Stock Plan. 10.5* 1998 Director Option Plan. 10.6* Form of Assignment and Assumption of Lease Agreement, between TIBCO Finance Technology, Inc and Registrant. 10.7* Form of Employment Agreement between Registrant and Vivek Y. Ranadive. 10.8* Form of Employment Agreement between Registrant and Robert B. Stefanski. 10.9* Form of Employment Agreement between Registrant and Paul G. Hansen. 10.10* Form of Employment Agreement between Registrant and Richard M. Taven. 10.11* Form of Master Services Agreement among Registrant, TIBCO Finance Technology, Inc. and Reuters. 10.12* Software Development and License Agreement dated May 11, 1999 between Cedel Global Services, societe ananyme and Registrant. 10.13* Industrial Lease Agreement dated December 14, 1995 between Porter Drive Associated LLC and TIBCO Finance Technology, Inc (formerly known as Teknekron Software Systems (Delaware), Inc.). 13.1 Portions of the Annual Report to Stockholders for the fiscal year ended November 30, 1999, expressly incorporated by reference herein. 21.1 List of subsidiaries 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 24.1 Power of Attorney (see page 17). 27.1 Financial Data Schedule.
- -------- * These exhibits are incorporated by reference to exhibits similarly numbered in the Registrant's Registration Statement File No. 333-78195. 19 EX-13.1 2 PORTIONS OF THE ANNUAL REPORT Exhibit 13.1 TIBCO SOFTWARE INC. November 30, 1999 STATEMENT OF OPERATIONS DATA (in thousands, except per share amounts)
Eleven Months Ended Year Ended November 30, November 30, Year Ended December 31, ----------------------- ------------------------ 1999 1998 1997 1996 1995 -------- -------- ----------- ------- ---------- (unaudited) Revenue: License revenue...................................... $ 56,916 $ 17,495 $ 6,219 $ 6,066 $ 4,487 Service and maintenance revenue...................... 39,524 35,262 29,055 24,249 21,507 -------- -------- ----------- ------- --------- Total revenue..................................... 96,440 52,757 35,274 30,315 25,994 Cost of revenue............................................ 36,612 27,682 15,847 19,606 14,658 -------- -------- ----------- ------- --------- Gross profit............................................... 59,828 25,075 19,427 10,709 11,336 -------- -------- ----------- ------- --------- Operating expenses: Research and development............................. 27,478 14,787 9,385 6,576 3,592 Sales and marketing.................................. 33,130 15,242 7,008 2,949 1,838 General and administrative........................... 8,229 4,025 3,565 2,077 1,483 Amortization of stock-based compensation............. 9,252 5,064 4,672 2,196 20,684 Acquired in-process research and development......... 2,800 -- -- -- -- Amortization of goodwill and acquired intangibles.... 521 -- -- -- -- -------- -------- ----------- ------- --------- Total operating expenses.......................... 81,410 39,118 24,630 13,798 27,597 -------- -------- ----------- ------- --------- Loss from operations....................................... (21,582) (14,043) (5,203) (3,089) (16,261) Other income (expense), net................................ 2,101 1,092 540 (1,551) (468) -------- -------- ----------- ------- --------- Net loss................................................... $(19,481) $(12,951) $(4,663) $(4,640) $(16,729) ======== ======== =========== ======= ========= Net loss per share: Basic and diluted.................................... $ ( 0.19) $ (0.22) $ (0.08) ======== ======== =========== Weighted average common shares outstanding/(1)/...... 104,112 60,033 57,606 ======== ======== ===========
BALANCE SHEET DATA (in thousands)
November 30, December 31, ------------------------------------- ------------------------ 1999 1998 1997 1996 1995 -------- -------- ----------- ------- ---------- (unaudited) Cash, cash equivalents, deposits held by Reuters and short-term investments................................. $ 89,807 $15,970 $18,318 $ -- $ -- Working capital............................................ 95,603 18,301 15,168 (2,167) (22,155) Total assets............................................... 179,638 36,289 31,046 10,996 9,539 Owner's net investment (liability)......................... -- -- -- 451 (19,574) Stockholders' equity....................................... 137,918 21,704 17,167 -- --
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation of shares used to compute net loss per share. 1 Management's Discussion and Analysis Of Financial Condition and Results of Operations The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below in "Risk Factors That May Affect Operating Results" and under "Risk Factors" in our Annual Report on Form 10K. We develop and market a suite of electronic business infrastructure software products that enables our customers to conduct business with other businesses, employees and consumers electronically by tying together software applications and business processes in real time. We are the successor to a portion of the business of Teknekron Software Systems, Inc. Teknekron developed software, known as the TIB technology, for the integration and delivery of market data, such as stock quotes, news and other financial information, in trading rooms of large banks and financial services institutions. In 1992, Teknekron expanded its development efforts to include solutions designed to enable complex and disparate manufacturing equipment and software applications--primarily in the semiconductor fabrication market--to communicate within the factory environment. Teknekron was acquired by Reuters Group PLC, the global news and information group, in 1994. Following the acquisition, continued development of the TIB technology was undertaken to expand its use in the financial services markets. In January 1997, our company, TIBCO Software Inc., was established as an entity separate from Teknekron. We were formed to create and market software solutions for use in the integration of business information, processes and applications in diverse markets and industries outside the financial services sector. In connection with our establishment as a separate entity, Reuters transferred to us certain assets and liabilities related to our business and granted to us a royalty-free license to the intellectual property incorporated into some of our current software products. Reuters also assigned to us at that time license and service contracts primarily within the high-tech manufacturing and energy markets, including contracts with Intel, NEC, Motorola, Mobil and Chevron. During fiscal 1997, our operating activities related primarily to the development of our TIB/ActiveEnterprise suite of products, supporting the installed base of financial services companies using TIB-based solutions sold through Reuters and expanding our presence in the high-tech manufacturing and energy markets. During fiscal 1998, we expanded our product development activities and continued to invest in creating a product marketing organization, engaging in advertising programs to build our corporate brand identity. We also built our domestic and international direct sales force and created a general and administrative infrastructure. During the second half of fiscal 1998, we began initial shipments of our TIB/ActiveEnterprise products, to companies such as PageNet, Philips Medical, Compaq and 3Com. We also formally introduced our TIBCO.net product and service offering for creating and managing e-business activities, and generated revenue from Yahoo! and Netscape for enabling their stock quotation services. During fiscal 1999, we added approximately 200 new customers for out TIB/Active Enterprise and TIBCO.net products, and we strengthened our position in our key vertical markets--telecommunication, Internet portals, manufacturing, energy and financial services. New customers included AT&T, AltaVista, AOL/Netscape, Procter and Gamble, SAP, Philips, Enron, Chemdex, FT.com, Ericsson, Siemens, Williams Communications and Sprint. We also established and strengthened strategic realtionships with leading companies aimed at providing complementary business to business e-commerce and Internet solutions. These companies included Ariba, Cisco Systems, Oracle, Sun Microsystems, SAP, Yahoo!, Portal Software, AvantGo, Deloitte Consulting, Selectica, i2 Technologies, Siebel Systems, and Sybase. We also released the TIB/PortalBuilder, a portal construction product. We intend to continue to fund the development of additional TIB/ActiveEnterprise products and to increase our sales and marketing activities at least through the end of fiscal 2000. In fiscal 1997 and to a lesser extent in fiscal 1998, our revenue consisted primarily of license and maintenance fees from the contracts assigned to us by Reuters in connection with our formation, fees from providing integration services to customers transferred to us by Reuters and development and maintenance fees paid to us by Reuters. Our revenue in fiscal 1999 and today consists primarily of license and product fees from our customers and distributors, including from Reuters pursuant to our license agreement with them, both of which are primarily attributable to sales of our TIB/ActiveEnterprise product suite. In addition, we receive fees from our customers for providing project integration services. We also receive revenue from our TIBCO.net customers. Revenue from these customers is a combination of fixed service charges, a percentage of the advertising fees generated from their TIBCO.net-enabled web pages and a charge for each user visit to these web pages. We also receive revenues from our strategic relationships with business partners who embed our products in their hardware and networking systems as well as from systems integrators who resell our products. 2 We recognize license revenue 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 elements wherein vendor specific objective evidence exists for all undelivered elements, we account for the delivered elements in accordance with the "Residual Method" prescribed by SOP 98-9. Any maintenance revenue included in these arrangements is recognized ratably over the term of the arrangement. Revenue from subscription license agreements, which include software, rights to future products and maintenance, is recognized ratably over the term of the subscription period. Revenue on shipments to resellers, which is generally subject to certain rights of return and price protection, is recognized when the products are sold by the resellers to the end-user customer. We recognize service revenue as the services are performed or on the percentage- of-completion method of accounting, depending on the nature of the project. Under the percentage-of-completion method, revenue recognized is that portion of the total contract price equal to the ratio of costs expended to date to the anticipated final total costs, based on current estimates of the costs to complete the project. To the extent that these arrangements include license fees, such fees are recorded as license revenue based on the percentage-of- completion ratio. If the total estimated costs to complete a project exceed the total contract amount, indicating a loss, the entire anticipated loss would be recognized currently. Our distributors generally pay us negotiated royalties on their sales of our products. Reuters distributes our products to customers in the financial services market segment. Through December 2001, Reuters must pay us product fees based on a percentage of the revenue it derives from the sale of licenses and maintenance for our products. Under our license agreement with Reuters, minimum guaranteed product fees are $16 million in calendar 1999, $18 million in calendar 2000 and $20 million in calendar 2001. We recognized $14.2 million in fiscal 1999. We will recognize revenue in the amount of these guaranteed product fees ratably over the contractual period. In any period where actual product fees exceed the minimum guaranteed product fees for the year, the actual product fees and cumulative minimum guaranteed product fees will be recognized as revenue. In 1997, we changed our fiscal year from the twelve months ending December 31st to the twelve months ending November 30th. Accordingly, our financial results for 1997 reflect our operations for the eleven months ended November 30, 1997 and are not comparable to our results for fiscal 1999, 1998 or any prior period. Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include the timing of significant orders and the length of our sales cycle, technical difficulties in our software, the growth rate of the Ebusiness infrastructure software market, our ability to continue to attract and retain customers in international markets, and the success of Reuters and other distributors in selling our products in the financial services market. Due to the emerging nature of the markets in which we compete, it may be difficult to forecast our revenue accurately. Our expense levels are based in part on our expectations with regard to future revenue. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any of these factors may have a material adverse effect on our business, results of operations and financial condition. See "Risk Factors That May Affect Operating Results" for a further description of these and other factors that could adversely affect our business, results of operations and financial condition. 3 The following table sets forth, for the periods indicated, certain financial information as a percent of total revenue:
Eleven Months Ended Year Ended November 30, November 30, ------------------------- -------------- 1999 1998 1997 -------- -------- -------------- Revenue: License revenue........................................... 59% 33% 18% Service and maintenance revenue........................... 41 67 82 -------- -------- -------------- Total revenue........................................... 100 100 100 Cost of revenue............................................... 38 52 45 -------- -------- -------------- Gross profit.................................................. 62 48 55 -------- -------- -------------- Operating expenses: Research and development.................................. 28 28 27 Sales and marketing....................................... 34 29 20 General and administrative................................ 9 8 10 Amortization of stock-based compensation.................. 10 10 13 Acquired in-process research and development.............. 3 - - Amortization of goodwill and acquired intangibles......... 1 - - -------- -------- -------------- Total operating expenses................................ 85 75 70 -------- -------- -------------- Loss from operations.......................................... (23) (27) (15) Other income, net............................................. 2 2 2 -------- -------- -------------- Net loss...................................................... (21%) (25%) (13%) ======== ======== ==============
