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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 30, 2001
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to ____________________
Commission File Number: 000-26579
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TIBCO SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0449727
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
3165 Porter Drive, Palo Alto, CA 94304
(Address of principal executive offices) (Zip Code)
(650) 846-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of Class)
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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 January 16, 2002, there were 202,240,380 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 January 16, 2002) was approximately
$1,059,761,109. 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 definitive Proxy Statement for the 2002
Annual Meeting of Stockholders to be held on April 11, 2002 are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
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TIBCO SOFTWARE INC. FORM 10-K
For the Fiscal Year Ended November 30, 2001
TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS....................................................... 3
ITEM 2. PROPERTIES..................................................... 7
ITEM 3. LEGAL PROCEEDINGS.............................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 8
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.... 9
ITEM 6. SELECTED FINANCIAL DATA........................................ 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 12
RESULTS OF OPERATIONS..........................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................... 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ............... 24
ITEM 11. EXECUTIVE COMPENSATION......................................... 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 24
MANAGEMENT.....................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K. 25
SIGNATURES.............................................................. II-1
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. Words such as
"anticipates," "expects, "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify such forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those indicated in the
forward-looking statements. Factors which could cause actual results to differ
materially include those set forth in the following discussion and, in
particular, the risks discussed below in Item 7 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Factors that May Affect Operating Results."
Overview
TIBCO Software Inc. is a leading provider of business integration solutions.
We develop and deliver software products that give large enterprises the
ability to more easily enable and manage interactions between their internal
systems, employees, partners and customers. Our products do this by enabling
incompatible computer systems to interact with each other in real-time,
automating processes that span those systems, and giving people the ability to
monitor and interact with information and processes.
Our products make technologies and other assets, such as applications and
databases, partnerships with other businesses, and employees, more effective
and valuable by tying them together with a common framework and coordinating
the interactions between them. Our products lower IT costs and increase
business agility by letting companies more quickly and easily create, manage
and modify interactions, and they make companies more efficient by automating
routine processes and freeing up their employees to focus their efforts on
managing exceptional problems and opportunities.
Our products are currently licensed by 1,400 companies worldwide in diverse
industries such as telecommunications, retail, healthcare, manufacturing,
energy, transportation, logistics, financial services and insurance. We sell
our products through a direct sales force and through alliances with leading
software vendors and systems integrators.
Our objective is to establish TIBCO as the leading provider of business
integration software. The core elements of our strategy include promoting the
widespread adoption of our technology, pursuing a license driven business
strategy, leveraging our vertical market expertise, capitalizing on a
significant partnership with Reuters, our major stockholder, in the financial
services industry, expanding our international presence and continuing to
enhance our technology and products.
TIBCO's Products
Business Integration impacts several segments of the software market, and
TIBCO sells a wide range of products that address different elements of
business integration. All of our products can be sold individually to solve
specific technical challenges, but the emphasis of our product development and
sales efforts is to create products that interoperate seamlessly and then sell
them together as a complete solution that solves business problems. Our
products are broken into three product lines:
TIBCO ActiveEnterprise(TM)--The products of TIBCO ActiveEnterprise make it
easier for businesses to create connections between their various internal
systems and to coordinate the transactions and processes that span those
systems. TIBCO ActiveEnterprise enables interactions between such diverse
applications as CRM (Customer Relationship Management), ERP (Enterprise
Resource Planning) and e-business applications, databases, data warehouses and
mainframes, and even home-grown applications and information sources. TIBCO
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ActiveEnterprise enables communications between systems using standards-based
technologies such as XML (eXtensible Markup Language), JMS (Java Message
Service) and Web Services. TIBCO ActiveEnterprise makes businesses more
efficient by automating routine processes and managing the complex workflow of
human tasks, and keeps companies running at peak efficiency by providing
interfaces that let people monitor and analyze systems and processes throughout
the business.
TIBCO ActivePortal(TM)--The products of TIBCO ActivePortal let companies
aggregate, personalize and deliver information and interfaces from within their
business to specific people both inside and outside their organization. TIBCO
ActivePortal brings together content and services from a wide range of sources,
manages the access rights and profiles of users, and makes the right
information and interfaces available to the right user at the right time. TIBCO
ActivePortal gives businesses complete control over the user experience so they
can customize messages and information for selected groups and even specific
users. TIBCO ActivePortal delivers information, interfaces and alerts through
the Web and wired devices, as well as through wireless devices such as pagers,
mobile phones and personal digital assistants (PDAs).
TIBCO ActiveExchange(TM)--The products of TIBCO ActiveExchange make it
easier for businesses to create connections with other businesses and to
coordinate transactions and processes that involve those organizations. TIBCO
ActiveExchange enables the secure exchange of messages, information and
documents with companies of all sizes over the Internet. TIBCO ActiveExchange
increases the efficiency of processes between companies (such as placing a
purchase order, returning excess inventory, or updating a catalog entry) by
automating routine processes and managing the workflow of human tasks and
exceptions to processes. To ensure the security of all interactions, TIBCO
ActiveExchange provides authentication, authorization and encryption
functionality and supports leading security standards and technologies.
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 TIBCO 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 located throughout North America, Europe and the
Pacific Rim, enabling us to perform installations and respond to customer
demands rapidly across our global customer base. Many of our professional
services employees have advanced degrees and/or substantial industry expertise
in systems architecture and design and many have domain expertise in the
telecommunications, energy, manufacturing, financial services and other
industries.
We also have relationships with resellers, professional service
organizations and system integrators including Accenture, Cap Gemini/Ernst &
Young, Deloitte Consulting, KPMG and Sapient, to cooperate in the deployment of
our products to customers. These relationships help promote TIBCO 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 a suite of software support and maintenance options that are
designed to meet the needs of our diverse customer base. These support options
include twenty four hour coverage, seven days a week, 365 days a year to meet
the needs of our global customers. To meet this level of support we have
established a worldwide support organization with major support centers in Palo
Alto, California, London, England and Sydney, Australia to provide seamless
support using a "follow-the-sun" support model. In addition to our Technical
Assistance Center (TAC) and product support team, we have introduced the TIBCO
Support Web in order to provide our customers with the ability to submit
services requests and obtain up-to-the-minute status on these requests via the
4
TIBCO Support Web. Additionally, the TIBCO Support Web provides access to
escalation procedures and Frequently Asked Questions (FAQs) for each of our
products on-line, available twenty four hours per day.
Training
We provide training for customer personnel at our main office in Palo Alto
and in training centers in Cambridge, Massachusetts; Houston, Texas; Munich,
Germany; and Sydney, Australia 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. Our direct sales
force is located in eighteen U.S. cities and in eighteen locations
internationally across North America, Europe and the Pacific Rim. We have
established distribution and licensing relationships with several strategic
hardware vendors, database providers, software and toolset developers and
systems integrators. We have also developed alliances with key solution
providers to target vertical industry sectors, including energy,
telecommunications, and manufacturing.
Under the terms of our license agreement with Reuters, a global news and
information group, we generally cannot sell our products directly into the
financial services market without prior approval from Reuters. Accordingly, we
generally sell our products to companies in the financial services industry
through third-party distributors and systems integrators. Reuters is a
distributor of our products in that market. The distribution relationship with
Reuters accounted for 8%, 8% and 19% of our total revenue in fiscal 2001, 2000
and 1999, respectively. To the extent that we sell directly to customers in the
financial services market, we must pay a fee to Reuters.
Marketing
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
Reuters has granted us a perpetual, royalty-free license to the information
bus (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 focus on enhancing and extending our TIBCO 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 TIBCO Adapter(TM) products by which applications are
connected to the TIBCO environment, and to developing additional packaged
integration solutions for specific markets.
5
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. While we offer a comprehensive suite of application
integration solutions, we compete with various providers of application
integration products including BEA, IBM, Mercator, SeeBeyond, Vitria and
webMethods. We believe that none of these companies has as comprehensive a
suite of products as ours, but of these companies, IBM has the potential to
offer the most complete set of products for application integration. 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;
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.
Some 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,
or competition may intensify and harm our business and operating results. If we
are not successful in developing new products and enhancements to our existing
products or achieving customer acceptance, 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. Under the terms of our license agreement with Reuters, we generally cannot
sell our products directly into the financial services market without prior
approval from Reuters. Reuters currently sells our products to financial
services companies and creates products based on the TIB technology
specifically for financial service 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 customers in these markets.
Proprietary Technology
Our success is dependent upon our proprietary software technology. We
license the patents relating to some of the technology underlying some of our
software, including our TIBCO Rendezvous(TM) product 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
have only one issued patent and rely principally on trade secret, copyright and
trademark laws and 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.
6
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 where we operate. 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 would 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.
"TIBCO", "Information Bus", "TIB", "TIBCO ActiveEnterprise", "TIBCO
ActivePortal", "TIBCO ActiveExchange", "TIBCO Extensibility", "TIBCO Software",
the TIBCO logo, "The Power of Now", "TIBCO Adapter", "TIBCO Rendezvous", "TIBCO
BusinessWorks" and the names of our products are our trademarks or our
registered trademarks in the United States and/or other countries.
Employees
As of November 30, 2001, we employed 1,006 persons, including 327 in sales
and marketing, 262 in research and development, 140 in finance and
administration and 277 in professional services and technical support. Of our
1,006 employees, 166 were located in Europe and 57 in the Pacific Rim. Our
success is highly dependent on our ability to attract and retain qualified
employees. Competition for employees is intense in the software industry. To
date, we believe we have been successful in our efforts to recruit qualified
employees, but there is no assurance that we will continue to be as successful
in the future. None of our employees are subject to collective bargaining
agreements. We believe that our relationship with our employees is good.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, service and research and
development facilities are located in an approximately 92,000 square foot
building and an approximately 96,675 square foot building, each in Palo Alto,
California. We hold these buildings pursuant to leases which expire in 2005 and
at the end of 2010, respectively. In March 2002, we will move into a new
approximately 284,000 square foot campus in Palo Alto. We plan to sublease our
92,000 square foot building and the 96,675 square foot building and have
included the estimated loss on the sublease of such excess facilities in the
restructuring charges recorded in fiscal 2001. The lease on our new campus is
for twelve years and expires March 2014. In addition, we lease field support
offices in 42 cities throughout the world. The field offices range from small
executive offices to a 19,448 square foot facility. Lease terms range from
month-to-month on certain executive offices to eleven 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. Our
principal field facilities are in Atlanta, Georgia; Beijing, China; Bethesda,
Maryland; Brussels, Belgium; Calgary, Canada; Cambridge, Massachusetts; Chapel
Hill, North Carolina; Chicago, Illinois;
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Cincinnati, Ohio; Dallas, Texas; Denver, Colorado; Detroit, Michigan; Houston,
Texas; Irvine, California; London, England; Los Angeles, California; Madrid,
Spain; Miami, Florida; Milan, Italy; Minneapolis, Minnesota; Munich, Germany;
New York, New York; Oslo, Norway; Paris, France; Philadelphia, Pennsylvania;
Pittsburgh, Pennsylvania; Rio de Janeiro, Brazil; Rome, Italy; Rotterdam,
Netherlands; Seattle, Washington; Singapore; Seoul, Korea; Stockholm, Sweden;
Sydney, Australia; Taipei, Taiwan; Tokyo, Japan and Toronto, Canada. We are
continually evaluating the adequacy of existing facilities and facilities in
new cities, and we believe that suitable additional space will be available in
the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
Between July 6, 2001 and December 6, 2001, several purported class action
complaints were filed in the United States District Court for the Southern
District of New York against us, several of our current and former officers and
directors and the underwriters of our July 1999 initial public offering and
March 2000 follow on offering. The complaints generally allege that the named
defendants violated federal securities laws because the prospectuses related to
our offerings failed to disclose, and contained false and misleading statements
regarding, certain commissions purported to have been received by the
underwriters, and other underwriter practices, in connection with their
allocation of shares in our offerings. We believe that the claims against us
and our current and former officers and directors are without merit and we
intend to defend against the complaints vigorously.
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 2001.
8
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on The Nasdaq National Market under the
symbol "TIBX" since July 1999. The following table presents, for the periods
indicated, the high and low sale prices per share of our common stock during
the quarters indicated, as reported on The Nasdaq National Market.
High Low
------- ------
First Quarter (from December 1, 1999 to February 29, 2000)........... $137.94 $29.13
Second Quarter (from March 1, 2000 to May 31, 2000).................. $147.00 $32.38
Third Quarter (from June 1, 2000 to August 31, 2000)................. $129.00 $59.06
Fourth Quarter (from September 1, 2000 to November 30, 2000)......... $111.38 $31.69
First Quarter (from December 1, 2000 to March 2, 2001)............... $ 77.50 $ 9.50
Second Quarter (from March 3, 2001 to June 1, 2001).................. $ 16.25 $ 6.44
Third Quarter (from June 2, 2001 to August 31, 2001)................. $ 16.80 $ 6.76
Fourth Quarter (from September 1, 2001 to November 30, 2001)......... $ 13.40 $ 5.07
We had 518 stockholders of record as of November 30, 2001.
We have never declared or paid any cash dividends on our common stock, and
we do not anticipate paying any cash dividends in the foreseeable future.