Total Revenue Revenue was $35.3 million, $52.8 million and $96.4 million in fiscal 1997, 1998, and 1999, respectively, representing increases of $17.5 million, or 50%, from fiscal 1997 to fiscal 1998 and $43.7 million, or 83%, from fiscal 1998 to fiscal 1999. In fiscal 1998, Cedel Global Services accounted for 17% of total revenue. NEC Electronics accounted for 17% of total revenue in fiscal 1997. Revenue from Reuters accounted for 27%, 15% and 19% of our total revenue in fiscal 1997, 1998 and 1999, respectively. In fiscal 1997 and 1998, revenue from Reuters consisted primarily of maintenance and consulting fees for services we performed for Reuters, while in fiscal 1999, revenue from Reuters of $18 million consisted primarily of product fees on its sales of our products under our license agreement with Reuters. License Revenue License revenue was $6.2 million, $17.5 million and $56.9 million in fiscal 1997, 1998, 1999, respectively, representing increases of $11.3 million, or 181%, from fiscal 1997 to fiscal 1998 and $39.4 million, or 225%, from fiscal 1998 to fiscal 1999. These increases were due primarily to the increased volume of sales of our TIB/ActiveEnterprise products which were introduced during the second half of fiscal 1998. License revenue was 18%, 33% and 59% of total revenue in fiscal 1997, 1998 and 1999, respectively. The growth in license revenue as a percentage of total revenue reflects our strategy of pursuing a license-driven business model. We believe that license revenue will continue to grow significantly in absolute dollars and, to lesser extent, as a percentage of total revenue in fiscal 2000. Service and Maintenance Revenue Service and maintenance revenue was $29.1 million, $35.3 million and $39.5 million in fiscal 1997, 1998 and 1999, respectively, representing increases of $6.2 million, or 21%, from fiscal 1997 to fiscal 1998 and $4.2 million, or 12%, from fiscal 1998 to fiscal 1999. Service and maintenance revenue was 82%, 67% and 41% of total revenue in fiscal 1997, 1998 and 1999, respectively. The increase was primarily a result of the additional maintenance revenue related to the growth in license revenue. We believe service and maintenance revenue will continue to grow moderately in absolute dollars and will decline modestly in fiscal 2000 as a percentage of total revenue as license revenue continues to increase as a percentage of total revenue. 4 Cost of Revenue Cost of revenue consists primarily of salaries and third-party contractor and associated expenses primarily related to providing project implementation services and, to a lesser extent, the cost of providing maintenance and customer support services. The majority of our cost of revenue is directly related to our service revenue. Cost of revenue was $15.8 million, $27.7 million and $36.6 million in fiscal 1997, 1998 and 1999, respectively, representing increases of $11.8 million, or 75%, from fiscal 1997 to fiscal 1998 and $8.9 million, or 32%, from fiscal 1998 to fiscal 1999. Cost of revenue was 45%, 52% and 38% of total revenue in fiscal 1997, 1998 and 1999, respectively. The increase in cost of revenue in fiscal 1998, in both amount and as a percent of revenue, was primarily as a result of using third-party contractors to support our contract with Cedel Global Services and hiring additional technical staff to support our growing installed base of customers. The increase in cost of revenue in absolute dollars in fiscal 1999 was a result of increased service and maintenance revenue and the decrease as a percentage of total revenue was due primarily to the increase in license revenue as a percentage of total revenue. Research and Development Expenses Research and development expenses consist primarily of personnel and related costs associated with the development of our TIB/ActiveEnterprise product suite. Research and development expenses were $9.4 million, $14.8 million and $27.5 million in fiscal 1997, 1998 and 1999, respectively representing increases of $5.4 million, or 58%, from fiscal 1997 to fiscal 1998 and $12.7 million, or 86%, from fiscal 1998 to fiscal 1999. These increases were due primarily to increases in our development staff as we continued to expand the TIB/ActiveEnterprise product suite and upgrade the performance of existing products. Research and development expenses were 27%, 28% and 28% of total revenue in fiscal 1997, 1998 and 1999, respectively. We believe that continued investment in research and development is critical to attaining our strategic objectives and, as a result, expect that spending on research and development will continue to increase in absolute dollars. Sales and Marketing Expenses Sales and marketing expenses consist primarily of personnel and related costs of our direct sales force and marketing staff and the cost of marketing programs, including advertising, trade shows, promotional materials and customer conferences. Sales and marketing expenses were $7.0 million, $15.2 million and $33.1 million in fiscal 1997, 1998 and 1999, respectively, representing increases of $8.2 million, or 117%, from fiscal 1997 to fiscal 1998 and $17.9 million, or 117%, from fiscal 1998 to fiscal 1999. These increases resulted primarily from the expansion of our domestic and international direct sales force in order to sell our expanding suite of TIB/ActiveEnterprise products, which was released in the second half of fiscal 1998. Sales and marketing expenses were 20%, 29% and 34% of total revenue in fiscal 1997, 1998, and 1999, respectively. We intend to continue to increase staff in our direct sales organization and to develop product marketing and branding campaigns and, accordingly, expect that sales and marketing expenditures will continue to increase substantially in absolute dollars and increase moderately as a percentage of total revenue for fiscal 2000. General and Administrative Expenses General and administrative expenses consist primarily of personnel and related costs for general corporate functions, including executive, legal, finance, accounting, human resources and information systems. General and administrative expenses were $3.6 million, $4.0 million and $8.2 million in fiscal 1997, 1998 and 1999, respectively, representing increases of $460,000, or 13%, from fiscal 1997 to fiscal 1998 and $4.2 million, or 104%, from fiscal 1998 to fiscal 1999. These increases were primarily a result of increased staffing and associated operational costs related to building our general and administrative infrastructure. We believe that general and administrative expenses will increase moderately in absolute dollars but remain relatively stable as a percentage of total revenue for fiscal 2000 as we develop our infrastructure to support a larger, more global organization. Amortization of Stock-based Compensation In connection with the grant of stock options to employees and non-employee directors during fiscal 1997, 1998 and 1999, we recorded aggregate unearned compensation of $23.2 million, representing the difference between the deemed fair value of our common stock at the date of grant and the exercise price of such options. Such amount is presented as a reduction of stockholders' equity and amortized over the vesting period of the applicable option. The increase was due primarily to the grant of stock options to employees prior to the IPO. We expect to amortize $4.0 million, $2.3 million, $1.2 million, $0.5 million and $0.1 million of unearned stock-based compensation in fiscal 2000, 2001, 2002, 2003 and 2004, respectively. Stock-based compensation expense related to employees and non-employee directors was $4.6 million, $4.7 million and 5 $5.8 million in fiscal 1997, 1998 and 1999, respectively. Stock-based compensation expense related to stock options granted to consultants is recognized as earned, using the multiple option method as prescribed by FASB Interpretation No. 28. At each reporting date, we re-value the stock-based compensation using the Black-Scholes option pricing model. As a result, the stock-based compensation expense will fluctuate as the fair market value of our common stock fluctuates. In connection with the grant of stock options to consultants, we recorded stock-based compensation expense of $30,000, $336,000 and $3.5 million in fiscal 1997, 1998 and 1999, respectively. As of November 30, 1999, we expect to amortize stock-based compensation expense of $13.6 million, $5.6 million, $1.9 million and $675,000 in fiscal 2000, 2001, 2002 and 2003, respectively assuming no change in the underlying value of our common stock. Acquired in-process research and development During fiscal 1999, we purchased substantially all the assets of InConcert, Inc. ("InConcert"), a subsidiary of Xerox Corporation for $34.0 million in cash. InConcert is a developer of business integration solutions for telecommunications companies. The transaction was recorded under the purchase method of accounting. The total purchase price of $35.6 million includes cash of $34 million, accrued severance costs reimbursable to Xerox of approximately $1.3 million and acquisition related expenses, consisting of financial advisory, accounting and legal fees, of approximately $0.3 million. The allocation of the purchase price was based upon an independent, third-party appraisal and our estimates and was allocated to net tangible assets acquired of $1.6 million, in- process research and development of $2.8 million and other acquired intangible assets and goodwill of $31.2 million. The acquired intangible assets and goodwill are being amortized over their estimated useful lives of five years. Upon consummation of the acquisition, we immediately charged to expense $2.8 million representing acquired in-process research and development that had not yet reached technological feasibility and had no alternative future use. See "Notes to Consolidated Financial Statements." The value was determined by estimating the costs to develop the acquired in-process research and development into commercially viable products, estimating the resulting net cash flows from such projects and discounting the net cash flows back to their present value. The costs to develop the acquired in-process research and development include a core technology charge. The in-process research and development is expected to be commercially viable in 2000. InConcert's in-process research and development projects are related to its simplifying its business integration solution and enhancing the user interface of the product in order to make it easier to use for non-technical personnel. Although we believe we are well positioned to successfully complete the research and development program, there is risk associated with the completion of the project and there is no assurance that it will meet with either technological or commercial success. Our estimate of the net cash flows resulting from the product enhancements underway at InConcert, which was used to value the purchased research and development, was based on management's estimates of revenue, cost of revenue, research and development costs, selling, general and administrative costs and income taxes from the project. The revenue projections were based on the potential size of the market for the enhanced business integration solution in the telecommunications industry, our ability to gain market acceptance for that product and its life cycle. Estimated revenue from the acquired in-process product area commences in 2000 and is estimated to grow for each of the four years thereafter. The net cash flows generated from the in-process technology are expected to reflect earnings before interest, taxes and depreciation of approximately 19% for the sales generated from in-process technology. The discount of the net cash flows to their present value is based on the weighted average cost of capital (WACC). The WACC calculation produces the average required rate of return of an investment in an operating enterprise, based on various required rates of return from investments in various areas of the enterprise. The discount rate used to discount the net cash flows from the acquired in-process technology was 29%. This discount rate reflects the uncertainty surrounding the successful development of the acquired in-process technology, the useful life of such technology, the profitability levels of such technology, if any, and the uncertainty of technological advances, all of which are unknown at this time. If this project is not successfully developed, our business, operating results and financial condition may be negatively affected in future periods. In addition, the value of other intangible assets acquired may become impaired. To date, our results relating to sales of the InConcert product lines have not differed significantly from the forecast assumptions. Our research and development expenditures since the acquisitions have not differed materially from expectations. Nevertheless, the risks associated with the research and development are still considered high and no assurance can be made that upcoming products and product enhancements will meet market expectations. Existing technology relates to the InConcert 2000 and Teoss 2000 Internet- enabled object oriented client/server software 6 solutions that combine process management and application integration that integrates corporate databases, third-party applications and legacy systems with other elements of workflow to convert disparate applications into integrated solutions. This technology was valued at $14 million using the net cash flow expected as a result of the sale of these products and discounted to the present using a 24% discount rate. The customer base was also valued using the net cash flow expected as result of the stream of revenues from existing customers from license fees, professional services and maintenance support and then discounted to the present using a 24% discount rate. The workforce was valued by estimating the cost to replace the current assembled workforce, considering such costs as recruiting and training. Finally, the trademark was valued by applying