9
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and notes thereto
included elsewhere in this annual report on Form 10-K. The historical results
presented below are not indicative of any future results.
Eleven Months
Year Ended November 30, Ended
-------------------------------------- November 30,
2001 2000 1999 1998 1997
-------- -------- -------- -------- -------------
(in thousands, except per share amounts)
Statement of Operations:
Revenue:
License revenue....................... $216,757 $181,601 $ 56,916 $ 17,495 $ 6,219
Service and maintenance revenue....... 102,494 70,196 39,524 35,262 29,055
-------- -------- -------- -------- -------
Total revenue..................... 319,251 251,797 96,440 52,757 35,274
Cost of revenue..........................
Stock-based compensation/(1)/......... 977 3,025 1,113 490 460
Other cost of revenue................. 63,829 61,493 36,612 27,682 15,847
-------- -------- -------- -------- -------
Gross profit............................. 254,445 187,279 58,715 24,585 18,967
-------- -------- -------- -------- -------
Operating expenses:
Research and development
Stock-based compensation/(1)/....... 12,109 18,525 2,707 971 491
Other research and development...... 78,878 57,861 27,478 14,787 9,385
Sales and marketing...................
Stock-based compensation/(1)/....... 10,128 33,637 4,281 2,304 1,968
Other sales and marketing........... 136,818 92,228 33,130 15,242 7,008
General and administrative............
Stock-based compensation/(1)/....... 3,751 1,729 1,151 1,299 1,753
Other general and administrative.... 22,799 18,489 8,229 4,025 3,565
Acquired in-process research and
development/(2)/.................... -- 2,260 2,800 -- --
Amortization of goodwill and acquired
intangibles/(2)/.................... 23,516 10,479 521 -- --
Restructuring charges/(3)/............ 21,197 -- -- -- --
-------- -------- -------- -------- -------
Total operating expenses.......... 309,196 235,208 80,297 38,628 24,170
-------- -------- -------- -------- -------
Loss from operations..................... (54,751) (47,929) (21,582) (14,043) (5,203)
Interest income and other, net........... 31,040 24,866 2,101 1,092 540
-------- -------- -------- -------- -------
Loss before income taxes................. (23,711) (23,063) (19,481) (12,951) (4,663)
Benefit (provision) for income taxes/(4)/ 10,469 (1,888) -- -- --
-------- -------- -------- -------- -------
Net loss................................. $(13,242) $(24,951) $(19,481) $(12,951) $(4,663)
======== ======== ======== ======== =======
Net loss per share:
Basic and diluted..................... $ (0.07) $ (0.14) $ (0.19) $ (0.22) $ (0.08)
======== ======== ======== ======== =======
Weighted average common shares
outstanding/(5)/.................... 195,001 184,177 104,112 60,033 57,606
======== ======== ======== ======== =======
10
November 30,
------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- ------- -------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents, Short-term investments and
Deposits held by Reuters/(6)/...................... $677,340 $582,900 $ 89,807 $15,970 $18,318
Working capital...................................... 638,803 596,303 95,603 18,301 15,168
Total assets......................................... 892,127 829,215 79,638 36,289 31,046
Stockholders' equity................................. 771,279 729,535 137,918 21,704 17,167
- --------
(1) See Notes 2 and 9 of Notes to Consolidated Financial Statements for an
explanation of stock-based compensation.
(2) See Notes 2 and 11 of Notes to Consolidated Financial Statements for an
explanation of acquired in-process research and development and
amortization of goodwill and acquired intangibles.
(3) See Note 5 of Notes to Consolidated Financial Statements for an explanation
of restructuring charges.
(4) See Note 7 of Notes to Consolidated Financial Statements for an explanation
of significant components of the benefit (provision) for income taxes.
(5) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of shares used to compute net loss per share.
(6) There were no Deposits held by Reuters for the years ended November 30,
2001, 2000 and 1999, respectively.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify such forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward-looking
statements. Factors which could cause actual results to differ materially
include those set forth in the following discussion, and, in particular, the
risks discussed below under the subheading "Factors that May Affect Operating
Results" and in other documents we file with the Securities and Exchange
Commission. Unless required by law, the Company undertakes no obligation to
update publicly any forward-looking statements.
We are a leading provider of business integration solutions. 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 NEC, Motorola, Mobil and Chevron.
During fiscal 1999, we added approximately 200 new customers for our TIBCO
ActiveEnterprise 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, FT.com, Ericsson, Siemens,
Williams Communications and Sprint. We also established and strengthened
strategic relationships 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 TIBCO PortalBuilder, a product for
the creation and management of portals. During fiscal 2000, we continued to
focus on strengthening our position in our significant vertical markets and our
relationships with major system integrators such a KPMG, Cap Gemini/ Ernst &
Young and Deloitte & Touche. We also introduced our TIBCO ActiveExchange
product suite, which is used to more dynamically and collaboratively automate
interactions among businesses. In addition, we added more than 300 new
customers during fiscal 2000, including such industry leaders as Agilent, El
Paso Energy, Schering Plough, and The Limited.
In fiscal year 2001 we released 66 new products or product enhancements
including TIBCO ActiveExchange, the business-to-business solution that expanded
our support for XML standards and Electronic Data Integration (EDI), and
consolidated our leadership position in supporting RosettaNet standards. In
addition, we recently announced an initiative to make business integration more
widely accessible with TIBCO BusinessWorks(TM) 2.5, a comprehensive, packaged,
easy-to-use offering that gives companies the ability to rapidly solve
integration challenges. TIBCO BusinessWorks 2.5 is also the first solution to
enable comprehensive, cross-platform Web
12
Services for new and legacy systems, including internal application and
business process integration, as well as real-time monitoring and management.
Our products are currently licensed by 1,400 companies worldwide in diverse
industries such as telecommunications, retail, healthcare, manufacturing,
energy, transportation, logistics, financial services and insurance. We sell
our products through a direct sales force and through OEM and reselling
agreements with leading software vendors and systems integrators.
Our revenue in fiscal 1999, 2000 and 2001 consisted primarily of license and
maintenance fees from our customers and distributors, including from Reuters
pursuant to our license agreement with it, both of which were primarily
attributable to sales of our TIBCO ActiveEnterprise product suite. In addition,
we receive fees from our customers for providing project integration services.
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.
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 Statement of Position 98-9. 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.
First-year maintenance typically is sold with the related software license
and renewed on an annual basis thereafter. Maintenance revenue is deferred
based on vendor-specific objective evidence of fair value and amortized over
the term of the maintenance contract, typically 12 months. Consulting and
training revenues are recognized as the services are performed and are usually
on a time and materials basis. Such services primarily consist of
implementation services related to the installation of the company's products
and generally do not include significant customization to or development of the
underlying software code.
Reuters is a distributor of our products to customers in the financial
services segment. We have a license, maintenance, and distribution agreement
with Reuters, a major stockholder, which was amended in June 2001. Under the
amended agreement, Reuters agreed to continue its obligation to pay a minimum
guaranteed distribution fee to us in the amount of $20 million per year through
December 2002. For the years ended December 31, 2001, 2000, and the nine months
ended December 31, 1999, Reuters guaranteed minimum distribution fees were
$20.0 million, $18.0 million, and $16.0 million, respectively. These fees are
recognized ratably over the corresponding period as related party revenue. If
actual distribution fees due from Reuters' exceed the cumulative minimum
year-to-date guarantee, incremental fees are due. Such incremental fees are
recognized in the period when the year-to-date fees exceed the cumulative
minimum level. In fiscal 2001, 2000, and 1999, revenue from Reuters was $25.6
million, $20.8 million, and $18.0 million, respectively, which accounted for
8%, 8%, and 19% of our total revenue, respectively. The amended agreement also
revises the terms under which we may sell to customers in the financial
services segment. Royalty payments to Reuters for resale of Reuters products
and services or fees associated with sales to the financial services segment
are classified as related party cost of sales. In addition, the amended
agreement also requires us to provide Reuters with internal maintenance and
support until December 31, 2011 for a fee of $1.2 million for the calendar year
2001 and $2.0 million per year thereafter. Reuters may choose at its option to
discontinue such internal maintenance and support after 2002 and pay no
additional fees. This amount is recognized ratably over the corresponding
period as related party maintenance revenue.
Our revenue is derived from a diverse customer base and no single customer
represented greater than 10% of total revenue during fiscal years 2001, 2000,
and 1999, respectively, with the exception of Reuters. One
13
customer had a balance in excess of 10% of net accounts receivable at November
30, 2000 and two customers had balances greater than 10% of net accounts
receivable at November 30, 1999. We establish allowances for doubtful accounts
based on our evaluation of collectibility and an allowance for returns and
discounts based on specifically identified credits and historical experience.
The following table sets forth, for the periods indicated, certain financial
information as a percentage of total revenue:
Year Ended
November 30,
---------------
2001 2000 1999
---- ---- ----
Revenue:
License revenue
Non-related parties............................. 62 % 64 % 41 %
Related parties................................. 6 8 18
--- --- ---
Total license revenue........................ 68 72 59
--- --- ---
Service and maintenance revenue
Non-related parties............................. 29 27 38
Related parties................................. 3 1 3
--- --- ---
Total service and maintenance revenue........ 32 28 41
--- --- ---
Total revenue............................ 100 100 100
--- --- ---
Cost of revenue
Stock-based compensation............................ -- 1 1
Other cost of revenue non-related parties........... 19 23 35
Other cost of revenue related parties............... 1 1 3
--- --- ---
Total cost of revenue........................... 20 25 61
--- --- ---
Gross profit........................................... 80 75 61
--- --- ---
Operating expenses:
Research and development
Stock-based compensation........................ 4 8 3
Other research and development.................. 25 23 28
Sales and marketing
Stock-based compensation........................ 3 13 4
Other sales and marketing....................... 43 37 34
General and administrative
Stock-based compensation........................ 1 1 1
Other general and administrative................ 7 7 9
Acquired in-process research and development........ -- 1 3
Amortization of goodwill and acquired intangibles... 7 4 1
Restructuring charges............................... 7 -- --
--- --- ---
Total operating expenses........................ 97 94 83
--- --- ---
Loss from operations................................... (17) (19) (22)
Interest income and other, net......................... 10 10 2
--- --- ---
Loss before income taxes............................... (7) (9) (20)
Benefit (provision) for income taxes................... 3 (1) --
--- --- ---
Net loss............................................... (4)% (10)% (20)%
=== === ===
14
Results of Operations
Total Revenue
Total revenue was $319.3 million, $251.8 million and $96.4 million in fiscal
2001, 2000, and 1999, respectively, representing increases of $67.5 million, or
27%, from fiscal 2000 to fiscal 2001 and $155.4 million, or 161%, from fiscal
1999 to fiscal 2000. Revenue from Reuters accounted for 8%, 8% and 19% of our
total revenue in fiscal 2001, 2000 and 1999 respectively. In fiscal 2001, 2000
and 1999, revenue from Reuters was $25.6 million, $20.8 million, and $18.0
million respectively, consisting primarily of product fees on its sales of our
products under our license agreement with Reuters.
License Revenue
License revenue was $216.8 million, $181.6 million and $56.9 million in
fiscal 2001, 2000, and 1999, respectively. License revenue increased $35.2
million, or 19%, from 2000 to fiscal 2001. This increase was due primarily to
the increased volume of sales to both new and existing customers. License
revenue increased $124.7 million, or 219%, from 1999 to fiscal 2000. This
increase was due primarily to the increased volume of sales from a broader
suite of products. License revenue was 68%, 72% and 59% of total revenue in
fiscal 2001, 2000 and 1999, respectively. The decrease in license revenue as a
percentage of total revenue from fiscal 2000 to fiscal 2001 was due to slowing
sales growth in a weakening global economy along with the increase in service
and maintenance revenue. The increase in license revenue as a percentage of
total revenue from fiscal 1999 to fiscal 2000 reflected our strategy of
pursuing a license-driven business model, the increasing acceptance of our
products in key vertical markets and the expansion of our relationships with
systems integrators which effectively leverages our direct sales of software
products. We expect that license revenues will grow in absolute dollars and
will remain relatively constant as a percentage of total revenue in fiscal 2002.
Service and Maintenance Revenue
Service and maintenance revenue was $102.5 million, $70.2 million and $39.5
million in fiscal 2001, 2000 and 1999, respectively, representing increases of
$32.3 million, or 46%, from fiscal 2000 to fiscal 2001 and $30.7 million, or
78%, from fiscal 1999 to fiscal 2000. Service and maintenance revenue was 32%,
28% and 41% of total revenue in fiscal 2001, 2000 and 1999, respectively. These
increases were primarily a result of additional maintenance revenue related to
the growth in license revenue and renewals related to the growing installed
customer base. We expect that service and maintenance revenue revenues will
grow in absolute dollars and will remain relatively consistent as a percentage
of total revenue in fiscal 2002.
Cost of Revenue
Cost of revenue consists primarily of salaries, third party contractor and
associated expenses related to providing project implementation services, the
cost of providing maintenance and customer support services, royalties and
product fees. The majority of our cost of revenue is directly related to our
service revenue. Cost of revenue, excluding stock based compensation charges,
was $63.8 million, $61.5 million and $36.6 million in fiscal 2001, 2000 and
1999, respectively, representing increases of $2.3 million, or 4%, from fiscal
2000 to fiscal 2001 and $24.9 million, or 68%, from fiscal 1999 to fiscal 2000.