a trademark royalty rate of 1% to forecasted revenue, and then the net cash flow expected from these amounts was discounted at a rate of 24% to arrive an estimated fair market value. There can be no assurance that these assumptions will prove accurate, or that we will realize the anticipated benefit of this acquisition. Other Income, Net Other income, net includes interest and other miscellaneous income and expense items. Other income, net was $0.5 million, $1.1 million, and $2.1 million in fiscal 1997, 1998 and 1999, respectively. The increase in fiscal 1999 was due primarily to interest income earned from our investments which increased significantly as a result of the money raised in connection with our initial public offering in July 1999. Income taxes We have incurred operating losses for all periods. At November 30, 1999, we had net operating loss carryforwards of $12.7 million and $6.7 million for federal and California, respectively, which expire through 2019 and 2006, respectively. We also have available tax credit carryforwards of $1.6 million and $1.2 million for federal and California, respectively, which expire through 2019. In the event of a change in ownership, as defined under federal and state tax laws, the utilization of these carryforwards could be subject to certain limitations in future years. Liquidity and Capital Resources Prior to our initial public offering, we funded our operations primarily through the sale of our capital stock. We have raised an aggregate of $26.7 million from the sale of preferred stock to Cisco Systems and Mayfield venture capital funds. In July 1999, we completed an initial public offering, which consisted of 27,485,001 shares of our common stock (including 3,285,000 shares purchased by the underwriters pursuant to their overallotment option, 1,500,000 shares sold directly to Sun Microsystems and 800,000 shares sold directly to Yahoo! Inc.) at $5.00 per share. Net proceeds aggregated approximately $123.5 million (net of underwriters' commission and offering expenses of $13.9 million). Net cash provided by operating activities in fiscal 1997 was $2.4 million, resulting primarily from increases in accrued liabilities and receipt of prepayments on contracts. Net cash used for operating activities in fiscal 1998 and 1999 was $11.8 million and $9.7 million, respectively, resulting primarily from our net losses. Net cash used in investing activities was $11.1 million, $8.2 million and $103.8 million in fiscal 1997, 1998 and 1999, respectively. Net cash used in investing activities in these periods was related primarily to the purchase of property and equipment, principally desktop and network hardware and software, and the investment of surplus funds received from the issuance of our capital stock. Net cash used for investing activities for fiscal 1999 was also related to the acquisition of InConcert. Net cash provided by financing activities for fiscal 1997, 1998 and 1999, respectively, was $16.7 million , $12.4 million and $126.5 million. Cash provided by financing activities was primarily the result of net proceeds from the sale of our common stock in 1999 and of our preferred stock in 1998 and 1997. At November 30, 1999, we had $89.8 million in cash, cash equivalents and investments. We anticipate continued growth in our operating expenses for the foreseeable future, particularly in sales and marketing expenses and, to a lesser extent, research and development and general and administrative expenses. As a result, we expect to use our cash resources to fund our operating expenses and capital expenditures, and additionally, to fund acquisitions or investments in complementary businesses, technologies or product lines. We believe that our current cash, cash equivalents and investments, will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for at least the next twelve months. 7 Risk Factors That May Affect Operating Results The following risk factors could materially and adversely affect our future operating results and could cause actual events to differ materially from those predicted in our forward-looking statements related to our business. We have a history of losses and we expect future losses, and if we do not achieve and sustain profitability our business will suffer and our stock price may decline Although our revenue has increased in recent quarters, we may not be able to sustain our growth or obtain sufficient revenue to achieve and sustain profitability. We incurred net losses of approximately $4.7 million, $13.0 million, and $19.5 million in fiscal 1997, 1998 and 1999, respectively. As of November 30, 1999, we had an accumulated deficit of approximately $37.1 million. Since the beginning of fiscal 1998, we have invested significantly in building our sales and marketing organization and in our technology research and development. We expect to continue to spend substantial financial and other resources on expanding our direct sales and marketing activities and developing and introducing enhancements to our existing products and new software products. As a result, we need to generate significant revenue to achieve and maintain profitability. We expect that our sales and marketing expenses and our research and development expenses will continue to increase in absolute dollars and may increase as percentages of revenue for the foreseeable future. Our future revenue is unpredictable, and we expect our quarterly operating results to fluctuate, which may cause our stock price to decline Period-to-period comparisons of our operating results may not be a good indication of our future performance. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that event, our stock price would likely decline. As a result of our limited operating history, our new business strategy and the evolving nature of the markets in which we compete, we may 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 cause fluctuations in our operating results, including: . the announcement or introduction of new or enhanced products or services by our competitors; . the amount and timing of operating costs and capital expenditures relating to the expansion of our operations; and . the capital and expense budgeting decisions of our customers. In addition, our quarterly operating results have historically been subject to variations throughout the year due to a general slow-down in our sales in the summer months, particularly in Europe. Specifically, we generally experience relatively lower revenue in our third fiscal quarter. These seasonal variations in our operating results may lead to fluctuations in our results of operations from quarter to quarter throughout the year. Our dependence on a limited number of customers for a significant amount of our sales could lead to fluctuations in our operating results Our business depends on sales of our products to a limited number of customers, which may cause fluctuations in our operating results. We do not have long-term contracts with any of our customers. There can be no assurance that any of our customers will continue to purchase our products 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. Our licensing and distribution relationship with Reuters places limitations on our ability to conduct our business We have a significant relationship with Reuters for licensing and distribution. Our relationship with Reuters involves limitations and restrictions on our business, as well as other risks, described below. Reuters has access to the intellectual property used in our products, and could use the intellectual property to compete with us. We license the underlying TIB messaging technology incorporated into some of our important TIB/ActiveEnterprise 8 products from Reuters. We do not own this technology. Reuters is not restricted from using the TIB technology to produce products that compete with our products, and it can grant limited licenses to the TIB technology to others who may compete with us. In addition, we must license all the intellectual property and products we create through December 2011 to Reuters. This will place Reuters in a position to more easily develop products that compete with our product offerings. We must rely on Reuters and other distributors to sell our products in the financial services market, and they may not be successful in doing so. Under our agreements with Reuters, we are restricted from selling our products and providing consulting services directly to companies in the financial services market and major competitors of Reuters, and from using the TIB technology we license from Reuters to develop products specifically for use by these companies. Accordingly, we must rely on Reuters and other third-party resellers and distributors to sell our products to these companies. In fiscal 1998 and 1999, substantially all of our revenue from sales in the financial services market, excluding sales to Cedel Global Services, consisted of product fees paid to us by Reuters. Although Reuters is the preferred distributor of our products in the financial services market and is required to pay us guaranteed minimum product fee payments until the end of 2001, Reuters has no contractual obligation to distribute our products to financial services customers. Reuters and other distributors may not be successful in selling our products into the financial services market, or they may elect to sell competitive third-party products into that market, either of which may adversely affect our revenue in that market. Our relationship with Reuters restricts our ability to earn revenue from sales in the financial services market. Under the license agreement, Reuters is required to pay us product fees based on a percentage of its revenue from sales of our products in the financial services market, excluding products that are embedded in any Reuters' products. These product fees may be materially less than the product fees we could obtain from other distributors or resellers in the financial services market. In addition, when we sell our products into the financial services market through third-party distributors other than Reuters, Reuters receives a share of our license revenue. Our license agreement with Reuters imposes practical restrictions on our ability to acquire other companies. The license agreement places no specific restrictions on our ability to acquire companies with all or part of their business in the financial services market. However, under the terms of the license agreement, we are prohibited from bundling or combining our products that are based on licensed technology with an acquired company's products and services and then selling the bundled or combined products directly to financial services companies. This prohibition could prevent us from realizing potential synergies with companies we acquire. The market for enterprise infrastructure software may not grow as quickly as we anticipate, which would cause our revenues to fall below expectations The market for enterprise infrastructure software is relatively new and evolving. We earn a substantial portion of our revenue from sales of our enterprise infrastructure software, including application integration software, and related services. We expect to earn substantially all of our revenue in the foreseeable future from sales of these products and services. Our future financial performance will depend on continued growth in the number of organizations demanding software and services for application integration, e-business and information delivery, and seeking outside vendors to develop, manage and maintain this software for their critical applications. 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 enterprise infrastructure software. If this market fails to grow, or grows more slowly than we expect, our sales will be adversely affected. Our stock price may be volatile, which could cause investors to lose all or part of their investments in our stock The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility which has often been unrelated to the operating performance of any particular company or companies. If market or industry-based fluctuations continue, our stock price could decline regardless of our actual operating performance and investors could lose all or part of their investments. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field. In order to distinguish 21st century dates from 20th century dates, the date code field need to be expanded to 4 digits. As a result, many companies' software and computer systems were upgraded or replaced in order to comply with these year 2000 requirements. The use of software and computer systems that are not year 2000 compliant could have resulted in 9 system failures or miscalculations resulting in disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in normal business activities. To date, we have not suffered any disruptions in our computer systems or software when the expanded date code field was first used on January 1, 2000. In addition, to date, we have not been made aware that any third-party systems we rely on, the manufacturing systems of our vendors or the systems our customers use to order our services have suffered disruptions in their systems. To date, we have spent approximately $200,000 on year 2000 compliance. At this time, we do not expect to incur future expenditures relating to year 2000 compliance matters. Quantitative and Qualitative Disclosures about Market Risk The Company invests in marketable securities in accordance with its investment policy. The primary objectives of the Company's investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The Company's investment policy specifies credit quality standards for the Company's investments and limits the amount of credit exposure to any single issue, issuer or type of investment. The maximum allowable duration of a single issue is 2.5 years and the maximum allowable duration of the portfolio is 1.3 years. At the end of fiscal 1999, the Company had an investment portfolio of fixed income securities totaling $76.1 million, excluding those classified as cash and cash equivalents. The Company's investments consist primarily of bank and finance notes, various government obligations and asset-backed securities. These securities are classified as available-for-sale and are recorded on the balance sheet at fair market value with unrealized gains or losses reported as a separate component of stockholders' equity. Unrealized losses are charged against income when a decline in fair market value is determined to be other than temporary. The specific identification method is used to determine the cost of securities sold. Gains and losses on marketable securities are included in net interest income when realized. The investment portfolio is subject to interest rate risk and will fall in value in the event market interest rates increase. If market interest rates were to increase immediately and uniformly by 50 basis points (approximately 8.3% of current rates in the portfolio) from levels as of November 30, 1999, the fair market value of the portfolio would decline by approximately $350,000. We develop products in the United States and sell in North America, South America, Asia and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. A majority of sales are currently made in U.S. dollars, however, a strengthening of the dollar could make our products less competitive in foreign markets. Recent Accounting Pronouncements In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. We do not expect that the adoption of SOP 98-1 will have a material impact on our financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. To date we have engaged in limited derivative and hedging activities, and accordingly, we do not believe that the adoption of SFAS No. 133 will have a material impact on our financial reporting and related disclosures. We will adopt SFAS No. 133 as required by SFAS 137, "Deferral of the Effective Date of the FASB Statement No. 133," beginning with the fourth quarter of fiscal 2000. 10 TIBCO SOFTWARE INC. Consolidated Balance Sheets (in thousands, except per share data)
November 30, ---------------------- 1999 1998 -------- -------- ASSETS Current Assets: Cash and cash equivalents.............................................................. $ 13,681 $ 547 Short-term investments................................................................. 76,126 -- Deposits held by Reuters............................................................... -- 15,423 Accounts receivable, net............................................................... 42,199 13,234 Due from related parties............................................................... 286 1,829 Other current assets................................................................... 5,031 1,853 -------- -------- Total current assets.............................................................. 137,323 32,886 Property and equipment, net.............................................................. 10,423 3,171 Other assets............................................................................. 1,171 232 Goodwill and acquired intangibles, net................................................... 30,721 -- -------- -------- $179,638 $ 36,289 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................................................... $ 7,501 $ 3,190 Accrued liabilities.................................................................... 21,128 7,834 Deferred revenue....................................................................... 13,091 3,561 -------- -------- Total current liabilities......................................................... 41,720 14,585 -------- -------- Commitments (Note 7) Stockholders' equity: Convertible preferred stock, $0.001 par value; 25,000 shares authorized no and 81,678 shares issued and outstanding, respectively........................ -- 82 Common stock, $0.001 par value; 300,000 shares authorized; 181,215 and 67,131 shares issued and outstanding, respectively................... 181 67 Additional paid-in capital............................................................. 182,939 46,399 Unearned stock-based compensation...................................................... (8,083) (7,230) Accumulated other comprehensive loss................................................... (24) -- Accumulated deficit.................................................................... (37,095) (17,614) -------- -------- Total stockholders' equity........................................................ 137,918 21,704 -------- -------- $179,638 $ 36,289 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 11 TIBCO SOFTWARE INC. Consolidated Statements of Operations (in thousands, except per share data)
Eleven Months Ended Year Ended November 30, November 30, ----------------------- 1999 1998 1997 -------- -------- ------------ License revenue: Non-related parties............................................... $ 39,680 $ 14,511 $ 6,062 Related parties................................................... 17,236 2,984 157 -------- -------- ------------ Total license revenue............................................ 56,916 17,495 6,219 -------- -------- ------------ Service and maintenance revenue: Non-related parties............................................... 36,601 30,577 19,648 Related parties................................................... 2,923 4,685 9,407 -------- -------- ------------ Total service and maintenance revenue............................ 39,524 35,262 29,055 -------- -------- ------------ Total revenue................................................. 96,440 52,757 35,274 -------- -------- ------------ Cost of revenue: Cost of license revenue........................................... 2,402 984 366 Cost of service and maintenance revenue........................... 34,210 26,698 15,481 -------- -------- ------------ Total cost of revenue............................................ 36,612 27,682 15,847 -------- -------- ------------ Gross profit............................................................ 59,828 25,075 19,427 -------- -------- ------------ Operating expenses: Research and development.......................................... 27,478 14,787 9,385 Sales and marketing............................................... 33,130 15,242 7,008 General and administrative........................................ 8,229 4,025 3,565 Amortization of stock-based compensation.......................... 9,252 5,064 4,672 Acquired in-process research and development...................... 2,800 -- -- Amortization of goodwill and acquired intangibles................. 521 -- -- -------- -------- ------------ Total operating expenses......................................... 81,410 39,118 24,630 -------- -------- ------------ Loss from operations.................................................... (21,582) (14,043) (5,203) Interest income......................................................... 2,707 1,394 527 Other income (expense), net............................................. (606) (302) 13 -------- -------- ------------ Net loss................................................................ $(19,481) $(12,951) $(4,663) ======== ======== ============ Net loss per share: Basic and diluted................................................. $ ( 0.19) $ (0.22) $ (0.08) ======== ======== ============ Weighted average common shares outstanding........................ 104,112 60,033 57,606 ======== ======== ============
The accompanying notes are an integral part of these consolidated financial statements. 12 TIBCO SOFTWARE INC. Consolidated Statement of Stockholders' Equity (in thousands)
Convertible Preferred Stock Common Stock Additional --------------------------- ----------------- Shares Amount Shares Amount Paid-in-Capital -------- ---------- ------ ------ --------------- Balance January 1, 1997 -- $ -- -- $ -- $ -- Capitalization from Reuters...................................... -- -- -- -- 451 Net loss......................................................... -- -- -- -- -- Issuance of series A preferred stock to Reuters.................. 60,000 60 -- -- 9,883 Issuance of common stock to Reuters (Note 5)..................... -- -- 57,000 57 -- Return of capital to Reuters..................................... -- -- -- -- (10,000) Issuance of series B preferred stock, net........................ 13,095 13 -- -- 15,693 Exercise of common stock options................................. -- -- 5,004 5 996 Unearned stock-based compensation, net........................... -- -- -- -- 9,439 -------- ------ ------- ------ --------------- Balance at November 30, 1997..................................... 73,095 73 62,004 62 26,462 Net loss......................................................... -- -- -- -- -- Issuance of series C preferred stock, net........................ 8,583 9 -- -- 10,989 Exercise of common stock options, net............................ -- -- 5,127 5 1,421 Unearned stock-based compensation, net........................... -- -- -- -- 7,527 -------- ------ ------- ------ --------------- Balance at November 30, 1998..................................... 81,678 82 67,131 67 46,399 Net loss......................................................... -- -- -- -- -- Translation adjustments.......................................... -- -- -- -- -- Unrealized loss on investments................................... -- -- -- -- -- Comprehensive income......................................... Issuance of common stock in public offering, net of issuance costs of $13,925................................................ -- -- 27,486 27 123,470 Conversion of convertible preferred stock in connection with IPO. (81,678) (82) 81,678 82 -- Exercise of common stock options, net............................ -- -- 4,920 5 2,965 Unearned stock-based compensation, net........................... -- -- -- -- 10,105 -------- ------ ------- ------ --------------- Balance at November 30, 1999..................................... -- $ -- 181,215 $ 181 $ 182,939 ======== ====== ======= ====== ===============
Accumulated Unearned Other Stock-Based Comprehensive Accumulated Compensation Income (Loss) Deficit Total ------------ -------------- ----------- --------- Balance December 31, 1996 $ -- $ -- $ -- $ -- Capitalization from Reuters...................................... 458 Net loss......................................................... -- -- (4,663) (4,663) Issuance of series A preferred stock to Reuters.................. -- -- -- 9,943 Issuance of common stock to Reuters (Note 5)..................... -- -- -- 57 Return of capital to Reuters..................................... -- -- -- (10,000) Issuance of series B preferred stock, net........................ -- -- -- 15,706 Exercise of common stock options................................. -- -- -- 1,001 Unearned stock-based compensation, net........................... (4,767) -- -- 4,672 ------------- -------------- ----------- --------- Balance at November 30, 1997..................................... (4,767) (4,663) 17,167 Net loss......................................................... -- -- (12,931) (13,951) Issuance of series C preferred stock, net........................ -- -- -- 10,998 Exercise of common stock options, net............................ -- -- -- 1,426 Unearned stock-based compensation, net........................... (2,463) -- -- 5,064 ------------- -------------- ----------- --------- Balance at November 30, 1998..................................... (7,230) -- (17,614) 21,704 --------- Net loss......................................................... -- -- (19,481) (19,481) Translation adjustments.......................................... -- 178 -- 178 Unrealized loss on investments................................... -- (202) -- (202) --------- Comprehensive income......................................... (19,505) --------- Issuance of common stock in public offering, net of issuance costs of $13,925................................................ -- -- -- 123,497 Conversion of convertible preferred stock in connection with IPO. -- -- -- -- Exercise of common stock options, net............................ -- -- -- 2,970 Unearned stock-based compensation, net........................... (853) -- -- 9,252 ------------- -------------- ----------- --------- Balance at November 30, 1999..................................... $ (8,083) $ (24) $ (37,095) $ 137,918 ============= ============== =========== =========
The accompanying notes are an integral part of these consolidated financial statements. 13 TIBCO SOFTWARE INC. Consolidated Statements of Cash Flows (in thousands)
Eleven Months Ended Year Ended November 30, November 30, ----------------------- 1999 1998 1997 --------- -------- ----------- Cash flows from operating activities: Net loss........................................................................... $ (19,481) $(12,951) $ (4,663) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization..................................................... 2,110 1,073 924 Write-off of in-process research and development 2,800 -- -- Amortization of goodwill and other intangibles.................................... 521 -- -- Amortization of unearned compensation............................................. 9,252 5,064 4,672 Changes in assets and liabilities: Accounts receivable............................................................. (26,119) (5,996) 1,083 Due from related parties........................................................ 1,543 1,339 (3,192) Other assets.................................................................... (3,005) (1,017) 253 Accounts payable................................................................ 4,019 2,240 659 Accrued liabilities............................................................. 10,279 1,618 1,342 Deferred revenue................................................................ 8,406 (3,152) 1,333 --------- -------- ----------- Net cash provided by (used for) operating activities......................... (9,675) (11,782) 2,411 --------- -------- ----------- Cash flows from investing activities: Deposits held by Reuters........................................................... 15,423 (5,164) (10,259) Purchases of investments........................................................... (198,325) -- -- Sales and maturities of investments................................................ 121,997 -- -- Purchases of property and equipment, net........................................... (8,931) (2,990) (800) Acquisition of InConcert, Inc...................................................... (34,000) -- -- --------- -------- ----------- Net cash used for investing activities....................................... (103,836) (8,154) (11,059) --------- -------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock............................................. 126,467 1,426 1,039 Proceeds from issuance of preferred stock.......................................... -- 10,998 25,668 Return of capital to Reuters....................................................... -- -- (10,000) Borrowings from Reuters............................................................ -- -- 3,000 Repayment of borrowings from Reuters............................................... -- -- (3,000) --------- -------- ----------- Net cash provided by financing activities.................................... 126,467 12,424 16,707 --------- -------- ----------- Effect of exchange rate changes on cash............................................. 178 -- -- --------- -------- ----------- Net change in cash and cash equivalents............................................ 13,134 (7,512) 8,059 Cash and cash equivalents at beginning of period.................................... 547 8,059 -- --------- -------- ----------- Cash and cash equivalents at end of period.......................................... $ 13,681 $ 547 $ 8,059 ========= ======== ===========