Cost of revenue was 20%, 24% and 38% of total revenue in fiscal 2001, 2000 and
1999, respectively. The increases in cost of revenue in absolute dollars in
fiscal 2001 and 2000 resulted from increased service and maintenance revenue.
Research and Development Expenses
Research and development expenses consist primarily of personnel, third
party contractors and related costs associated with the development of our
TIBCO ActiveEnterprise, TIBCO ActiveExchange, and TIBCO ActivePortal product
suites. Research and development expenses, excluding stock based compensation
charges, were $78.9 million, $57.9 million and $27.5 million in fiscal 2001,
2000 and 1999, respectively, representing
15
increases of $21.0 million, or 36%, from fiscal 2000 to fiscal 2001 and $30.4
million, or 111%, from fiscal 1999 to fiscal 2000. These increases were due
primarily to increases in our development staff and third party development
agreements that we entered into during fiscal 2001 as we continued to expand
the product suites and upgrade the performance of existing products. Research
and development expenses were 25%, 23% and 28% of total revenue in fiscal 2001,
2000 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 while declining slightly as a percentage of
revenue in fiscal 2002.
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 customer conferences, promotional materials, trade shows
and advertising. Sales and marketing expenses, excluding stock based
compensation charges, were $136.8 million, $92.2 million and $33.1 million in
fiscal 2001, 2000 and 1999, respectively, representing increases of $44.6
million, or 48%, from fiscal 2000 to fiscal 2001 and $59.1 million, or 178%,
from fiscal 1999 to fiscal 2000. These increases resulted primarily from the
continued expansion of our domestic and international direct sales force in
order to sell our expanding suite of products. Sales and marketing expenses
were 43%, 37% and 34% of total revenue in fiscal 2001, 2000 and 1999,
respectively. We intend to continue to increase staff in our direct sales
organization and to develop product-marketing programs and, accordingly, expect
that sales and marketing expenditures will continue to increase in absolute
dollars while remaining relatively constant as a percentage of revenue for
fiscal 2002.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including executive, legal,
finance, accounting and human resources. General and administrative expenses,
excluding stock based compensation charges, were $22.8 million, $18.5 million
and $8.2 million in fiscal 2001, 2000 and 1999, respectively, representing
increases of $4.3 million, or 23%, from fiscal 2000 to fiscal 2001 and $10.3
million, or 125%, from fiscal 1999 to fiscal 2000. These increases were
primarily a result of increased staffing and associated operational costs
related to building our general and administrative infrastructure. We expect
that general and administrative expenses will increase in absolute dollars but
remain relatively stable as a percentage of total revenue for fiscal 2002.
Stock-based Compensation
In connection with the grant of stock options to employees and non-employee
directors during fiscal 1998 and 1999, we recorded aggregate unearned
compensation of $22.8 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. In addition, we recorded aggregate unearned compensation of $34.9
million in connection with the acquisition of Extensibility Inc.
(Extensibility) related to unvested options that were assumed as well as stock
that was issued as part of the consideration for the acquisition, which is
being held in an escrow account. Such amount is presented as a reduction of
stockholders' equity and is amortized over the vesting period of the applicable
option or as the stock is released from escrow and is shown by expense
category. We expect to amortize $2.6 million, $1.0 million and $0.2 million of
unearned stock-based compensation in fiscal 2002, 2003, and 2004, respectively.
Stock-based compensation expense related to employees, non-employee directors
and Extensibility was $26.5 million, $16.7 million and $5.7 million in fiscal
2001, 2000 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 Financial Accounting Standards Board Interpretation No. 28, and
is shown by expense category. 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
16
market value of our common stock fluctuates. In connection with the grant of
stock options to consultants, we recorded stock-based compensation expense of
$0.1 million, $34.8 million and $3.5 million in fiscal 2001, 2000 and 1999,
respectively. As of November 30, 2001, we expect to amortize stock-based
compensation expense related to consultants of $0.3 million in fiscal 2002,
assuming no change in the underlying value of our common stock.
In fiscal 2001 and 2000, we recognized $0.5 million and $5.4 million,
respectively, as stock compensation expense related to the employer portion of
payroll taxes due as a result of employee exercise of nonqualified stock
options.
Acquired In-process Research and Development
Management estimated that $2.3 million of the purchase price of
Extensibility in fiscal 2000 and $2.8 million of the purchase price of
InConcert, Inc. (InConcert) in fiscal 1999 represented acquired in-process
research and development (IPRD) that did not meet the requirements for
capitalization. Accordingly, these amounts were immediately charged to expense
upon consummation of the acquisitions. The value of IPRD was determined by
estimating the expected cash flows from the projects once commercially viable,
discounting the net cash flows back to their present value and then applying a
percentage of completion. The projects have subsequently been completed.
Amortization of Goodwill and Other Acquired Intangibles
Amortization of goodwill and other acquired intangibles was $23.5 million,
$10.5 million and $0.5 million in fiscal 2001, 2000 and 1999, respectively.
Goodwill and other acquired intangibles of $68.0 million recorded in connection
with the acquisition of Extensibility in August 2000 are being amortized over
their useful lives of two to five years. During the fourth quarter of 1999,
$31.2 million of goodwill and other acquired intangibles were recorded in
connection with the asset purchase of InConcert and are being amortized over
their estimated useful life of 5 years.
Restructuring charge
During fiscal 2001, we recorded a restructuring charge of $21.2 million,
consisting of $2.8 million for headcount reductions, $17.8 million for
consolidation of facilities, and $0.6 million of other related restructuring
charges. In response to slower sales growth in a weakening global economy,
these restructuring charges were taken to align our cost structure with
changing market conditions. The plan resulted in headcount reduction of
approximately 170 employees, which was made up of 46% sales and marketing
staff, 23% professional services staff, 16% general and administrative staff
and 15% research and development staff. The plan also included the
consolidation of facilities through closing excess field offices and moving
corporate offices into one campus.
Cash utilized during the fiscal year ended November 30, 2001 included $2.8
million for severance and other costs related to headcount reductions and $0.6
million for facilities and other restructuring costs. The provision of $17.8
million at November 30, 2001 is for facility charges which are expected to be
paid over the next six years.
Interest Income, net, Other Expense, net and Realized Loss on Investments
Interest income was $33.8 million, $28.1 million and $2.7 million in fiscal
2001, 2000 and 1999, respectively. In fiscal 2001, the increase was due
primarily to an increase in average balances resulting from positive cash flow
from operating activities and the investment balances from the our follow-on
offering being held for the entire year. The increase in fiscal 2000 was
primarily attributable to an increase in interest income due to higher average
cash and investment balances following the successful completion of our
follow-on offering in March 2000. Other expense, net includes translation
adjustments and other miscellaneous expense items. Other expense, net was
$2.4 million, $1.4 million and $0.7 million in fiscal 2001, 2000 and 1999,
respectively. Realized loss on investments, net was $0.4 million and $1.8
million in fiscal 2001 and 2000, respectively.
17
Income taxes
In fiscal 2001 and 2000, respectively, a $10.5 million benefit and $1.9
million provision was recorded for federal, state, and foreign taxes. No
provision was recorded for fiscal 1999. As of November 30, 2001, our federal
and state net operating loss carryforwards for income tax purposes were $463
million and $201 million, respectively, which expire through 2021. As of
November 30, 2001, our federal and state tax credit carryforwards for income
tax purposes were $4.8 million and $6.0 million, respectively, which expire
through 2021. Since our incorporation, we had provided a valuation allowance on
our deferred tax assets because of uncertainty regarding their realization. At
November 30, 2001, we removed the valuation allowance because we expect that it
is more likely than not that all deferred tax assets will be realized in the
foreseeable future.
In the event of a change in ownership, as defined under federal and state
tax laws, our net operating loss and tax credit carryforwards may be subject to
annual limitation. The annual limitation may result in the expiration of the
net operating loss and tax credit carryforwards before utilization.
Liquidity and Capital Resources
In March 2000, we completed a follow-on offering of 4,775,750 shares of our
common stock at $106.00 per share. Net proceeds to us aggregated approximately
$481 million, net of underwriters' commissions and issuance costs of $1.1
million. In July 1999, we completed an initial public offering of 27,485,001
shares of our common stock at $5.00 per share. Net proceeds to us aggregated
approximately $123.5 million, net of underwriters' commissions and offering
expenses of $13.8 million.
Net cash provided by operating activities in fiscal 2001 was $103.0 million
resulting from positive cash flows as our net loss of $13.2 million was more
than offset by non-cash charges of $51.7 million and by a net reduction of
$64.5 million in working capital principally due to a reduction in trade
receivables. Net cash provided by operating activities in fiscal 2000 was $37.6
million as our net loss of $25.0 million was offset by non-cash charges of
$70.6 million. Net cash used by operating activities in fiscal 1999 was $9.7
million, resulting primarily from our net losses.
Net cash used in investing activities was $186.7 million, $374.8 million and
$103.8 million in fiscal 2001, 2000 and 1999, respectively. Net cash used in
investing activities in fiscal 2001 and 2000 was related primarily to the
purchase of short-term investments. Net cash used for investing activities for
fiscal 1999 related primarily to the purchase of short-term investments and to
the acquisition of InConcert, Inc.
Net cash provided by financing activities for fiscal 2001, 2000 and 1999,
respectively, was $11.7 million, $495.9 million and $126.5 million. We raised
$481.0 million in a follow-on offering in fiscal 2000 and $123.5 million in an
initial public offering in fiscal 1999.
At November 30, 2001 and 2000, we had $677.3 million and $582.9 million in
cash, cash equivalents and investments, respectively. 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, including
the construction of our campus and additions to our IT infrastructure, and
additionally, to fund acquisitions or investments in complementary businesses,
technologies or product lines. We believe that our current cash, cash
equivalents, investments and cash flows from operations will be sufficient to
meet our anticipated cash requirements for working capital and capital
expenditures for at least the next twelve to eighteen months.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
18
SFAS No. 141 requires all business combinations initiated after June 30, 2001
to be accounted for using the purchase method. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have indefinite
lives will continue to be amortized over their useful lives (but with no
maximum life). The amortization provisions of SFAS No. 142 apply to goodwill
and intangible assets acquired after June 30, 2001. With respect to goodwill
and intangible assets acquired prior to July 1, 2001, we are required to adopt
SFAS No.142 effective December 1, 2002. Amortization of goodwill and intangible
assets with indefinite lives acquired before July 1, 2000 was $17.4 million in
fiscal 2001.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Company is
required to adopt SFAS No. 144 on December 1, 2002 and does not expect the
adoption of SFAS No. 144 to have a material impact on our results of operations
and financial position.
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 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.
We may not be able to sustain our growth or obtain sufficient revenue to
achieve and sustain profitability. We incurred net losses of approximately
$13.2 million, $25.0 million, and $19.5 million in fiscal 2001, 2000, and 1999
respectively. As of November 30, 2001, we had an accumulated deficit of
approximately $75.3 million.
We have invested significantly in building our sales and marketing
organization and in our technology research and development. We expect to
continue to spend financial and other resources on developing and introducing
enhancements to our existing and new software products and our direct sales and
marketing activities. As a result, we need to generate significant revenue to
achieve and maintain profitability.
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 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 are subject to variations
throughout the year due to seasonal factors, which generally result in lower
sales activity in our first and third fiscal quarters.
19
There can be no assurance that any of our customers will continue to purchase
our products in the future.
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. One
customer accounted for 10.0% and 11.2% of our total revenue in the second and
third quarters of fiscal 2001, respectively.
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 from
Reuters the underlying TIB messaging technology, that existed as of December
31, 1996 which is incorporated into some of our important TIBCO
ActiveEnterprise products. 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.
A significant portion of our revenue from sales in the financial services
market consists of product fees paid to us by Reuters. Although Reuters is a
distributor of our products in the financial services market and is required to
pay us guaranteed minimum product fee payments until the end of 2002, 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. In addition, when we sell to
customers in the financial services market, we must pay a fee to Reuters.
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.
20
The market for infrastructure software may not grow as quickly as we
anticipate, which would cause our revenues to fall below expectations.
The market for infrastructure software is relatively new and evolving. We
earn a substantial portion of our revenue from sales of our 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, 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 infrastructure software. If the market fails to grow,
or grows more slowly than we expect, our sales will be adversely affected. In
addition, a weakening global economy may lead to slower sales growth.
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. 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.
Integrating any 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 any newly acquired entity, products
or technology effectively, our business, financial condition and operating
results would suffer. In addition, any amortization of goodwill and intangible
assets or other charges resulting from the costs of acquisitions could harm our
operating results.
Our investment strategy could cause financial or operational problems.
Through November 30, 2001, we had invested $27.4 million in companies with
complementary technologies or products or which provide us with access to
additional vertical markets and customers, and we plan to continue making such
investments in the future. The companies in which we invest are often at early
stages of development, and no public market exists for their securities at the
time of our investment. These investments may not result in any meaningful
commercial benefit to us, and our investments could lose all or a significant
part of their value. Moreover, in certain circumstances, these investments
could subject us to restrictions imposed by the Investment Company Act of 1940.