The accompanying notes are an integral part of these consolidated financial statements. 14 TIBCO SOFTWARE INC. Notes to Consolidated Financial Statements November 30, 1999 1. THE COMPANY TIBCO Software Inc. ("TIBCO Software" or the "Company") is the successor to a portion of the business of Teknekron Software Systems, Inc. ("Teknekron"). Teknekron was founded in 1985 and pioneered the development of "publish and subscribe" computing by creating the software infrastructure for the integration and delivery of market data (e.g., stock quotes, news and other financial information) in the trading rooms of large banks and financial institutions. This publish and subscribe technology, know as The Information Bus or "TIB," permitted the integration of disparate information from various data sources and its distribution across a variety of networks and platforms within these banks, financial institutions and stock exchanges. Teknekron was acquired by a subsidiary of Reuters Group PLC ("Reuters"), the global news and information group, in 1994, and the underlying technology rights owned by Teknekron were assigned to Reuters. In November 1996, TIBCO Software was incorporated in Delaware as a separate entity from Teknekron and was formed to create and market software solutions for use in the integration of business information, processes and applications in diverse industries outside the financial services market. Through a license and distribution agreement, Reuters is the exclusive distributor of TIBCO Software products in the financial services market, subject to limited exceptions. Effective as of January 1, 1997, the Company's capital structure was established, and the transfer to TIBCO Software of certain assets, liabilities and customer contracts previously owned by Reuters was substantially completed. Prior to January 1, 1997, operations were conducted by Reuters and its subsidiaries. In July 1999, the Company completed its initial public offering ("IPO"), of approximately 27,485,001 shares of common stock (including 3,285,000 shares purchased by the underwriters over-allotment option, 1,500,000 shares sold directly to Sun Microsystems, and 800,001 shares sold directly to Yahoo! Inc.) at $5.00 per share. Net proceeds aggregated approximately $123.5 million. At the closing of the offering, all issued and outstanding shares of the Company's preferred stock were converted into an aggregate of 81,678,945 shares of common stock. At November 30, 1999, Reuters still owned a majority of the Company's common stock. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Change in Year End Effective January 1, 1997, the Company changed its fiscal year end to November 30/th/ from December 31/st/. Stock Splits In June 1999, the Company's Board of Directors approved a one-for-two reverse stock split of Company's outstanding shares which became effective on July 13, 1999. All share and per share information included in these financial statements have been retroactively adjusted to reflect this split. Use of Estimates 15 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation The functional currency of the Company's wholly-owned foreign subsidiaries are the local currencies. Assets and liabilities of these subsidiaries are translated into U.S. dollars at exchange rates as of at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Accumulated translation adjustments are recorded as a component of accumulated other comprehensive loss in stockholders' equity. Foreign exchange transaction gains and losses were not material in all periods presented. Cash, Cash Equivalents and Short-term Investments The Company considers all highly liquid investment securities with original maturities of three months or less to be cash equivalents. Management determines the appropriate classification of marketable securities at the time of purchase and evaluates such designation as of each balance sheet date. To date, all marketable securities have been classified as available-for-sale and are carried at fair value with unrealized gains and losses, if any, included in stockholders' equity. Interest, dividends and realized gains and losses are included in interest income. Realized gains and losses are recognized based on the specific identification method. Investments consist of the following at November 30, 1999 (in thousands): Money funds............................................... $ 414 Government debt issues.................................... 13,353 U.S. treasury notes....................................... 15,473 U.S. agency notes......................................... 12,040 Asset-backed securities................................... 15,668 Finance notes............................................. 20,642 Bank notes................................................ 6,227 --------- Total available-for-sale securities.................. 83,817 Less: amounts classified as cash equivalents............. (7,691) --------- 76,126 ========= As of November 30, 1999, short-term investments with contractual maturities of one year or less and one year through three years were $26.0 million and $50.1 million, respectively. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, and accounts receivable. Cash, cash equivalents and investments are deposited with financial institutions that management believes are creditworthy. The Company's accounts receivable is derived from revenue earned from customers located primarily in the United States, Australia, Europe and Taiwan. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for doubtful account receivable based upon the expected collectibility of accounts receivable. Capitalized Software Development Costs 16 The Company has not capitalized any software development costs to date and is in compliance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Capitalization of software development costs begins upon the establishment of technological feasibility of the product. After technological feasibility is established, material software development costs are capitalized. The capitalized cost is then amortized on a straight-line basis over the estimated product life, or on the ratio of current revenues to total projected product revenues, whichever is greater. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model which typically occurs when beta testing commences, and the general availability of such software has been short, and as such, software development costs qualifying for capitalization have been insignificant. Property and Equipment Property and equipment are stated at cost. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets as follows: Equipment................ 2 - 5 years Furniture and fixtures... 5 - 10 years Leasehold improvements... Shorter of the lease term or the estimated useful life
Long-Lived Assets The Company evaluates the recoverability of its long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Revenue Recognition Effective in fiscal 1999, the Company adopted Statement of Position ("SOP") 97-2, "Software Revenue Recognition" and its related amendments. SOP 97-2 provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and supercedes the previous guidance provided by SOP 91-1. The adoption of SOP 97-2 did not have a material impact on the Company's consolidated financial position or results of operations. 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 elements wherein vendor specific objective evidence exists for all undelivered elements, the Company accounts for the delivered elements in accordance with the "Residual Method" prescribed by SOP 98-9. Any maintenance revenue included in these arrangements is recognized ratably over the term of the arrangement. Revenue from subscription license agreements, which include software, rights to future products and maintenance, is recognized ratably over the term of the subscription period. Revenue on shipments to resellers, which is generally subject to certain rights of return and price protection, is recognized when the products are sold by the resellers to the end-user customer. Service revenue consists primarily of revenue received for performing product development, implementation of system solutions, on-site support, consulting and training. Service revenue is generally recognized as the services are performed or on the percentage-of-completion method of accounting, depending on the nature of the project. Under the percentage-of-completion method, revenue recognized is that portion of the total contract price equal to the ratio of costs expended to date to the anticipated final total costs, based on current estimates of the costs to complete the project. To the extent that these arrangements include license fees, such fees are recorded as license revenue based on the percentage-of-completion ratio. If the total estimated costs to complete a project exceed the 17 total contract amount, indicating a loss, the entire anticipated loss would be recognized currently. Maintenance revenue consists of fees for providing software updates and technical support for software products (post-contract support or "PCS"). Maintenance revenue is recognized ratably over the term of the agreement. Payments received in advance of services performed are recorded as deferred revenue. Allowances for estimated future returns and discounts are provided for upon recognition of revenue. Advertising Expense Advertising costs are expensed as incurred and totaled approximately $0.7 million, $1.6 million, and less than $100,000 for the years ended November 30, 1999 and 1998 and for the eleven months ended November 30, 1997, respectively. Stock-Based Compensation The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Stock-based compensation expense is amortized, using the multiple option method prescribed by FASB Interpretation No. 28, over the option's vesting period. Comprehensive Income (Loss) Effective in fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No.130 establishes standards for reporting comprehensive income (loss) and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during the period from non-owner sources. The Company has reported the components of comprehensive income (loss) on its Consolidated Statement of Stockholders' Equity. Net Loss per Share Net loss per share is calculated in accordance with SFAS No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weight average number of common and potential common shares outstanding during the period if their effect is dilutive. Potential common shares are comprised of common stock subject to repurchase and incremental shares of common stock issuable upon the exercise of stock options and upon the conversion of convertible preferred stock. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share amounts): 18
Eleven Months Ended Year Ended November 30, November 30, ----------------------- ----------- 1999 1998 1997 ---- ---- ---- Net loss........................................................... $ (19,481) $ (12,951) $ (4,663) ========= ========= ========= Basic and diluted: Weighted average common shares outstanding.................... 110,313 65,175 58,452 Weighted average common shares subject to repurchase.......... (6,201) (5,142) (846) --------- --------- --------- Weighted average common shares used to compute basic and diluted net loss per share.................. 104,112 60,033 57,607 ========= ========= ========= Net loss per share-basic and diluted............................... $ (0.19) $ (0.22) $ (0.08) ========= ========= =========
The following table sets forth potential common shares that are not included in the diluted net loss per share calculation above because to do so would be anti- dilutive as of the periods indicated (in thousands):
November 30, ------------ 1999 1998 1997 ---- ---- ---- Preferred stock.................................................... - 81,678 73,095 Common stock subject to repurchase................................. 5,965 5,475 4,014 Stock options...................................................... 31,440 27,258 20,676 ------ ------- ------ 37,405 114,411 97,785 ====== ======= ======
Derivative Financial Instruments The Company enters into foreign currency forward exchange contracts ("forward contracts") to manage exposure related to accounts receivable denominated in foreign currencies. The Company does not enter into derivative financial instruments for trading purposes. All outstanding forward contracts at the end of the period are marked-to-market, with unrealized gains and losses included in net income as a component of other income (expense), net. The Company had outstanding forward contracts with notional amounts totaling approximately $477,000 and $1.6 million at November 30, 1999 and 1998, respectively. The open contracts at November 30, 1999 mature at various dates through January 2000 and are hedges of certain foreign currency transaction exposures in the Australian dollar and British pound. The estimated fair value at November 30, 1999 was negligible. Recent Accounting Pronouncements In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect that the adoption of SOP 98-1 will have a material impact on its financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. The Company, to date, has engaged in limited derivative and hedging activities, and accordingly, does not believe that the adoption of SFAS No. 133 will have a material impact on the financial reporting and related disclosures of the Company. The Company will adopt SFAS No. 133 as required by SFAS 137, "Deferral of the Effective Date of the FASB Statement No. 133," beginning with the fourth quarter of fiscal 2000. 19 3. BALANCE SHEET COMPONENTS (in thousands)
November 30, --------------------- 1999 1998 ---- ---- Accounts receivable, net: Accounts receivable................................. $ 39,119 $ 11,024 Unbilled fees and services.......................... 5,313 3,904 ---------- -------- 44,432 14,928 Less: Allowances for doubtful accounts, returns and discounts......................... (2,233) (1,694) ---------- -------- $ 42,199 $ 13,234 ========== ======== Property and equipment, net: Equipment........................................... $ 8,141 $ 4,973 Furniture and fixtures.............................. 515 146 Leasehold improvements.............................. 4,420 49 ---------- -------- 13,076 5,168 Less: Accumulated depreciation and amortization..... (2,653) (1,997) ---------- -------- $ 10,423 $ 3,171 ========== ======== Accrued liabilities: Compensation and employee related................... $ 13,201 $ 5,810 Expenses............................................ 7,927 2,024 ---------- -------- $ 21,128 $ 7,834 ========== ========
4. ALLOWANCES FOR DOUBTFUL ACCOUNTS, RETURNS AND DISCOUNTS (in thousands)
Balance at Charged Balance at Beginning of against Charged to End of Period Revenue Expenses Deduction Period ------ ------- -------- --------- ------ Eleven Months Ended November 30, 1997........ $ 1,548 $ 1,576 $ 16 $ (472) $ 2,668 Year Ended November 30, 1998................. 2,668 1,133 194 (2,301) 1,694 Year Ended November 30, 1999................. 1,694 230 1,321 (1,012) 2,233
5. RELATED PARTY TRANSACTIONS Reuters The Company has significant transactions with Reuters, including licensing arrangements, development contracts and shared functions and services. The following is a summary of the transactions for the periods indicated (in thousands): 20
Eleven Months Ended Year Ended November 30, November 30, ----------------------- 1999 1998 1997 ---- ---- ---- License fees......................................................... $ 15,289 $ 2,984 $ 157 Service and maintenance Revenue: Subscription agreement............................................. - 354 3,896 Maintenance agreement.............................................. 1,168 750 688 Services contracts................................................. 843 485 796 Shared personnel................................................... 307 2,202 4,027 Development reimbursement.......................................... 365 894 - ---------- -------- --------- Total service and maintenance................................... 2,683 4,685 9,407 ---------- -------- --------- $ 17,972 $ 7,669 $ 9,564 ========== ======== =========
With the formation of TIBCO Software in January 1997, the Company entered into a license, maintenance and distribution agreement (the "License Agreement") with Reuters. Under the terms of the License Agreement, the Company was granted a perpetual, royalty-free license to the underlying TIB messaging technology in existence on December 31, 1996. The licensed TIB technology includes technology underlying some of the Company's current products. The license includes rights to use the TIB technology to develop and maintain products, to provide services to customers relating to the licensed technology, and to sell, sublicense and distribute products utilizing the licensed technology both directly and through third party distributors, resellers and original equipment manufacturers. In consideration of the License Agreement, the Company paid to Reuters $10.0 million, which was accounted for as a return of capital. Reuters is the preferred distributor of the Company's TIB/ActiveEnterprise products to customers in the financial services market segment. As such, the Company receives a product fee from Reuters, which is computed as a percentage of sales of product licenses and maintenance, which has been recorded as license revenue in the accompanying Financial Statements. For the nine months ending December 31, 1999 and the years ending December 31, 2000 and 2001, Reuters has guaranteed minimum product fees of $16.0 million, $18.0 million and $20.0 million, respectively. These amounts will be recognized ratably over the corresponding period. In any period where actual product fees earned exceed the minimum guaranteed product fees, the difference between the actual product fees and cumulative minimum product fees recognized to date will be recognized as revenue currently. For calendar 1997, Reuters paid the Company a one-time fee of approximately $4.3 million for the purposes of developing middleware infrastructure software and products. As Reuters was entitled to receive unspecified future enhancements, if and when available, the fee was accounted for as a subscription and taken to service revenue ratably over the period (see "subscription agreement" in the preceding table). Beginning in January 1997, the Company received an annual maintenance fee of approximately $0.7 million, which is accounted for ratably over the year. Beginning in 1999, this maintenance fee will be included in the minimum guarantee. There were various miscellaneous consulting projects during the years ended November 30, 1999 and 1998 and during the eleven months ended November 30, 1997 in which the Company recognized approximately $1.0 million, $0.5 million, and $0.8 million, respectively. Since its formation in January 1997, Reuters and TIBCO Software agreed to certain intercompany rates for the sharing of employees on various customer projects. For the services provided by TIBCO Software personnel to Reuters, TIBCO Software recognized service revenue of approximately $0.3 million, $2.2 million, and $4.0 million for the years ended November 30, 1999 and 1998 and the eleven months ended November 30, 1997, respectively. For the services received by TIBCO Software from Reuters personnel, TIBCO Software recorded, in cost of service revenue, expenses of approximately $2.3 million, $5.8 million, and $1.2 million for the years ended November 30, 1999 and 1998 and the eleven months ended November 30, 1997, respectively, and, in research and development, expenses of approximately $0.4 million in the eleven months ended November 30, 1997. 21 In 1998, TIBCO Software was reimbursed for approximately $0.9 million for the development of certain enhancements for Reuters. Intercompany Services Through mid 1999, Reuters provided TIBCO Software with shared functions and services such as cash management, accounting, legal and insurance. The cost of these functions and services has been directly charged and/or allocated to the Company using methods that the Company management believes are reasonable. Such charges and allocations are not necessarily indicative of the costs that would have been incurred if the Company had been a separate entity. Neither party has a financial obligation to the other in relation to any shared costs except as may be agreed in writing in advance. Administrative Services. Through mid 1999, Reuters provided limited administrative services to the Company, including certain facilities, human resources, information technology and finance functions. The expenses related to these functions have been charged to the Company based on actual costs incurred. Management believes that such costs are reasonable. Such charges for these services amounted to approximately $573,000 in the year ended November 30, 1999, $2.7 million in the year ended November 30, 1998, and $1.6 million in the eleven months ended November 30, 1997 and are allocated to operating costs and expenses based on respective salaries. Operating Leases and Furniture & Fixtures Rental. The Company shared its corporate headquarters in Palo Alto, California through June 1999, and certain foreign offices with Reuters. In June 1999, the Company assumed the lease for the headquarters building from Reuters. In addition, the Company rented certain furniture and fixtures and computer equipment from Reuters, primarily related to its corporate headquarters. The Company incurred rent expense of $1.0 million in the year ended November 30, 1999, $1.6 million in the year ended November 30, 1998, and $1.4 million in the eleven months ended November 30, 1997. In August 1999, the Company purchased $4.6 million in fixed assets from Reuters in connection with the assumption of the lease for the corporate headquarters facility. This amount was comprised of $4.2 million in leasehold improvements and $0.4 million of furniture and fixtures. Insurance and Legal. The Company participated in an insurance purchasing agreement with Reuters through April 1999. Under the terms of this arrangement, Reuters purchased insurance on behalf of the Company and charged the Company for this insurance on an annual basis. Additionally, a portion of the Company's legal services were provided by Reuters to the Company until March 1998. Amounts incurred for legal and insurance expenses were approximately $0.3 million for the period from January 1, 1997 to November 30, 1999. Employee Benefit Programs. The Company participated in various employee benefit programs with Reuters. These programs included medical, dental, life insurance and pension plans. The Company paid the service providers directly for these services rendered since January 1997. Until August 1999, the Company also reimbursed Reuters for its proportionate cost of certain other benefits provided to TIBCO Software employees based on its historical experience and relative headcount. The Company recorded expenses related to the reimbursement of these costs of approximately $0.4 million for the period from January 1, 1997 to November 30, 1999. Intercompany Deposits. Prior to July 1999, the Company participated in Reuters cash management program, investing surplus funds with Reuters Group Treasury Department. These deposits earned interest at one-month dollar London inter bank offered rate ("LIBOR"). The Company recorded interest income on these deposits of approximately $0.3 million, $1.1 million, and $0.3 million for the years ended November 30, 1999 and 1998, and the eleven months ended November 30, 1997, respectively. Effective with the Company's IPO, the Company began to manage its own cash and investments. Cisco Systems, Inc. As of November 30, 1999, Cisco Systems, Inc. ("Cisco") owned approximately 7% of the outstanding common 22 stock and had 2 representatives on the Company's Board of Directors. The Company recorded license revenue from Cisco of $1.9 million and service revenue of $240,000 for the year ended November 30, 1999. 6. INCOME TAXES No provision for income taxes was recorded due to the net losses incurred to date. The provision for income taxes was at rates other than the U.S. Federal statutory tax rate for the following reasons:
Eleven Months Ended Year Ended November 30, November 30, ------------------------- 1999 1998 1997 ----------- ------------ ------------- U.S. Federal statutory rate.................................... (34.0)% (34.0)% (34.0)% State taxes.................................................... (5.7) (5.4) (5.9) R & D credits.................................................. (9.8) (3.9) (5.8) Change in valuation allowance................................. 47.9 44.1 48.1 Other.......................................................... 1.6 (0.8) (2.4) ----------- ------------ ------------- 0.0% 0.0% 0.0% =========== ============ =============
The components of the Company's deferred tax assets are as follows (in thousands):
November 30, ----------------------------------------- 1999 1998 ------------- ------------- Net operating loss carryforward...................................... $ 4,364 $ 3,430 Stock option compensation............................................ 6,657 4,424 Reserves and accruals................................................ 3,237 1,445 Credit carryforwards................................................. 2,608 759 Depreciation and amortization........................................ 1,523 694 Other................................................................ 83 (9) ------------- ------------- 18,472 10,743 Less: Valuation allowance............................................ (18,472) (10,743) ------------- ------------- $ -- $ -- ============= =============
Management believes that, based on a number of factors, it is more likely than not that the deferred tax assets will not be utilized; and accordingly, a full valuation allowance has been recorded. At November 30, 1999, the Company has net operating loss carryforwards of $12.7 million and $6.7 million for federal and California, respectively, which expire through 2019 and 2006. The Company also has available tax credit carryforwards of $1.6 million and $1.2 million for federal and California, respectively, which expire through 2019. In the event of a change in ownership, as defined under federal and state tax laws, the utilization of these carryforwards could be subject to certain limitations in future years. 7. COMMITMENTS The Company leases office space and equipment under non-cancelable operating leases with various expiration dates through December 2010. Rental expense was approximately $4.1 million, $2.2 million, and $1.7 million for the years ended November 30, 1999 and 1998 and the eleven months ended November 30, 1997, respectively. 23 Future minimum lease payments under noncancelable operating leases, including lease commitments entered into subsequent to November 30, 1999 (Note 11), are as follows (in thousands): Year Ending November 30, ------------------------- 2000................................................ $ 5,281 2001................................................ 8,410 2002................................................ 8,603 2003................................................ 8,371 2004................................................ 8,412 Thereafter.......................................... 