We might have to take actions, including buying, refraining from buying,
selling or refraining from selling securities when we would otherwise not wish
to, in order to avoid registration under the Investment Company Act of 1940.
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. During
fiscal 2001, for example, our stock price fluctuated between a high of $77.50
and a low of $5.07. If market or industry-based fluctuation continue, our stock
price could decline in the future regardless of our actual operating
performance and investors could lose all or part of their investments.
21
The rapid growth of our operations could strain our resources and cause our
business to suffer.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased the scope of our operations and we have
increased our headcount substantially, both domestically and internationally.
We must successfully integrate these new employees into our operations and
generate sufficient revenues to justify the costs associated with these
employees. If we fail to successfully integrate employees or to generate the
revenue necessary to offset employee-related expenses, we could be forced to
reduce our headcount, which would force us to incur significant expenses and
would harm our business and operating results. For example, in response to
changing market conditions, in fiscal 2001 we recorded a restructuring charge
of $21.2 million, including $2.8 million related to a reduction of our
headcount by approximately 170 employees. Our growth has placed and will
continue to place a significant strain on our management systems,
infrastructure and resources. We expect that we will need to continue to
improve our financial and managerial controls, reporting systems and
procedures. We will also need to continue to train and manage our workforce
worldwide. Furthermore, we expect that we will be required to manage an
increasing number of relationships with various customers and other third
parties. Failure to expand any of the foregoing areas efficiently and
effectively could interfere with the growth of our business as a whole.
Pending litigation could harm our business.
Between July 6, 2001 and December 6, 2001, several purported class action
complaints were filed in the United States District Court for the Southern
District of New York against us, several of our current and former officers and
directors and the underwriters of our July 1999 initial public offering and
March 2000 follow-on offering. The complaints generally allege that the named
defendants violated federal securities laws because the prospectuses related to
the offerings failed to disclose, and contained false and misleading statements
regarding, certain commissions purported to have been received by the
underwriters, and other underwriter practices, in connection with their
allocation of shares in our offerings. We believe that the claims against us
and our current and former officers and directors are without merit and we
intend to defend against the complaints vigorously. The complaints do not
specify the amount of damages that plaintiffs seek, and as a result, we are
unable to estimate the possible range of damages that might be incurred as a
result of the lawsuits. We have not accrued any amounts relating to potential
damages associated with the lawsuits. The uncertainty associated with a
substantial unresolved lawsuit could harm our business, financial condition and
reputation. The defense of the lawsuits could result in the diversion of our
management's time and attention away from business operations, which could harm
our business. Negative developments with respect to the lawsuits could cause
our stock price to decline. In addition, although we are unable to determine
the amount, if any, that we may be required to pay in connection with the
resolutions of the lawsuits by settlement or otherwise, such a payment could
seriously harm our financial condition, results of operations and liquidity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest in marketable securities in accordance with our investment policy.
The primary objectives of our investment policy are to preserve principal,
maintain proper liquidity to meet operating needs and maximize yields. Our
investment policy specifies credit quality standards for our 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 2001, 2000 and 1999, we had an investment portfolio of
fixed income securities totaling $566.5 million, $401.9 million and $76.1
million, excluding those classified as cash and cash equivalents and restricted
funds, respectively. Our 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.
22
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 100 basis points (approximately
38% of current rates in the portfolio) from levels as of November 30, 2001, the
fair market value of the portfolio would decline by approximately $3.9 million.
We develop products in the United States and sell in North America, Europe
and the Pacific Rim. 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. We enter into foreign currency forward exchange
contracts ("forward contracts") to manage exposure related to accounts
receivable denominated in foreign currencies. We do not enter into derivative
financial instruments for trading purposes. We had outstanding forward
contracts with notional amounts totaling approximately $4.5 million, $6.2
million and $0.5 million at November 30, 2001, 2000 and 1999, respectively. The
open contracts at November 30, 2001 mature at various dates through February
2002 and are economic hedges of certain foreign currency transaction exposures
in the Australian Dollar, British Pound, Swedish Krona, Euro, Japanese Yen, and
Danish Krone. The fair value of these forward contracts at November 30, 2001
was not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Consolidated Financial Statements that
appears on page F-1 of this report. The Report of PricewaterhouseCoopers LLP,
Independent Accountants, the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements listed in the Index to Consolidated Financial
Statements, which appear beginning on page F-2 of this report, are incorporated
by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item concerning our directors and executive
officers is incorporated by reference to the information set forth in the
sections entitled "Election of Directors" and "Executive Compensation and
Employment Agreements" in our Proxy Statement for the 2002 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
our fiscal year ended November 30, 2001.
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 Compensation and
Employment Agreements" in our Proxy Statement for the 2002 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
our fiscal year ended November 30, 2001.
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 our Proxy Statement for the 2002 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of our fiscal year ended November 30, 2001.
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 sections entitled "Certain Transactions" and "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions" in our Proxy
Statement for the 2002 Annual Meeting of Stockholders to be filed with the
Commission within 120 days after the end of our fiscal year ended November 30,
2001.
24
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. Please see the accompanying Index to
Consolidated Financial Statements which appears on page F-1 of the report.
The Report of Independent Accountants, the Consolidated Financial Statements
and the Notes to Consolidated Financial Statements listed in the Index to
Consolidated Financial Statements, which appear beginning on page F-2 of
this report, are incorporated by reference into Item 8 above.
2. Financial Statement Schedules. Financial Statement Schedules have
been omitted because the information required to be set forth therein is
either not applicable or is included in the Consolidated Financial
Statements or the notes thereto. See also Item 14(d) below.
3. Exhibits: See Item 14(c) below. The management contracts and
compensatory plans or arrangements required to be filed as exhibits to this
form pursuant to Item 14(c) are as follows:
10.4 1996 Stock Plan, as amended
10.5 1998 Director Option Plan, as amended.
10.7 Employment Agreement between Registrant and Vivek Y. Ranadive.
10.8 Employment Agreement between Registrant and Robert P. Stefanski.
(b) Reports on Form 8-K.
We filed a current report on Form 8-K on January 10, 2002, to announce the
execution on January 4, 2002 of a definitive agreement for our acquisition of
Talarian Corporation, in a stock and cash transaction.
We filed a current report on Form 8-K on March 8, 2001, to announce the
approval by our Board of Directors of a stock option exchange program for
employees.
(c) Exhibits. The exhibits listed on the accompanying Exhibit Index
immediately following the signature page are filed as part of, or are
incorporated by reference into, this Form 10-K.
(d) Financial Statement Schedules. None
25
TIBCO SOFTWARE INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants................ F-2
Consolidated Balance Sheets...................... F-3
Consolidated Statements of Operations............ F-4
Consolidated Statement of Stockholders' Equity... F-5
Consolidated Statements of Cash Flows............ F-6
Notes to Consolidated Financial Statements....... F-7
F-1
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, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of TIBCO
Software Inc. and its subsidiaries at November 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended November 30, 2001 in conformity with accounting principles
generally accepted in the United States of America. 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 of America, 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 our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 25, 2002
F-2
TIBCO SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
November 30,
------------------
2001 2000
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $100,158 $171,658
Short-term investments........................................................... 577,182 411,242
Accounts receivable, net......................................................... 59,080 89,978
Due from related parties......................................................... 959 3,411
Other current assets............................................................. 22,272 17,410
-------- --------
Total current assets......................................................... 759,651 693,699
Property and equipment, net......................................................... 38,250 27,593
Other assets........................................................................ 30,223 19,673
Goodwill and acquired intangibles, net.............................................. 64,003 88,250
-------- --------
$892,127 $829,215
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 4,378 $ 6,712
Amounts due related parties...................................................... 1,773 2,144
Accrued liabilities.............................................................. 73,445 54,905
Deferred revenue................................................................. 41,252 33,635
-------- --------
Total current liabilities.................................................... 120,848 97,396
Commitments and contingencies (Note 8)
Deferred income taxes............................................................... -- 2,284
Stockholders' equity:
Common stock, $0.001 par value; 1,200,000 shares authorized; 199,117 and 194,882
shares issued and outstanding, respectively.................................... 199 195
Additional paid-in capital....................................................... 839,642 817,077
Unearned stock-based compensation................................................ (3,796) (29,946)
Accumulated other comprehensive income........................................... 10,522 4,255
Accumulated deficit.............................................................. (75,288) (62,046)
-------- --------
Total stockholders' equity................................................... 771,279 729,535
-------- --------
$892,127 $829,215
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended November 30,
----------------------------
2001 2000 1999
-------- -------- --------
License revenue:
Non-related parties................................. $197,334 $160,700 $ 39,680
Related parties..................................... 19,423 20,901 17,236
-------- -------- --------
Total license revenue............................ 216,757 181,601 56,916
-------- -------- --------
Service and maintenance revenue:
Non-related parties................................. 93,867 66,841 36,601
Related parties..................................... 8,627 3,355 2,923
-------- -------- --------
Total service and maintenance revenue............ 102,494 70,196 39,524
-------- -------- --------
Total revenue................................. 319,251 251,797 96,440
-------- -------- --------
Cost of revenue:
Stock-based compensation............................ 977 3,025 1,113
Other cost of revenue non-related parties........... 60,892 58,537 33,437
Other cost of revenue related parties............... 2,937 2,956 3,175
-------- -------- --------
Total cost of revenue............................ 64,806 64,518 37,725
-------- -------- --------
Gross profit............................................ 254,445 187,279 58,715
-------- -------- --------
Operating expenses:
Research and development
Stock-based compensation........................... 12,109 18,525 2,707
Other research and development..................... 78,878 57,861 27,478
Sales and marketing
Stock-based compensation........................... 10,128 33,637 4,281
Other sales and marketing.......................... 136,818 92,228 33,130
General and administrative
Stock-based compensation........................... 3,751 1,729 1,151
Other general and administrative................... 22,799 18,489 8,229
Acquired in-process research and development........ -- 2,260 2,800
Amortization of goodwill and acquired intangibles... 23,516 10,479 521
Restructuring charges............................... 21,197 -- --
-------- -------- --------
Total operating expenses......................... 309,196 235,208 80,297
-------- -------- --------
Loss from operations.................................... (54,751) (47,929) (21,582)
Interest income, net.................................... 33,835 28,064 2,707
Other expense, net...................................... (2,355) (1,386) (606)
Realized loss on investments, net....................... (440) (1,812) --
-------- -------- --------
Loss before income taxes................................ (23,711) (23,063) (19,481)
Benefit (provision) for income taxes.................... 10,469 (1,888) --
-------- -------- --------
Net loss................................................ $(13,242) $(24,951) $(19,481)
======== ======== ========
Net loss per share:
Basic and diluted................................... $ (0.07) $ (0.14) $ (0.19)
======== ======== ========
Weighted average common shares outstanding.......... 195,001 184,177 104,112
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Convertible
Preferred Stock Common Stock Additional Unearned
-------------- -------------- Paid-In Stock-based
Shares Amount Shares Amount Capital Compensation
------- ------ ------- ------ ---------- ------------
Balance at November 30, 1998......................................... 81,678 $ 82 67,131 $ 67 $ 46,399 $ (7,230)
Net loss............................................................. -- -- -- -- -- --
Cumulative translation adjustment.................................... -- -- -- -- -- --
Change in net unrealized loss on investments......................... -- -- -- -- -- --
Comprehensive loss................................................
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 our
initial public offering............................................. (81,678) (82) 81,678 82 -- --
Exercise of common stock options, net................................ -- -- 4,920 5 2,965 --
Unearned stock-based compensation, net............................... -- -- -- -- 10,105 (853)
------- ---- ------- ---- -------- --------
Balance at November 30, 1999......................................... -- -- 181,215 181 182,939 (8,083)
Net loss............................................................. -- -- -- -- -- --
Cumulative translation adjustment.................................... -- -- -- -- -- --
Change in net unrealized gain on investments......................... -- -- -- -- -- --
Comprehensive loss................................................
Issuance of common stock in follow-on offering, net of issuance costs
of $1,147........................................................... -- -- 4,776 5 481,032 --
Common stock issued in connection with acquisition of Extensibility
Inc................................................................. -- -- 829 1 64,983 --
Deferred compensation related to acquisition of Extensibility Inc.... -- -- -- -- 34,905 (34,905)
Exercise of common stock options, net................................ -- -- 7,170 7 10,520 --
Employee stock purchase program, common stock issued................. -- -- 892 1 4,332 --
Unearned stock-based compensation, net............................... -- -- -- -- 38,366 13,042
------- ---- ------- ---- -------- --------
Balance at November 30, 2000......................................... -- -- 194,882 195 817,077 (29,946)
Net loss............................................................. -- -- -- -- -- --
Cumulative translation adjustment.................................... -- -- -- -- -- --
Change in net unrealized gain on investments, net of tax of $3,726... -- -- -- -- -- --
Comprehensive loss................................................
Exercise of common stock options, net................................ -- -- 3,195 3 5,107 --
Employee stock purchase program, common stock issued................. -- -- 1,040 1 6,560 --
Tax benefits from employee stock option plans........................ -- -- -- -- 10,535 --
Unearned stock-based compensation, net............................... -- -- -- -- 363 26,150
------- ---- ------- ---- -------- --------
Balance at November 30, 2001......................................... -- $ -- 199,117 $199 $839,642 $ (3,796)
------- ---- ------- ---- -------- --------
Accumulated
Other
Comprehensive Accumulated
Income (Loss) Deficit Total
------------- ----------- --------
Balance at November 30, 1998......................................... $ -- $(17,614) $ 21,704
--------
Net loss............................................................. -- (19,481) (19,481)
Cumulative translation adjustment.................................... 178 -- 178
Change in net unrealized loss on investments......................... (202) -- (202)
--------
Comprehensive loss................................................ (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 our
initial public offering............................................. -- -- --
Exercise of common stock options, net................................ -- -- 2,970
Unearned stock-based compensation, net............................... -- -- 9,252
------- -------- --------
Balance at November 30, 1999......................................... (24) (37,095) 137,918
--------
Net loss............................................................. -- (24,951) (24,951)
Cumulative translation adjustment.................................... (751) -- (751)
Change in net unrealized gain on investments......................... 5,030 -- 5,030
--------
Comprehensive loss................................................ (20,672)
--------
Issuance of common stock in follow-on offering, net of issuance costs
of $1,147........................................................... -- -- 481,037
Common stock issued in connection with acquisition of Extensibility
Inc................................................................. -- -- 64,984
Deferred compensation related to acquisition of Extensibility Inc.... -- -- --
Exercise of common stock options, net................................ -- -- 10,527
Employee stock purchase program, common stock issued................. -- -- 4,333
Unearned stock-based compensation, net............................... -- -- 51,408
------- -------- --------
Balance at November 30, 2000......................................... 4,255 (62,046) 729,535
--------
Net loss............................................................. -- (13,242) (13,242)
Cumulative translation adjustment.................................... 532 -- 532
Change in net unrealized gain on investments, net of tax of $3,726... 5,735 -- 5,735
--------
Comprehensive loss................................................ (6,975)
--------
Exercise of common stock options, net................................ -- -- 5,110
Employee stock purchase program, common stock issued................. -- -- 6,561
Tax benefits from employee stock option plans........................ -- -- 10,535
Unearned stock-based compensation, net............................... -- -- 26,513
------- -------- --------
Balance at November 30, 2001......................................... $10,522 $(75,288) $771,279
------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended November 30,
-------------------------------
2001 2000 1999
--------- --------- ---------
Cash flows from operating activities:
Net loss............................................................. $ (13,242) $ (24,951) $ (19,481)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization...................................... 11,178 4,687 2,110
Write-off of in-process research and development................... -- 2,260 2,800
Amortization of goodwill and other intangibles..................... 23,516 10,479 521
Amortization of stock-based compensation........................... 26,513 51,408 9,252
Realized loss on investments....................................... 440 1,812 --
Deferred income taxes.............................................. (20,450) -- --
Tax benefits from employee stock option plans...................... 10,535 -- --
Changes in assets and liabilities:
Accounts receivable............................................ 30,898 (51,287) (26,119)
Due from related parties, net.................................. 2,081 2,619 1,543
Other assets................................................... 7,667 (11,814) (3,005)
Accounts payable............................................... (2,334) (913) 4,019
Accrued liabilities............................................ 18,540 32,749 10,279
Deferred revenue............................................... 7,617 20,544 8,406
--------- --------- ---------
Net cash provided by (used for) operating activities........ 102,959 37,593 (9,675)
--------- --------- ---------
Cash flows from investing activities:
Deposits held by Reuters............................................. -- -- 15,423
Purchases of short-term investments.................................. (620,345) (459,558) (198,325)
Sales and maturities of short term investments....................... 461,865 136,661 121,997
Cash used in acquisitions, net of cash received...................... -- (2,409) (34,000)
Purchases of property and equipment, net............................. (21,835) (21,423) (8,931)
Purchases of private equity investments.............................. (4,347) (23,033) --
Investment pledged as security for letter of credit.................. (2,000) (5,000) --
--------- --------- ---------
Net cash used for investing activities...................... (186,662) (374,762) (103,836)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock........................... -- 481,037 123,497
Proceeds from exercise of stock options.............................. 5,110 10,527 2,970
Proceeds from employee stock purchase program........................ 6,561 4,333 --
--------- --------- ---------
Net cash provided by financing activities................... 11,671 495,897 126,467
--------- --------- ---------
Effect of exchange rate changes on cash............................... 532 (751) 178
--------- --------- ---------
Net change in cash and cash equivalents............................... (71,500) 157,977 13,134
Cash and cash equivalents at beginning of period...................... 171,658 13,681 547
--------- --------- ---------
Cash and cash equivalents at end of period............................ $ 100,158 $ 171,658 $ 13,681
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for taxes................................... $ 1,262 $ 327 --
========= ========= =========
Non-cash investing and financing activities:
Deferred stock compensation........................................... $ 363 $ 73,271 $ 10,105
========= ========= =========
Common stock and options issued in connection with acquisition........ -- $ 64,984 --
========= ========= =========
Fair value of liabilities assumed in acquisition...................... -- $ (591) --
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2001
Note 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.
In July 1999, the Company completed its initial public offering ("IPO"), of
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.
In March 2000, the Company sold 4,775,750 shares of its common stock in a
follow-on offering. Net proceeds to the Company aggregated approximately $481
million, net of issuance costs of $1.2 million. At November 30, 2001, Reuters
still owned a majority of the Company's common stock.
Note 2. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances have
been eliminated in consolidation.
Stock Splits
In January 2000, the Company's Board of Director's approved a three-for-one
stock split payable in the form of a dividend of two additional shares of the
Company's common stock for every share owned by shareholders which became
effective on February 18, 2000. In June 1999, the Company's Board of Directors
approved a one-for-two reverse stock split of Company's outstanding shares that
became effective on July 13, 1999. All share and per share information included
in these financial statements have been retroactively adjusted to reflect these
splits.
Use of Estimates
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.
F-7
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 at the balance sheet date.
Income and expense items are translated at average exchange rates for the
period. Cumulative translation adjustments are included as a component of
accumulated other comprehensive loss in stockholders' equity. Foreign exchange
transaction gains and losses were not material in any of the periods presented.
Cash, Cash Equivalents, and Short-term investments
The Company considers all highly liquid investment securities with remaining
maturities, at date of purchase, 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 as a component of accumulated other comprehensive loss
in stockholders' equity. These investments are presented as current assets as
management expects to use them within one year in current operations even
though some have scheduled maturities of greater than one year. 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 (in thousands):
November 30,
-------------------
2001 2000
-------- ---------
U.S. government debt securities........................ $228,370 $ 119,359
Corporate debt securities.............................. 84,958 65,731
Marketable equity securities........................... 10,639 9,321
Notes and other........................................ 293,562 362,873
-------- ---------
Total available-for-sale securities................. 617,529 557,284
Less: Amounts classified as cash equivalents........... (33,347) (141,042)
Investment pledged for security of letter of credit. (7,000) (5,000)
-------- ---------
Total investments...................................... 577,182 411,242
Less: Marketable equity securities..................... (10,639) (9,321)
-------- ---------
Total fixed income securities....................... $566,543 $ 401,921
======== =========
As of November 30, 2001 and 2000, short-term investments with contractual
maturities of one year or less and one year through five years were $111.2
million and $455.3 million, and $73.5 million and $328.4 million, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments and accounts receivable. Cash, cash equivalents and investments are
deposited with financial institutions that management believes are
creditworthy. The Company's accounts receivable are derived from revenue earned
from customers located primarily in the United States and Europe. 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 accounts receivable based upon the expected
collectibility of accounts receivable.
F-8
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Capitalized Software Development Costs
Costs related to research and development are generally charged to expense
as incurred. Capitalization of material software development costs begins when
a product's technological feasibility has been established. 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.
The Company capitalizes certain costs relating to software acquired,
developed or modified solely to meet the company's internal requirements and
for which there are no substantive plans to market the software. Costs incurred
after the preliminary planning stage of the project and after management has
authorized and committed funds to the project are required to be capitalized.
Capitalized costs relating to software under development to meet internal
requirements were $1.5 million, for the year ended November 30, 2001.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
Equipment and software 2-5 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of the lease term or the estimated useful life
Goodwill and Other Intangible Assets
Goodwill and other intangible assets acquired in purchase transactions prior
to July 1, 2001 are amortized on a straight-line method over the estimated
useful lives of the assets of between 2 and 5 years. Other intangible assets
acquired in purchase transactions prior to July 1, 2001 consist of purchased
technology, trademarks, non-compete agreements, assembled workforces and
customer bases.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." When events or changes in circumstances indicate the
carrying amount of long-lived assets may not be recoverable the Company
recognizes such an impairment in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets. No
impairment losses were incurred in the periods presented.
Revenue Recognition
License revenue consists principally of revenue earned under software
license agreements. License revenue is generally recognized when a signed
contract or other persuasive evidence of an arrangement exists, the software
has been shipped or electronically delivered, the license fee is fixed or
determinable, and collection of the resulting receivable is probable. When
contracts contain multiple 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 Statement of
Position ("SOP") 98-9. Revenue from subscription license agreements, which
include software, rights to future products and maintenance, is recognized
ratably over
F-9
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 $0.6
million, $1.1 million, and $0.7 million for the years ended November 30, 2001,
2000, and 1999, respectively.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("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 Financial Accounting Standards Board Interpretation ("FIN") No.
28 over the option's vesting period.
Beginning on July 1, 2000, the Company accounted for stock options assumed
and restricted stock issued in acquisitions in accordance with the provisions
of FIN No. 44 ("FIN No. 44"), "Accounting for Certain Transactions Involving
Stock Compensation-an interpretation of APB Opinion No. 25." Under FIN No. 44,
assumed options in a purchase business combination are valued on the date of
acquisition at their fair value calculated using the Black-Scholes options
pricing model. The fair value of vested options is included as part of the
purchase price. A portion of the intrinsic value of unvested options and the
fair value of the unvested restricted stock is recorded as unearned stock-based
compensation and amortized over the remaining vesting period of the options and
restricted stock.
Comprehensive Loss
Comprehensive loss includes net loss and other comprehensive income (loss).
Other comprehensive income (loss) consists of unrealized gains and losses on
available-for-sale securities and cumulative translation adjustments. Total
comprehensive loss and the components of accumulated other comprehensive income
(loss) are presented in the accompanying Consolidated Statement of
Stockholders' Equity. Total accumulated other comprehensive income (loss) is
displayed as a separate component of stockholders' equity in the accompanying
Consolidated Balance Sheets.
Net Loss per Share
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
F-10
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
share is computed by dividing the net loss for the period by the weighted
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.
The following table sets forth the computation of basic and diluted net loss
per share (in thousands, except per share amounts):
Year Ended November 30,
----------------------------
2001 2000 1999
-------- -------- --------
Net loss......................................... $(13,242) $(24,951) $(19,481)
======== ======== ========
Basic and diluted:
Weighted average common shares outstanding.... 197,258 188,853 110,313
Weighted average common shares subject to
repurchase.................................. (2,257) (4,676) (6,201)
-------- -------- --------
Weighted average common shares used to compute
basic and diluted net loss per share........... 195,001 184,177 104,112
======== ======== ========
Net loss per share--basic and diluted............ $ (0.07) $ (0.14) $ (0.19)
======== ======== ========
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 (in thousands):
November 30,
--------------------
2001 2000 1999
------ ------ ------
Common stock subject to repurchase............... 1,266 3,638 5,965
Stock options.................................... 34,011 41,830 31,440
------ ------ ------
35,277 45,468 37,405
====== ====== ======
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. The Company had outstanding forward
contracts with notional amounts totaling approximately $4.5 million, $6.2
million and $0.5 million at November 30, 2001, 2000 and 1999, respectively. The
open contracts at November 30, 2001 mature at various dates through February
2002 and are economic hedges of certain foreign currency transaction exposures
in the Australian Dollar, British Pound, Swedish Krona, Euro, Japanese Yen, and
Danish Krone. The fair value of these forward contracts at November 30, 2001
was not significant.
On December 1, 2000, the Company adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and requires
recognition of all derivatives as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through
earnings. If the derivative is a hedge, depending on the nature of the hedge,
changes in fair value will be either offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The adoption of SFAS No. 133 did not materially impact the Company's
results of operations and financial position.
F-11
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the Company is required to adopt SFAS No.142 effective
December 1, 2002. Amortization of goodwill and intangibles with an indefinite
life acquired before July 1, 2001 was $17.4 million for the year ended November
30, 2001.
In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". SFAS No.144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of", and addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The Company is required to adopt
SFAS No. 144 on December 1, 2002 and does not expect the adoption of SFAS No.
144 to have a material impact on its results of operations and financial
position.