47,134 -------- $ 86,211 ======== 8. STOCKHOLDERS' EQUITY Preferred Stock The Company's Certificate of Incorporation, as amended, authorizes the Company to issue 25.0 million shares of $0.001 par value preferred stock. Effective as of January 1, 1997, the Company's initial capital structure was established by issuing 60.0 million shares of series A convertible preferred stock and 57.0 million shares of common stock to Reuters in exchange for $10.0 million and the transfer of certain assets and liabilities assumed. In connection with its formation, the Company signed a perpetual, non-exclusive license agreement for certain technology with Reuters and paid $10.0 million as consideration (Note 5). This payment was treated as a return of capital in the accompanying Statement of Stockholders' Equity. In May 1997, the Company issued approximately 13.2 million shares of series B convertible preferred stock at $1.20 per share for net proceeds of approximately $15.7 million. In December 1997, the Company issued approximately 8.7 million shares of series C convertible preferred stock at $1.29 per share for net proceeds of approximately $11.0 million. At the closing of the offering, all issued and outstanding shares of the Company's preferred stock were converted into an aggregate of 81,678,945 shares of common stock. Common Stock The Company's Certificate of Incorporation, as amended, authorizes the Company to issue 300.0 million shares of $0.001 par value common stock. A portion of the shares issued are subject to a right of repurchase by the Company subject to vesting, which is generally over a five year period from the grant date or employee hire date, as applicable, until vesting is complete. Shares are subject to repurchase at the original exercise price. As of November 30, 1999, shares of common stock subject to a repurchase option held by the Company totaled 5.9 million shares at a weighted average price of $0.49 per share. Benefit Plans 1996 Stock Option Plan. In 1996, the Company adopted the 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan provides for the granting of stock options to employees and consultants of the Company. Options granted under the 1996 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options may be granted only to employees (including officers and directors who are employees). Nonqualified stock options may be granted to Company employees and consultants. Options under the 1996 Plan may be granted for terms not to exceed ten years. Options granted before the IPO are exercisable immediately upon grant and generally vest over five years. Options granted after the IPO generally vest over four years. Shares of common stock issued upon the exercise of options granted prior to the IPO are subject to repurchase until vested. The 1996 Plan provides for an automatic increase to the number of shares of common stock reserved for issuance (to be added on the first day of each fiscal year beginning in 2000) equal to the lesser of (i) 15 million shares, (ii) 3.5% of the outstanding shares of the Company's common stock, or (iii) a lesser amount determined by the Board of Directors. As of November 30, 1999, aggregate shares of common stock reserved for issuance under the 1996 24 Plan was approximately 45,677,000 shares. 1998 Advisory Council Option Sub-plan. In October 1998, the Company adopted the 1998 Advisory Council Option plan (the "Advisory Plan") as a sub-plan to the 1996 Plan for the purpose of attracting and retaining personnel for service on an information technology advisory council. The Advisory Plan provides for an initial grant of 15,000 shares to each advisory council member (30,000 shares to the chairman). Options are granted at an exercise price not less than fair market value of the Common Stock on the date of grant, have a term not to exceed ten years and become exercisable over a two-year period with half of the shares vesting annually. 1998 Employee Stock Purchase Sub-plan. In June 1999, the Company adopted the Employee Stock Purchase Plan (the "ESP Plan") as a sub-plan to the 1996 Plan. The ESP Plan became effective on July 13, 1999, the first business day on which price quotations for the Company's common stock were available on the Nasdaq National Market. Employees are generally eligible to participate in the ESP Plan if they are customarily employed by the Company for more than 20 hours per week and more than 5 months in a calendar year and are not (and would not become as a result of being granted an option under the ESP Plan) 5% stockholders of the Company. Under the ESP Plan, eligible employees may select a rate of payroll deduction up to 10% of their eligible compensation subject to certain maximum purchase limitations. Each offering period has a maximum duration of two years (the "Offering Period") and consists of four six-month Purchase Periods (each, a "Purchase Period"), with the exception of the first Offering Period, which began on July 13, 1999 and will end on or before June 30, 2001. Offering Periods and Purchase Periods thereafter will begin on January 1 and July 1 of each year. The price at which the common stock is purchased under the ESP Plan is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable Offering Period or on the last day of that Purchase Period. The ESP Plan will terminate after a period of ten years unless terminated earlier as permitted by the ESP Plan. 1998 Director Option Plan. In February 1998, the Company adopted the 1998 Director Option Plan (the "Director Plan") and reserved 2,475,000 shares of Common Stock for issuance under the Director Plan. The Director Plan provides for an automatic initial grant of 150,000 shares to members of the Board who are not employees of the Company or Reuters ("External Directors"). Any External Director with over one-year of consecutive service prior to the effective date of the Director Plan received an initial grant of 450,000 shares. At any subsequent annual re-election, each External Director shall be granted an option to purchase 60,000 additional shares. Options are granted at an exercise price not less than the fair market value of the stock on the date of grant, have a term not to exceed ten years and become exercisable over a three year period with a third of the shares vesting annually. The activity under all stock options plans are summarized as follows (in thousands, except per share data):
Eleven Months Ended Year Ended November 30, November 30, ---------------------------------------------------------- -------------------------- 1999 1998 1997 ------------------------- ------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Options Exercise Options Exercise Price Price Price --------- --------- -------- --------- -------- ---------- Outstanding at beginning of period..... 27,258 $0.39 20,676 $0.20 - $ - Granted...... 10,614 2.77 13,122 0.64 26,316 0.20 Exercised.... (5,235) 0.59 (5,499) 0.27 (5,007) 0.20 Forfeited.... (1,197) 1.34 (1,041) 0.27 (633) 0.20 --------- -------- -------- Outstanding at end of period....... 31,440 1.12 27,258 0.39 20,676 0.20 ========= ======== ======== Options exercisable at period end... 29,601 0.81 27,258 0.39 20,676 0.20 ========= ======== ========
25 The following table summarizes information about stock options outstanding at November 30, 1999 (in thousands, except per share data):
Options Outstanding Options Exercisable ----------------------------------------------------------------- ------------------------ Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Number of Exercise Range of Exercise Price Options Contractual Life Price Options Price - ----------------------- ------------- ---------------- --------------- ---------- --------- $0.20 to $ 0.33 16,860 7.3 years $ 0.22 16,662 $0.22 $0.86 to $ 2.00 12,780 9.0 years 1.49 12,348 1.49 $3.00 to $10.75 1,446 9.7 years 5.29 591 3.29 $10.92 to $40.33 354 9.9 years 13.80 - - ------------- ---------- $0.20 to $40.33 31,440 8.1 Years 1.12 29,601 0.81 ============= ==========
At November 30, 1999, the Company had reserved the 417,000 and 1,245,000 shares of authorized but unissued common stock for future issuance under the 1996 Plan and the Director Plan, respectively. 401(k) Plan. The Company's employee savings and retirement plan is qualified under Section 401 of the Internal Revenue Code. Employees may elect to reduce their current compensation by up to the statutory prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. The Company provides matches to employee contributions up to 4% of an employee's base pay and an additional 50% match on employee contributions of the next 2% of base pay. Stock-based compensation In connection with certain stock option grants to employees and External Directors, the Company recognized approximately $6.6 million, $7.2 million and $9.4 million of unearned stock compensation for the excess of the deemed fair market value over the exercise price at the date of grant for the years ended November 30, 1999 and 1998 and for the eleven months ended November 30, 1997, respectively. Stock-based compensation expense is being recognized, using the multiple option method as prescribed by FASB Interpretation No.28, over the option vesting period of generally five years. As a result, amortization of stock-based compensation for employees and External Directors as of November 30, 1999 is expected to be $4.0 million in 2000, $2.3 million in 2001, $1.2 million in 2002, $489,000 in 2003 and $81,000 in 2004. Stock-based compensation expense related to stock options granted to consultants is recognized as earned, using the multiple option method as prescribed by FASB Interpretation No. 28. At each reporting date, the Company re-values the stock- based compensation using the Black-Scholes option pricing model. As a result, the stock-based compensation expense will fluctuate as the fair market value of the Company's common stock fluctuates. In connection with the grant of stock options to consultants, the Company recorded stock-based compensation expense of $3.5 million, $336,000 and $30,000 for the years ended November 30, 1999 and 1998 and for the eleven months ended November 30, 1997, respectively. As of November 30, 1999, the Company expects to amortize stock-based compensation expense of $13.6 million in 2000, $5.6 million in 2001, $1.8 million in 2002 and $675,000 in 2003, assuming no change in the underlying value of the Company's common stock. 26 Fair Value Disclosures Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant date for the awards under a method prescribed by SFAS No. 123, the Company's net loss would have increased to the pro forma amounts indicated below:
Eleven Months Ended Year Ended November 30, November 30, ------------------------- 1999 1998 1997 ------------ ----------- ---------------- Net loss: As reported.......................................... $(19,481) $(12,951) $(4,663) Pro forma............................................ (22,023) (13,344) (4,778) Net loss per share -- basic and diluted: As reported.......................................... $ (0.19) $ (0.22) $ (0.08) Pro forma............................................ (0.21) (0.22) (0.08)
The Company calculated the value of each option grant on the date of the grant using a Black-Scholes option pricing model with the following assumptions:
Stock Option Plans ESP Plan ---------------------------------------------------------- ---------------- 1999 1998 1997 1999 ------------- --------------- ---------------- ----------------- Risk free interest rates.............. 4.6% 4.7% 4.7% 4.6% Expected lives (in years)............. 3.0 3.0 3.0 0.5 Dividend yield........................ 0.0 0.0 0.0 0.0 Expected volatility................... 0 or 92% 0.0 0.0 92%
These pro forma amounts may not be representative of the effects on reported net loss for future years as options vest over several years and additional awards are generally made each year. The weighted average fair value of options granted was $1.44, $0.63 and $0.38 for the years ended November 30, 1999 and 1998 and for the eleven months ended November 30, 1997, respectively. 9. SEGMENT INFORMATION The Company operates primarily in one industry segment: the development and marketing of a suite of software products that enables businesses to link internal operations, business partners and customer channels through the real time distribution of information. Revenue by geographic area is as follows (in thousands): 27
Eleven Months Ended Year Ended November 30, November 30, ---------------------------------- 1999 1998 1997 ----------- ------------- ---------------- Domestic..................................... $ 47,706 $ 25,049 $ 19,426 ----------- ------------ ---------------- Europe: United Kingdom............................ 20,216 7,882 9,564 Luxembourg................................ 7,585 8,973 -- Sweden.................................... 3,532 2,512 2,130 Other..................................... 9,517 2,167 2,387 ----------- ------------ ---------------- Total Europe....................... 40,850 21,534 14,081 ----------- ------------ ---------------- Pacific Rim: Australia................................. 2,451 2,351 1,047 Taiwan.................................... 2,570 2,539 489 Other..................................... 2,863 1,284 231 ----------- ------------ ---------------- Total Pacific Rim.................. 7,883 6,174 1,766 ----------- ------------ ---------------- $ 96,440 $ 52,757 $ 35,274 =========== ============ ================