F-12
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Balance Sheet Components
November 30,
------------------
2001 2000
-------- --------
(in thousands)
Accounts receivable, net:
Accounts receivable..................................... $ 60,930 $ 88,636
Unbilled fees and services.............................. 3,465 5,599
-------- --------
64,395 94,235
Less: Allowances for doubtful accounts, returns and
discounts................................................ (5,315) (4,257)
-------- --------
$ 59,080 $ 89,978
======== ========
Property and equipment, net:
Equipment and software.................................. $ 32,738 $ 19,566
Furniture and fixtures.................................. 3,015 2,206
Leasehold improvements.................................. 20,827 12,973
-------- --------
56,580 34,745
Less: Accumulated depreciation and amortization............ (18,330) (7,152)
-------- --------
$ 38,250 $ 27,593
======== ========
Other assets:
Private equity investments.............................. 13,380 14,033
Deferred tax asset, net................................. 9,479 --
Restricted cash......................................... 7,000 5,000
Other................................................... 364 640
-------- --------
$ 30,223 $ 19,673
======== ========
Goodwill and acquired intangibles, net:
Goodwill................................................ $ 70,917 $ 71,648
Existing technology..................................... 16,830 16,830
Customer base........................................... 4,960 4,960
Workforce............................................... 4,240 4,240
Trademarks.............................................. 1,450 1,450
Non-compete agreement................................... 80 80
-------- --------
98,477 99,208
Less: Accumulated amortization............................. (34,474) (10,958)
-------- --------
$ 64,003 $ 88,250
======== ========
Accrued liabilities:
Compensation and employee related....................... $ 37,132 $ 36,937
Restructuring costs..................................... 17,784 --
Expenses................................................ 18,529 17,968
-------- --------
$ 73,445 $ 54,905
======== ========
F-13
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. Allowances for Doubtful Accounts, Returns and Discounts
Balance at Charged Balance
Beginning against Charged to at End of
of Period Revenue Expenses Deduction Period
---------- ------- ---------- --------- ---------
(in thousands)
Year Ended November 30, 1999...... $1,694 $ 230 $1,321 $(1,012) $2,233
Year Ended November 30, 2000...... 2,233 2,197 1,246 (1,419) 4,257
Year Ended November 30, 2001...... 4,257 1,619 1,878 (2,439) 5,315
Note 5. Restructuring Charge
During the second quarter of fiscal 2001, the Company recorded a
restructuring charge of $12.6 million, consisting of $2.8 million for headcount
reductions, $9.2 million for consolidation of facilities, and $0.6 million of
other related restructuring charges. These restructuring charges were taken to
align the Company's cost structure with changing market conditions. The plan
resulted in headcount reduction of approximately 170 employees, which was made
up of 46% sales and marketing staff, 23% professional services staff, 16%
general and administrative staff and 15% research and development staff. The
plan also included the consolidation of facilities through closing excess field
offices and moving corporate offices into one campus.
During the fourth quarter of fiscal 2001, the Company recognized an
additional restructuring charge in the amount of $8.6 million following a
decline in expected sublease rental rates associated with the Company's excess
facilities.
For the year ended November 30, 2001, the Company's restructuring charge
totaled $21.2 million, which consisted of $2.8 million for headcount
reductions, $17.8 million for consolidation of facilities, and $0.6 million of
other related restructuring charges.
Cash utilized during the fiscal year ended November 30, 2001 included $2.8
million for severance and other costs related to headcount reductions and $0.6
million for facilities and other restructuring costs. The provision of $17.8
million at November 30, 2001 is for facility charges which are expected to be
paid over the next six years.
Note 6. 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):
Year Ended November 30,
-----------------------
2001 2000 1999
------- ------- -------
License fees............................. $18,124 $18,326 $15,289
Service and maintenance revenue:
Maintenance........................... 4,854 1,509 1,168
Services contracts.................... 2,573 927 843
Shared personnel...................... -- -- 307
Development reimbursement............. -- -- 365
------- ------- -------
Total service and maintenance..... 7,427 2,436 2,683
------- ------- -------
$25,551 $20,762 $17,972
======= ======= =======
F-14
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reuters is a distributor of the Company's products to customers in the
financial services segment. A license, maintenance, and distribution agreement
exists between the Company and Reuters, which was amended in June 2001. Under
the amended agreement, Reuters elected to continue its obligation to pay a
minimum guaranteed distribution fee to the Company in the amount of $20 million
per year through December 2002. For the years ended December 31, 2001, 2000,
and the nine months ending December 31, 1999, Reuters has guaranteed minimum
distribution fees of $20.0 million, $18.0 million, and $16.0 million,
respectively. This fee is recognized ratably over the corresponding period as
related party revenue. If actual distribution fees due from Reuters exceed the
cumulative minimum year-to-date guarantee, incremental fees are due. Such
incremental fees are recognized in the period when the year-to-date fees exceed
the cumulative minimum level. The amended agreement also revises the terms
under which the Company may sell to customers in the financial services
segment. Royalty payments to Reuters for resale of Reuters' products and
services or fees associated with sales to the financial services segment are
classified as related party cost of sales. In addition, the amended terms also
require the Company to provide Reuters with internal maintenance and support
until December 31, 2011 for a fee of $1.2 million for the remainder of calendar
year 2001 and $2.0 million per year thereafter. Reuters may choose at its
option to discontinue such internal maintenance and support after 2002 and pay
no additional fees. This amount is recognized ratably over the corresponding
period as related party maintenance revenue.
Reuters has also paid the Company maintenance fees and service and other
fees from miscellaneous projects. The Company recognized approximately $7.4
million, $2.5 million, and $2.4 million during the years ended November 30,
2001, 2000, and 1999, respectively.
Reuters and TIBCO Software have agreed to certain intercompany rates for the
sharing of employees on various customer projects. For the services provided by
TIBCO Software's personnel to Reuters, TIBCO Software recognized service
revenue of approximately $0.3 million for the year ended November 30, 1999. For
the services received by TIBCO Software from Reuters' personnel, TIBCO Software
recorded expenses of approximately $0.3 million and $2.3 million for the years
ended November 30, 2000 and 1999, respectively.
The Company incurred royalty and commission fees to Reuters of approximately
$2.9 million, $3.0 million, and $0.8 million in fiscal 2001, 2000 and 1999,
respectively. These costs are included in cost of revenue.
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 $0.6 million in the year ended
November 30, 1999 and have been 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
F-15
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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 $0.2
million for the year ended 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. 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 $0.2 million for the year ended 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 for the year ended November 30,
1999. Effective with the Company's IPO, the Company began to manage its own
cash and investments.
Cisco Systems, Inc.
As of November 30, 2001, 2000 and 1999, Cisco Systems, Inc. ("Cisco") owned
approximately 7% of the outstanding common stock, and had one representative on
the Company's Board of Directors as of November 30, 2001, and two
representatives on the Company's Board of Directors as of November 30, 2000 and
1999. The Company recorded license revenue from Cisco of $1.3 million, $2.6
million and $1.9 million and service and maintenance revenue of $1.2 million,
$0.9 million and $0.2 million for the years ended November 30, 2001, 2000 and
1999, respectively.
F-16
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Income Taxes
Significant components of the provision for income taxes are as follows (in
thousands):
Year Ended November 30,
-----------------------
2001 2000 1999
-------- ------ ----
Federal:
Current............................. $ 9,070 $ 688 $ --
Deferred............................ (16,668) -- --
-------- ------ ----
(7,598) 688 --
State:
Current............................. 1,443 400 --
Deferred............................ (6,776) -- --
-------- ------ ----
(5,333) 400 --
Foreign:
Current............................. 2,462 800 --
Deferred............................ -- -- --
-------- ------ ----
2,462 800 --
-------- ------ ----
Income tax (benefit) provision......... $(10,469) $1,888 $ --
======== ====== ====
The Company paid income taxes of $1.3 million, $0.3 million and $0.0 million
for the years ended November 30, 2001, 2000 and 1999, respectively. Loss before
provision for income taxes consisted of (in thousands):
Year Ended November 30,
----------------------------
2001 2000 1999
-------- -------- --------
United States.......................... $(27,947) $(25,788) $(18,884)
International.......................... 4,236 2,725 (597)
-------- -------- --------
Total............................... $(23,711) $(23,063) $(19,481)
======== ======== ========
The (benefit) provision for income taxes was at rates other than the U.S.
Federal statutory tax rate for the following reasons:
Year Ended November 30,
---------------------
2001 2000 1999
----- ----- -----
U.S. Federal statutory rate............ (35.0)% (34.0)% (34.0)%
State taxes............................ (4.4) (5.2) (5.7)
Minimum taxes.......................... -- 5.3 --
R & D credits.......................... (2.1) (10.0) (9.8)
In-process research and development.... -- 3.9 --
Goodwill............................... 24.7 5.5 (3.4)
Stock option compensation.............. 38.5 30.3 5.7
Foreign losses not benefited........... -- 4.0 --
Change in valuation allowance.......... (70.0) 3.7 45.6
Other.................................. 4.1 4.8 1.6
----- ----- -----
Income tax (benefit) provision......... (44.2)% 8.3 % 0.0 %
===== ===== =====
F-17
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
U.S. income taxes and foreign withholding taxes were not provided for on a
cumulative total of $8.0 million of undistributed earnings for certain non-U.S.
subsidiaries. The Company intends to reinvest these earnings indefinitely in
operations outside the U.S.
The components of the Company's deferred tax assets and liabilities are as
follows (in thousands):
Year Ended November 30,
---------------------------
2001 2000 1999
------- -------- --------
Deferred tax liabilities:
Intangible assets........................... $(1,532) $ (2,284) $ --
Deferred tax assets:
Net operating loss carryforward............. -- 815 4,364
Stock option compensation................... 233 -- 3,871
Reserves and accruals....................... 14,728 7,732 3,237
Credit carryforwards........................ 3,101 5,633 2,608
Depreciation and amortization............... 5,748 3,432 1,523
Unrealized gains on marketable securities... (3,383) (1,863) --
Capital loss carryforward................... -- 785 --
Other....................................... (729) 32 83
------- -------- --------
Total deferred tax assets...................... 19,698 16,566 15,686
Valuation allowance............................ -- (16,566) (15,686)
------- -------- --------
Net deferred tax assets and liabilities........ $18,166 $ (2,284) $ --
======= ======== ========
Since incorporation, the Company had provided a valuation allowance on its
deferred tax assets because of uncertainty regarding their realization. At
November 30, 2001, the Company removed the valuation allowance because it
believes that it is more likely than not that all deferred tax assets will be
realized in the foreseeable future.
The Company's income taxes payable for federal and state purposes have been
reduced by the tax benefits associated with exercise of employee stock options.
These benefits were credited directly to shareholders' equity and amounted to
$10.5 million for fiscal 2001.
As of November 30, 2001, the Company's federal and state net operating loss
carryforwards for income tax purposes were $463 million and $201 million,
respectively, which expire through 2021. As of November 30, 2001, the Company's
federal and state tax credit carryforwards for income tax purposes were $4.8
million and $6.0 million, respectively, which expire through 2021. In the event
of a change in ownership, as defined under federal and state tax laws, the
Company's net operating loss and tax credit carryforwards may be subject to
annual limitation. The annual limitation may result in the expiration of the
net operating loss and tax credit carryforwards before utilization.
Note 8. Commitments and Contingencies
Leases
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through March 2014. Rental expense was
approximately $13.7 million, $8.4 million and $4.1 million for the years ended
November 30, 2001, 2000 and 1999, respectively.
F-18
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under non-cancelable operating leases,
including lease commitments entered into subsequent to November 30, 2001, are
as follows (in thousands):
Year Ending November 30,
------------------------
2002................................... $ 19,639
2003................................... 23,192
2004................................... 23,396
2005................................... 23,852
2006................................... 23,818
Thereafter............................. 154,955
--------
$268,852
========
Legal Proceedings
Between July 6, 2001 and December 6, 2001, several purported class action
complaints were filed in the United States District Court for the Southern
District of New York against the Company, several of the Company's current and
former officers and directors and the underwriters of the Company's July 1999
initial public offering and March 2000 follow on offering. The complaints
generally allege that the named defendants violated federal securities laws
because the prospectuses related to the Company's offerings failed to disclose,
and contained false and misleading statements regarding, certain commissions
purported to have been received by the underwriters, and other underwriter
practices, in connection with their allocation of shares in the Company's
offerings. The Company believes that the claims against it and its current and
former officers and directors are without merit and it intends to defend
against the complaints vigorously.
Note 9. 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.
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 1,200 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.
Unvested shares are subject to repurchase at the original exercise price. As of
November 30, 2001, 2000 and 1999 shares of common stock subject to a repurchase
option held by the Company totaled 1.3 million shares, 3.6 million shares and
5.9 million shares at weighted average prices of $0.77, $0.53 and $0.49 per
share, respectively.
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
F-19
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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) 60 million shares, (ii) 5% of the
outstanding shares of the Company's common stock, or (iii) a lesser amount
determined by the Board of Directors.
2001 Stock Option Exchange Program. In January 2001, TIBCO's Board of
Directors approved a voluntary stock option exchange program for certain of the
Company's employees. Under the program, employees had the opportunity to cancel
certain outstanding stock options granted to them under the 1996 Plan between
September 9, 1999 and February 15, 2001 in exchange for a new option grant for
an equal number of shares with terms and conditions substantially the same as
the cancelled options to be granted on October 8, 2001. The program terminated
on April 5, 2001. A total of 13,483,903 options were cancelled in connection
with the option exchange. The exercise price of the new options were priced at
the closing price on NASDAQ on October 8, 2001 at $8.00 per share. Members of
TIBCO's Board of Directors and executive officers were not eligible to
participate in this program. The exchange program did not result in any
additional charges or variable accounting.
1998 Advisory Council Option 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.
Employee Stock Purchase Program. In June 1999, the Company adopted the
Employee Stock Purchase Program (the "ESP Program") as a sub-plan to the 1996
Plan. Employees are generally eligible to participate in the ESP Program 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 Program) 5% stockholders of
the Company. Under the ESP Program, 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 ended on June 30, 2001. Offering Periods and Purchase Periods
thereafter will begin on January 1 and July 1 of each year. Effective July 1,
2001, all future Offering Periods and Purchase Periods were changed to begin on
February 1 and August 1 of each year. The price at which the common stock is
purchased under the ESP Program 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 Program will
terminate after a period of ten years unless terminated earlier as permitted by
the ESP Program.
Under the ESP Program, approximately 1,040,455 and 892,000 shares were
issued during fiscal 2001 and 2000, respectively, representing approximately
$6.6 million and $4.3 million in employee contributions for fiscal 2001 and
2000, respectively.
1998 Director Option Plan. In February 1998, the Company adopted the 1998
Director Option Plan (the "Director Plan"). The Director Plan provides for an
automatic initial grant of 150,000 shares to members of the
F-20
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 option plans is summarized as follows (in
thousands, except per share data):
Year Ended November 30,
---------------------------------------------------
2001 2000 1999
----------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of period..... 41,830 $27.09 31,440 $ 1.12 27,258 $0.39
Granted............................. 19,136 12.81 18,797 60.51 10,614 2.77
Exercised........................... (6,324) 0.90 (7,170) 1.47 (5,235) 0.59
Forfeited........................... (20,631) 55.65 (1,237) 22.95 (1,197) 1.34
------- ------ ------
Outstanding at end of period........... 34,011 6.60 41,830 27.09 31,440 1.12
======= ====== ======
Options exercisable at period end...... 16,491 2.43 24,664 4.02 29,601 0.81
======= ====== ======
The following table summarizes information about stock options outstanding
at November 30, 2001 (in thousands, except number of years and per share data):
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted
Number of Average Weighted Number of Weighted
Shares Remaining Average Shares Average
Underlying Contractual Exercise Underlying Exercise
Range of Exercise Price Options Life Price Options Price
----------------------- ---------- ----------- -------- ---------- --------
$0.20 to $0.34 8,530 5.31 years $ 0.22 8,530 $ 0.22
$0.35 to $2.99 6,847 7.09 years 1.61 6,772 1.61
$3.00 to $7.99 939 8.76 years 5.84 380 3.18
$8.00 12,008 9.85 years 8.00 0 8.00
$8.01 to $43.44 4,856 9.37 years 13.22 497 18.37
$43.45 to $70.00 757 8.31 years 53.25 297 53.07
$70.01 to $116.38 74 8.76 years 75.12 15 81.49
------ ---------- ------ ------ ------
$0.20 to $116.38 34,011 8.02 years 6.60 16,491 2.43
====== ========== ====== ====== ======
At November 30, 2001, the Company had reserved 11,355,381 and 415,000 shares
of authorized but unissued common stock for future issuance under the 1996 Plan
and the Director Plan, respectively.
F-21
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based Compensation
Year Ended November 30,
-----------------------
2001 2000 1999
------- ------- ------
Stock-based compensation related to:
Cost of sales....................... $ 977 $ 3,025 $1,113
Research and development............ 12,109 18,525 2,707
Sales and marketing................. 10,128 33,637 4,281
General and administrative.......... 3,751 1,729 1,151
------- ------- ------
Total........................... $26,965 $56,916 $9,252
======= ======= ======
In connection with certain stock option grants to employees and external
directors, the Company recorded approximately $3.6 million and $6.6 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, 2000
and 1999, respectively. Stock-based compensation expense is being recognized,
using the multiple option method as prescribed by FIN 28, over the option
vesting period of generally five years. As a result, amortization of
stock-based compensation for employees and external directors was $5.6 million,
$5.5 million, and $5.7 million for the years ended November 30, 2001, 2000 and
1999, respectively and is expected to be $1.5 million in 2002, $0.6 million in
2003 and $0.1 million 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 FIN 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 value
of the Company's common stock fluctuates. In connection with the grant of stock
options to consultants, the Company recognized stock-based compensation expense
of $0.1 million, $34.8 million and $3.5 million for the years ended November
30, 2001, 2000 and 1999, respectively. As of November 30, 2001, the Company
expects to amortize stock-based compensation expense for consultants of $0.3
million in 2002, assuming no change in the underlying fair value of the
Company's common stock.
The Company recorded aggregate unearned compensation of $34.9 million in
connection with the acquisition of Extensibility Inc. ("Extensibility") related
to unvested options that were assumed as well as stock that was issued as part
of the consideration for the acquisition, which is being held in an escrow
account. This amount is amortized over the vesting period of the options and as
the stock is released from the escrow account. The Company expects to amortize
$1.1 million, $0.4 million and $0.1 million of unearned stock compensation in
connection with the Extensibility acquisition for the years ended November 30,
2002, 2003 and 2004, respectively. Stock based compensation expense related to
the unvested portion of options assumed and restricted stock granted in
connection with the acquisition of Extensibility was $20.9 million and $11.2
million for the years ended November 30, 2001 and 2000, respectively.
For the years ended November 30, 2001 and 2000, the Company recognized $0.5
million and $5.4 million, respectively as stock compensation expense related to
the employer portion of payroll taxes due as a result of employee exercises of
non qualified stock options.
F-22
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 resulted
in the pro forma income (loss) indicated below (in thousands):
Year Ended November 30,
-----------------------------
2001 2000 1999
-------- --------- --------
Net income (loss):
As reported.............................. $(13,242) $ (24,951) $(19,481)
Pro forma................................ 20,973 (295,974) (22,023)
Net income (loss) per share--basic:
As reported.............................. $ (0.07) $ (0.14) $ (0.19)
Pro forma................................ 0.11 (1.61) (0.21)
Net income (loss) per share--diluted:
As reported.............................. $ (0.07) $ (0.14) $ (0.19)
Pro forma................................ 0.10 (1.61) (0.21)
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
----------------- -------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Risk free interest rates.................... 4.2% 6.3% 4.6% 4.2% 6.3% 4.6%
Expected lives (in years)................... 3.0 3.0 3.0 .5 .5 .5
Dividend yield.............................. 0.0 0.0 0.0 0.0 0.0 0.0
Expected volatility......................... 128% 122% 92% 128% 122% 92%
These pro forma amounts may not be representative of the effects on reported
income (loss) for future years as options vest over several years and
additional awards are generally made each year. The weighted average fair value
of a share of common stock underlying options granted in the years ended
November 30, 2001, 2000 and 1999 was $31.25, $51.77, and $1.44, 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. The Company's matching contributions to the Plan totaled $2.8
million, $1.8 million and $0.7 million in fiscal 2001, 2000 and 1999,
respectively.
F-23
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10. 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):
Year Ended November 30,
-------------------------
2001 2000 1999
-------- -------- -------
Americas.................................... $181,899 $172,079 $47,706
Europe...................................... 113,075 67,444 40,850
Pacific Rim................................. 24,277 12,274 7,884
-------- -------- -------
Total Revenue............................ $319,251 $251,797 $96,440
======== ======== =======
Revenue from Reuters, a European customer, accounted for 8%, 8% and 19% of
total revenue for the years ended November 30, 2001, 2000 and 1999,
respectively. Concert Global Networks USA LLC represented 15% of net accounts
receivable at November 30, 2000. Long-lived assets outside the United States at
November 30, 2001 and 2000 were not material.
Note 11. Business Combination
In August 2000, the Company entered into an Agreement and Plan of
Reorganization to acquire Extensibility, a provider of enabling technologies
for XML-based application infrastructures. As a result of the acquisition,
Extensibility became a wholly owned subsidiary of TIBCO Software. In connection
with the acquisition, TIBCO Software issued common stock in exchange for all of
the outstanding capital stock and options of Extensibility. The acquisition was
consummated on September 5, 2000 and was intended to be treated as a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended, and accounted for under the purchase method of accounting. The results
of operations of Extensibility 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 total fair market value of the consideration was $102.4 million which
consisted of the allocated purchase price of $67.5 million and $34.9 million in
unearned stock-based compensation related to unvested stock options that were
assumed as well as stock that was issued as part of the consideration for the
acquisition, which is being held in an escrow account. The purchase price of
$67.5 million included the value of securities issued in the amount of $59.9
million, the assumption of Extensibility options totaling $5.1 million and
acquisition related expenses, consisting of financial advisory, accounting and
legal fees, of approximately $2.5 million. The Company assumed liabilities with
a fair value of $0.6 million and recorded $2.2 million for deferred tax
liabilities related to acquired intangibles.
F-24
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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):
In-process research and development.............. $ 2,260
Existing technology.............................. 2,830
Customer base.................................... 2,060
Workforce........................................ 1,140
Trademarks....................................... 250
Non compete agreement............................ 80
Goodwill......................................... 61,649
-------
Total goodwill and acquired intangibles....... $70,269
=======
The goodwill and acquired intangibles have estimated useful lives of between
2 and 5 years and had related amortization expense of $17.2 million and $4.3
million for the years ended November 30, 2001 and 2000, respectively.
A portion of the purchase price was allocated to developed technology, which
is shown as "Existing technology" in the table above, and in-process research
and development (IPRD). Management estimated that $2.3 million of the purchase
price represented IPRD that did not meet the requirements for capitalization.
Accordingly, this amount was immediately charged to expense upon consummation
of the acquisition. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by Extensibility
concerning development projects, their stage of development, the time and
resources needed to complete them, if applicable, their expected income
generating ability and associated risks. The income approach, which includes an
analysis of the cash flows, and risks associated with achieving such cash
flows, was the primary technique utilized in valuing the developed technology
and IPRD.
Where development projects had reached technological feasibility, they were
classified as developed technology and the value assigned to developed
technology was capitalized. The developed technology is being amortized on a
straight-line basis over its estimated useful life of five years. The value was
determined by estimating the expected cash flows from the projects once
commercially viable, discounting the net cash flows back to their present value
and then applying a percentage of completion to the calculated value as defined
below.
--Net cash flows. The net cash flows from the identified projects are based
on estimates of revenue, cost of sales, research and development costs,
selling, general and administrative costs and income taxes from those
projects. These estimates are based on the assumptions mentioned below. The
research and development costs included in the model reflect costs to
sustain projects, but exclude costs to bring in-process projects to
technological feasibility.
The estimated revenue was based on projections of Extensibility for each
in-process project. These projections were based on its estimates of market
size and growth, expected trends in technology and the nature and expected
timing of new product introductions by Extensibility and its competitors.
Projected gross margins and operating expenses approximate
Extensibility's recent historical levels.
--Discount rate. Discounting the net cash flows back to their present value
is based on the industry weighted average cost of capital ("WACC"). The
industry WACC is approximately 28%. The discount rate used in discounting
the net cash flows from IPR&D is 40%. This discount rate is higher than the
industry WACC due to inherent uncertainties surrounding the successful
development of the IPR&D, market
F-25
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acceptance of the technology, the useful life of such technology and the
uncertainty of technological advances which could potentially impact the
estimates described above.
--Percentage of completion. The percentage of completion for each project
was determined using costs incurred to date on each project as compared to
the remaining research and development to be completed to bring each project
to technological feasibility. The percentage of completion varied by
individual project from 10% to 80%.
If the projects discussed above are not successfully developed, the sales
and profitability of the combined company may be adversely affected in future
periods.
A customer base represents established relationships with businesses that
repeatedly order from a company. The income approach was used to estimate the
value of Extensibility's customer base by determining the present value of
future cash flows generated by existing customers. Key assumptions used in the
calculation included a discount rate of 35% and estimates of revenue growth,
cost of sales, operating expenses and a tax rate provided by management of
Extensibility. The customer base is being amortized on a straight-line basis
over its estimated useful life of four years.
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs for each
category of employee. The value of the assembled workforce is being amortized
on a straight-line basis over its estimated useful life of two years.
The trademark was valued by applying a trademark royalty rate of 0.5% to
forecasted revenue, and then the net cash flow expected was discounted at a
rate of 35% to arrive at an estimated fair market value. The trademark is being
amortized on a straight-line basis over its estimated useful life of four years.
The following unaudited pro forma information combines the results of
operations as if the acquisition of Extensibility had been consummated as of
the beginning of the period presented (in thousands, except for per share data):
Year Ended
November 30,
2000
------------
Revenue.......................................... $252,197
Net loss......................................... (55,405)
Basic and diluted net loss per share............. $ (0.30)
The pro forma net loss includes the impact of adjustments related to
amortization of purchased intangibles and goodwill, amortization of deferred
compensation and the reduction of interest income. The pro forma information
does not purport to be indicative of the results that would have occurred had
the acquisition actually been in effect for these periods, or of results that
may occur in the future.