Revenue from Reuters accounted for 19%, 15% and 27% of total revenue for the years ended November 30, 1999 and 1998 and for the eleven months ended November 30, 1997, respectively. Revenue from Cedel Global Services accounted for 17% of total revenue in fiscal 1998, and NEC Electronics accounted for 17% of total revenue for fiscal 1997. Customers with balances in excess of 10% of net accounts receivable at November 30, 1999 included Reuters and Procter and Gamble, which represented 13% and 15%, respectively. Long lived assets outside the United States at either November 30, 1999 or 1998 were not material. 10. BUSINESS COMBINATION In September 1999, the Company entered into an agreement to acquire substantially all the assets of InConcert, Inc., a subsidiary of Xerox Corporation and a developer of business integration solutions for telecommunications companies. The acquisition was consummated on November 4, 1999 and was accounted for under the purchase method of accounting. The results of operations of InConcert, Inc. and the estimated fair value of the assets acquired and liabilities assumed are included in the Company's financial statements from the date of acquisition. The purchase price of $35.6 million includes cash of $34 million, accrued severance costs reimbursable to Xerox of approximately $1.3 million and acquisition related expenses, consisting of financial advisory, accounting and legal fees, of approximately $0.3 million. The allocation of the purchase price to intangibles was based upon an independent, third-party appraisal and management's estimates and was as follows (in thousands): Net tangible assets received....................... $ 1,515 In-process research and development................ 2,800 Existing technology................................ 14,000 Customer base...................................... 2,900 Workforce.......................................... 3,100 Trademarks......................................... 1,200 Goodwill........................................... 10,042 --------- Net assets acquired........................... $ 35,557 ========= The intangible assets and goodwill acquired have estimated useful lives of 5 years and had related amortization expense of $521,000 for the year ended November 30, 1999. Management estimates that $2.8 million of the purchase price represents acquired in-process research and 28 development that has not yet reached technological feasibility and has no alternative future use. Accordingly, this amount was immediately charged to expense upon consummation of the acquisition. The value assigned to acquired in-process research and development was determined by identifying research projects in areas for which technological feasibility has not been established. The value was determined by estimating the costs to develop the acquired in-process technology into commercially viable products, estimating the resulting net cash flows from such projects and discounting the net cash flows back to their present value. The costs to develop the acquired in-process research and development include a core technology charge. The discount rate of 29% includes a factor that takes into account the uncertainty surrounding the successful development of the acquired in-process research and development. If these projects are not successfully developed, future revenue and profitability of the Company may be adversely affected. Additionally, the value of other intangible assets acquired may become impaired. Existing technology relates to software solutions that combine process management and application integration that integrates corporate databases, third-party applications and legacy systems in order to convert disparate applications into integrated solutions. This technology was valued using the net cash flow expected as a result of the sale of these products and discounted to the present using a 24% discount rate. The customer base was also valued using the net cash flow expected as result of the stream of revenues from existing customers from license fees, professional services and maintenance support and then discounted to the present using a 24% discount rate. The workforce was valued by estimating the cost to replace the current assembled workforce, considering such costs as recruiting and training. Finally, the trademark was valued by applying a trademark royalty rate of 1% to forecasted revenue, and then the net cash flow expected from these amounts was discounted at a rate of 24% to arrive an estimated fair market value. The following unaudited pro forma information shows the results of operations for the combined companies as if the transaction had consummated as of December 1, 1997 (in thousands, except for per share data):
Year Ended November 30, ------------------------------------- 1999 1998 ---------------- ------------- Revenue...................................... $ 104,735 $ 61,506 Net loss..................................... (34,101) (28,063) Basic and diluted net loss per share......... $ (0.33) $ (0.47)
The pro forma results for 1999 combine the Company's results for the year ended November 30, 1999 with the results of InConcert, Inc. for the period from January 1, 1999 through the date of acquisition and includes the $2.8 million writeoff discussed above. The pro forma results for 1998 combine the Company's results for the year ended November 30, 1998 with the results of InConcert, Inc. for the year ended December 31, 1998. On a combined basis, there were no material transactions between the Company and InConcert, Inc. during the periods presented. The results are not necessarily indicative of what would have occurred had the acquisition actually been made as of December 1, 1997 or of future operations of the combined companies. 11. SUBSEQUENT EVENTS Building Leases In December 1999, the Company entered into a lease for approximately 282,000 square feet of office space to be constructed in Palo Alto, California. The lease commences on January 1, 2001 and provides for aggregate payments of $189.7 million through December 31, 2013. This lease is contingent upon design approval by local regulatory agencies. In addition, in January 2000, the Company entered into a lease for approximately 97,000 square feet of office space in Palo Alto, California, commencing on April 1, 2000 and expiring on December 31, 2010. The lease 29 provides for aggregate payments of $71.4 million to be paid over the term of the lease. The Company was required to establish an irrevocable standby letter of credit in the amount of $4,500.000. The Letter of Credit expires on January 31, 2001 but will automatically extended up to January 31, 2011. Amendment to The 1996 Stock Option Plan On January, the stockholders of the Company approved an amendment to the Company's 1996 Stock Option Plan to increase the number of shares reserved for issuance by 11,467,542 shares and also modify the provisions relating to the annual increase in the number of shares reserved for issuance such that the annual increase will be equal to the lesser of (i) 60,000,000 shares or (ii) 5% of the outstanding shares of the Company's common stock on such date. Stock Split In January 2000, the Company's Board of Directors effected a three-for-one stock split payable in the form a dividend of two additional shares of the Company's common stock for every share owned by shareholders. All share and per share data have been adjusted to retroactively reflect this split and the split discussed in Note 2. 30 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of TIBCO Software Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of TIBCO Software Inc. and its subsidiaries at November 30, 1999 and 1998, and the results of their operations and their cash flows for each of the two years in the period ended November 30, 1999 and for the eleven months ended November 30, 1997, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP San Jose, California December 15, 1999, except for Notes 7 and 11 which are dated as of January 24, 2000 31 Stock Price History Our common stock is traded on The NASDAQ National Market under the symbol TIBX. We completed our initial public offering in July 1999. The following table sets forth the high and low closing prices for our common stock during the quarter indicated: High Low ---------- -------- November 30, 1999....................... $41.17 $9.04 August 31, 1999......................... $13.04 $6.69 We had 332 stockholders of record as of February 2, 2000. No dividends have been paid on our common stock and we have no plans to pay cash dividends in the future. 32 Quarterly Results of Operations (unaudited) (In thousands, except per share data)
Three Months Ended Fiscal 1999 Three Months Ended Fiscal 1998 -------------------------------------- -------------------------------------- Nov 30, Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May. 31, Feb. 28, 1999 1999 1999 1999 1998 1998 1998 1998 -------- -------- ------- -------- -------- -------- -------- -------- Revenue: License revenue................................ $ 21,702 $ 13,156 $12,340 $ 9,719 $ 6,295 $ 3,346 $ 2,877 $ 4,977 Service and maintenance revenue................ 11,630 10,880 8,710 8,303 10,736 7,526 10,005 6,995 -------- -------- ------- -------- -------- -------- -------- -------- Total revenue............................... 33,332 24,036 21,050 18,022 17,031 10,872 12,882 11,972 Cost of revenue................................. 10,633 9,738 8,727 7,513 7,785 6,592 6,571 6,734 -------- -------- ------- -------- -------- -------- -------- -------- Gross profit.................................... 22,699 14,298 12,323 10,509 9,246 4,280 6,311 5,238 -------- -------- ------- -------- -------- -------- -------- -------- Operating expenses: Research and development....................... 8,536 7,032 6,265 5,646 4,858 3,995 3,096 2,838 Sales and marketing............................ 12,107 8,093 7,513 5,416 4,826 3,994 3,444 2,978 General and administrative..................... 2,938 1,756 2,004 1,532 1,433 958 898 736 Amortization of stock-based compensation....... 3,823 2,021 1,821 1,587 1,529 1,465 968 1,102 Acquired in-process research and development... 2,800 -- -- -- -- -- -- -- Amortization of goodwill and acquired intangibles................................... 521 -- -- -- -- -- -- -- -------- -------- ------- -------- -------- -------- -------- -------- Total operating expenses.................... 30,725 18,902 17,603 14,181 12,646 10,412 8,406 7,654 -------- -------- ------- -------- -------- -------- -------- -------- Loss from operations............................ (8,026) (4,604) (5,280) (3,672) (3,400) (6,132) (2,095) (2,416) Other income (expense), net..................... 1,434 675 267 (274) 207 315 289 281 -------- -------- ------- -------- -------- -------- -------- -------- Net loss........................................ $ (6,592) $ (3,929) $(5,013) $(3,946) $(3,193) $(5,817) $(1,806) $ (2,135) -------- -------- ------- -------- -------- -------- -------- -------- Net loss per share: Basic and diluted.............................. $ (0.04) $ (0.03) $ (0.08) $ (0.06) $ (0.05) $ (0.10) $ (0.03) $ (0.04) ======== ======== ======= ======== ======== ======== ======== ======== Weighted average common shares outstanding..... 174,813 113,365 63,059 61,951 61,486 60,385 59,805 58,454 ======== ======== ======= ======== ======== ======== ======== ========
33 (as a percentage of total revenue)
Three Months Ended Fiscal 1999 Three Months Ended Fiscal 1998 -------------------------------------- --------------------------------------- Nov 30, Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May. 31, Feb. 28, 1999 1999 1999 1999 1998 1998 1998 1998 ------- -------- ------- -------- -------- -------- -------- -------- Revenue: License revenue.......................... 65% 55% 59% 54% 37% 31% 22% 42% Service and maintenance revenue.......... 35 45 41 46 63 69 78 58 ------- -------- ------- -------- -------- -------- -------- -------- Total revenue.......................... 100 100 100 100 100 100 100 100 Cost of revenue............................ 32 41 41 42 46 61 51 56 ------- -------- ------- -------- -------- -------- -------- -------- Gross profit............................... 68 59 59 58 54 39 49 44 ------- -------- ------- -------- -------- -------- -------- -------- Operating expenses: Research and development................. 26 29 30 31 29 37 24 24 Sales and marketing...................... 36 34 36 30 28 37 26 25 General and administrative............... 9 7 9 8 8 9 7 6 Amortization of stock-based compensation............................ 11 8 9 9 9 13 8 9 Acquired in-process research and development............................. 8 - - - - - - - Amortization of goodwill and acquired intangibles............................. 2 - - - - - - - ------- -------- ------- -------- -------- -------- -------- -------- Total operating expenses............... 92 78 84 78 74 96 65 64 ------- -------- ------- -------- -------- -------- -------- -------- Loss from operations....................... (24) (19) (25) (20) (20) (57) (16) (20) Other income (expense), net................ 4 3 1 (2) 1 3 2 2 ------- -------- ------- -------- -------- -------- -------- -------- Net loss................................... (20)% (16)% (24)% (22)% (19)% (54)% (14)% (18)% ======= ======== ======= ======== ======== ======== ======== ========
34 Corporate Information BOARD OF DIRECTORS Vivek Y. Ranadive President, Chief Executive Officer and Chairman of the Board Douglas M. Atkin Chief Executive Officer, Instinet Corporation - A subsidiary of Reuters Group PLC Yogen K. Dalal Partner of Mayfield Fund-A venture capital firm Edward R. Kozel Director of Cisco Systems, Inc Donald J. Listwin Executive Vice President, Cisco Systems Larry W. Sonsini Chairman of the Executive Committee, Wilson Sonsini Goodrich & Rosati John G. Taysom Managing Director of Reuters Greenhouse fund - -A venture capital fund Phillip E. White President of Marketing Consultants Philip Wood Deputy Finance Director, Reuters Group PLC MANAGEMENT Vivek Y. Ranadive President, Chief Executive Officer and Chairman of the Board Paul G. Hansen Executive Vice President, Finance and Chief Financial Officer Rajesh U. Mashruwala Executive Vice President, Sales and Marketing Robert P. Stefanski Executive Vice President, General Counsel and Secretary Richard M. Taven Executive Vice President, Engineering and Operations Christopher G. O'Meara Vice President, Finance Ginger M. Kelly Vice President, Corporate Controller, Chief Accounting Officer ANNUAL MEETING The Annual Meeting of Stockholders will be held on Wednesday, April 12, 2000 at 10 a.m., local time, at the Company's headquarters, located at: 3165 Porter Drive Palo Alto, California 94304. FORM 10K The Company's Form 10K as filed with the Securities and Exchange Commission, is available, without charge upon written request to: Investor Relations TIBCO Software Inc 3165 Porter Drive Palo Alto, CA 94304 Telephone: (650) 846-1000 TRANSFER AGENT AND REGISTRAR Boston Equiserve 150 Royal Street Canton, MA 02021 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 10 Almaden Boulevard, Suite 1600 San Jose, CA 95113 LEGAL COUNSEL Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 35 EX-21.1 3 LIST OF SUBSIDIARIES Exhibit 21.1 List of Subsidiaries Tibco Software International Inc. Tibco Software Canada Inc. Tibco Software France Sarl Tibco Software GmbH Tibco Software Limited (UK) EX-23.2 4 CONSENT OF PRICEWATERHOUSECOOPERS CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-88811 and 333-30088 of TIBCO Software Inc. of our report dated December 15, 1999, except for Notes 7 and 11, which are dated as of January 24, 2000, relating to the financial statements, which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, California February 24, 2000 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR 3-MOS NOV-30-1999 NOV-30-1999 DEC-01-1998 SEP-01-1999 NOV-30-1999 NOV-30-1999 13,681 0 76,126 0 44,432 0 (2,233) 0 0 0 137,323 0 13,076 0 (2,653) 0 179,638 0 41,729 0 0 0 0 0 0 0 181 0 137,737 0 179,638 0 56,916 21,702 96,440 33,332 2,402 839 36,612 10,633 81,410 30,725 0 0 2,707 1,434 (19,481) (6,592) 0 0 (19,481) (6,592) 0 0 0 0 0 0 (19,481) (6,592) (0.19) (0.04) (0.19) (0.04)
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