Note 12. Pending Business Combination (unaudited)
On January 4, 2002, the Company entered into a definitive agreement to
acquire Talarian Corporation ("Talarian") in a stock and cash transaction
valued at approximately $115 million, including the assumption of stock options.
F-26
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to the agreement, at the effective time of the merger, each
outstanding share of Talarian common stock, other than dissenting shares, will
be automatically converted into the right to receive: (i) $2.65 in cash,
without interest, and (ii) a fraction of a share of common stock of TIBCO equal
to (a) $2.65 divided by (b) the average of the closing sales prices for one
share of TIBCO common stock as reported on the Nasdaq National Market for the
ten consecutive trading days ending (and including) one day prior to the
closing date of the transaction (the "Closing Trading Price"); provided that if
such calculation yields a Closing Trading Price that is greater than $16.21,
then the Closing Trading Price shall be deemed to be $16.21; and if such
calculation yields a Closing Trading Price that is less than $12.16, then the
Closing Trading Price shall be deemed to be $12.16. Outstanding options and
warrants to purchase Talarian common stock will be assumed by TIBCO and become
exercisable for the same combination of cash and TIBCO stock as Talarian
shares. The acquisition is expected to close in the second quarter of fiscal
2002.
F-27
QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Fiscal 2001
--------------------------------------
Nov. 30, Aug. 31, May 31, Feb. 28,
2001 2001 2001 2001
-------- -------- -------- --------
Revenue:
License revenue:
Non-related parties................................ $ 45,857 $ 42,542 $ 55,063 $ 53,872
Related parties.................................... 4,717 5,049 5,266 4,391
-------- -------- -------- --------
Total license revenue............................ 50,574 47,591 60,329 58,263
Services and maintenance revenue:
Non-related parties................................ 25,323 25,092 21,936 21,516
Related parties.................................... 2,347 2,536 1,421 2,323
-------- -------- -------- --------
Total services and maintenance revenue........... 27,670 27,628 23,357 23,839
Total revenue.................................... 78,244 75,219 83,686 82,102
Cost of revenue
Stock-based compensation............................. 175 191 235 376
Other cost of revenue non-related parties............ 14,587 13,904 15,094 17,308
Other cost of revenue related parties................ 1,049 1,129 371 387
-------- -------- -------- --------
Total cost of revenue............................ 15,811 15,224 15,700 18,071
Gross profit.......................................... 62,433 59,995 67,986 64,031
-------- -------- -------- --------
Operating expenses:
Research and development
Stock-based compensation........................... 2,914 2,044 2,577 4,574
Other research and development..................... 19,039 19,111 20,387 20,341
Sales and marketing
Stock-based compensation........................... 934 741 6,161 2,292
Other sales and marketing.......................... 33,887 32,247 37,668 33,016
General and administrative
Stock-based compensation........................... 114 204 3,001 432
Other general and administrative................... 4,456 4,833 5,977 7,533
Acquired in-process research and development......... -- -- -- --
Amortization of goodwill and acquired intangibles.... 5,852 5,854 5,854 5,956
Restructuring charges................................ 8,567 -- 12,630 --
-------- -------- -------- --------
Total operating expenses......................... 75,763 65,034 94,255 74,144
-------- -------- -------- --------
Loss from operations.................................. (13,330) (5,039) (26,269) (10,113)
Interest income, net.................................. 7,339 7,912 8,852 9,732
Other income (expense), net........................... (653) 214 (1,720) (196)
Realized gain (loss) on investments................... (1,826) 1,948 (512) (50)
-------- -------- -------- --------
Net income (loss) before income taxes................. (8,470) 5,035 (19,649) (627)
Benefit (provision) for income taxes.................. 2,871 5,492 1,881 225
-------- -------- -------- --------
Net income (loss)..................................... $ (5,599) $ 10,527 $(17,768) $ (402)
======== ======== ======== ========
Net loss per share:
Basic................................................ $ (0.03) $ 0.05 $ (0.09) $ (0.00)
======== ======== ======== ========
Weighted average common shares outstanding........... 197,198 196,087 194,190 192,527
======== ======== ======== ========
Net loss per share:
Diluted.............................................. $ (0.03) $ 0.05 $ (0.09) $ (0.00)
======== ======== ======== ========
Weighted average common shares outstanding........... 197,198 211,595 194,190 192,527
======== ======== ======== ========
Three Months Ended Fiscal 2000
--------------------------------------
Nov. 30, Aug. 31, May 31, Feb. 28,
2000 2000 2000 2000
-------- -------- -------- --------
Revenue:
License revenue:
Non-related parties................................ $ 63,550 $ 42,365 $ 31,638 $ 23,147
Related parties.................................... 4,496 6,147 5,040 5,218
-------- -------- -------- --------
Total license revenue............................ 68,046 48,512 36,678 28,365
Services and maintenance revenue:
Non-related parties................................ 19,510 17,918 16,636 12,777
Related parties.................................... 1,018 783 740 814
-------- -------- -------- --------
Total services and maintenance revenue........... 20,528 18,701 17,376 13,591
Total revenue.................................... 88,574 67,213 54,054 41,956
Cost of revenue
Stock-based compensation............................. 830 682 732 781
Other cost of revenue non-related parties............ 16,943 15,739 14,197 11,659
Other cost of revenue related parties................ 850 846 459 800
-------- -------- -------- --------
Total cost of revenue............................ 18,623 17,267 15,388 13,240
Gross profit.......................................... 69,951 49,946 38,666 28,716
-------- -------- -------- --------
Operating expenses:
Research and development
Stock-based compensation........................... 7,875 3,612 3,395 3,643
Other research and development..................... 19,021 14,879 13,187 10,774
Sales and marketing
Stock-based compensation........................... 20,198 3,305 5,852 4,281
Other sales and marketing.......................... 30,679 25,437 20,586 15,527
General and administrative
Stock-based compensation........................... 469 381 425 454
Other general and administrative................... 7,141 4,557 3,748 3,043
Acquired in-process research and development......... 2,260 -- -- --
Amortization of goodwill and acquired intangibles.... 5,751 1,562 1,562 1,604
Restructuring charges................................ -- -- -- --
-------- -------- -------- --------
Total operating expenses......................... 93,394 53,733 48,755 39,326
-------- -------- -------- --------
Loss from operations.................................. (23,443) (3,787) (10,089) (10,610)
Interest income, net.................................. 9,447 9,709 7,588 1,320
Other income (expense), net........................... 722 (893) (994) (221)
Realized gain (loss) on investments................... (3,644) 1,832 -- --
-------- -------- -------- --------
Net income (loss) before income taxes................. (16,918) 6,861 (3,495) (9,511)
Benefit (provision) for income taxes.................. (1,888) -- -- --
-------- -------- -------- --------
Net income (loss)..................................... $(18,806) $ 6,861 $ (3,495) $ (9,511)
======== ======== ======== ========
Net loss per share:
Basic................................................ $ (0.10) $ 0.04 $ (0.02) $ (0.05)
======== ======== ======== ========
Weighted average common shares outstanding........... 190,556 187,088 182,859 176,461
======== ======== ======== ========
Net loss per share:
Diluted.............................................. $ (0.10) $ 0.03 $ (0.02) $ (0.05)
======== ======== ======== ========
Weighted average common shares outstanding........... 190,556 222,558 182,859 176,461
======== ======== ======== ========
F-28
QUARTERLY RESULTS OF OPERATIONS--(Continued)
(as a percentage of total revenue)
(unaudited)
Three Months Ended Fiscal 2001 Three Months Ended Fiscal 2000
--------------------------------- --------------------------------
Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 28,
2001 2001 2001 2001 2000 2000 2000 2000
-------- -------- ------- -------- -------- -------- ------- --------
Revenue:
License revenue
Non-related parties.............................. 59% 57% 66% 66% 72% 63% 59% 55%
Related parties.................................. 6 7 6 5 5 9 9 13
--- --- --- --- --- --- --- ---
Total license revenue......................... 65 63 72 71 77 72 68 68
Service and maintenance revenue
Non-related parties.............................. 32 33 26 26 22 27 31 30
Related parties.................................. 3 3 2 3 1 1 1 2
--- --- --- --- --- --- --- ---
Total service and maintenance revenue......... 35 37 28 29 23 28 32 32
Total revenue................................. 100 100 100 100 100 100 100 100
Cost of revenue
Stock-based compensation.......................... -- -- -- -- 1 1 1 2
Other cost of revenue non-related parties......... 19 18 18 21 19 24 26 28
Other cost of revenue related parties............. 1 2 -- 1 1 1 1 2
--- --- --- --- --- --- --- ---
Total cost of revenue......................... 20 20 18 22 21 26 28 32
Gross profit........................................ 80 80 82 78 79 74 72 68
--- --- --- --- --- --- --- ---
Operating expenses:
Research and development
Stock-based compensation......................... 4 3 3 6 9 5 6 9
Other research and development................... 24 25 24 25 21 22 24 26
Sales and marketing
Stock-based compensation......................... 1 1 7 3 22 5 11 10
Other sales and marketing........................ 44 44 45 39 35 38 38 37
General and administrative
Stock-based compensation......................... -- -- 4 1 1 1 1 1
Other general and administrative................. 6 6 7 9 8 7 7 7
Acquired in-process research and development...... -- -- -- -- 3 -- -- --
Amortization of goodwill and acquired intangibles. 7 8 7 7 6 2 3 4
Restructuring charges............................. 11 -- 15 -- -- -- -- --
--- --- --- --- --- --- --- ---
Total operating expenses...................... 97 87 112 90 105 80 90 94
--- --- --- --- --- --- --- ---
Loss from operations................................ (17) (7) (30) (12) (26) (6) (18) (26)
Interest income, net................................ 9 11 11 12 11 14 14 3
Other income (expense), net......................... (1) -- (2) -- 1 (1) (2) (1)
Realized gain (loss) on investments................. (2) 3 (1) -- (4) 3 -- --
--- --- --- --- --- --- --- ---
Net gain (loss) before income taxes................. (11) 7 (22) -- (19) 10 (6) (23)
Benefit (provision) for income taxes................ 4 7 2 -- (2) -- -- --
--- --- --- --- --- --- --- ---
Net gain (loss)..................................... (7)% 14% (21)% --% (21)% 10% (6)% (23)%
=== === === === === === === ===
F-29
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
29th day of January, 2002.
TIBCO Software Inc.
/S/ CHRISTOPHER G. O'MEARA
By: _______________________________
Christopher G. O'Meara
Executive Vice President, Finance
and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Vivek Y. Ranadive and Christopher G.
O'Meara and each of them, jointly and severally, his or her attorneys-in-fact,
each with full power of substitution, for him or her 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 January 29, 2002
_____________________________ Officer, Chairman of the
Vivek Y. Ranadive Board and Director
(Principal Executive
Officer)
/s/ CHRISTOPHER G. O'MEARA Executive Vice President, January 29, 2002
- ----------------------------- Finance and Chief Financial
Christopher G. O'Meara Officer (Principal
Financial Officer)
/s/ GINGER M. KELLY Corporate Controller and January 29, 2002
- ----------------------------- Chief Accounting Officer
Ginger M. Kelly (Principal Accounting
Officer)
- ----------------------------- Director
Peter Job
/s/ LARRY W. SONSINI Director January 29, 2002
- -----------------------------
Larry W. Sonsini
/s/ MATTHEW SZULIK Director January 29, 2002
- -----------------------------
Matthew Szulik
II-1
Signature Title Date
--------- ----- ----
/s/ DAVID URE Director January 29, 2002
- -----------------------------
David Ure
/s/ MICHELANGELO VOLPI Director January 29, 2002
- -----------------------------
Michelangelo Volpi
/s/ PHILIP K. WOOD Director January 29, 2002
- -----------------------------
Philip K. Wood
/s/ YOGEN K. DALAL Director January 29, 2002
- -----------------------------
Yogen K. Dalal
II-2
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 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, as amended.
++10.5 1998 Director Option Plan, as amended.
+10.6 Assignment and Assumption of Lease Agreement between TIBCO Finance Technology, Inc. and
Registrant.
+10.7 Employment Agreement between Registrant and Vivek Y. Ranadive.
+10.8 Employment Agreement between Registrant and Robert P. Stefanski.
**10.12 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.).
++10.13 Lease Agreement dated September 24, 1999 between The Board of Trustees of the Leland
Stanford Junior University and the Registrant.
++10.14 Lease Agreement dated January 21, 2000 between Spier Properties, L.P. and the Registrant.
***10.15 Addendum to the First Amended and Restated License, Maintenance and Distribution Agreement
effective as of June 2, 2001, among Reuters Limited, TIBCO Finance Technology, Inc. and
Registrant.
21.1 List of subsidiaries.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on signature page).
- --------
* These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-83491.
** These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-78195.
+ These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement No. 333-31358.
++ These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Quarterly Report on Form 10-Q filed with the Commission
on April 17, 2000.
*** This exhibit is incorporated by reference to exhibits similarly numbered in
the Registrant's Quarterly Report on Form 10-Q filed with the Commission on
October 5, 2001.