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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Fiscal Year Ended November 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For The Transaction Period From To
Commission File Number: 0-19417
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2746201
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
14 OAK PARK
BEDFORD, MASSACHUSETTS 01730
(Address of principal executive offices)
TELEPHONE NUMBER: (781) 280-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
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Title of each class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and, (2) has been subject to such
filing requirements for the past 90 days:
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 14, 2000, there were 35,693,816 shares outstanding of the
registrant's common stock, $.01 par value. As of that date, the aggregate market
value of voting stock held by non-affiliates of the registrant was approximately
$615,694,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
November 30, 1999 are incorporated by reference into Parts I and II.
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 20, 2000 are incorporated by reference into
Part III.
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PART I
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers or
employees may contain "forward-looking" information which involves risks and
uncertainties. Actual future results may differ materially. Statements
indicating that the Company "expects," "estimates," "believes," "is planning" or
"plans to" are forward-looking, as are other statements concerning future
financial results, product offerings or other events that have not yet occurred.
There are several important factors which could cause actual results or events
to differ materially from those anticipated by the forward-looking statements.
Such factors are described in greater detail in the 1999 Annual Report to
Shareholders under the heading "Factors That May Affect Future Results" and
include, but are not limited to, the receipt and shipment of new orders, the
timely release of enhancements to the Company's products, the growth rates of
certain market segments, the positioning of the Company's products in those
market segments, market acceptance of the application service provider
distribution model, variations in the demand for customer service and technical
support, pricing pressures and the competitive environment in the software
industry, business and consumer use of the Internet, and the Company's ability
to penetrate international markets and manage its international operations.
Although the Company has sought to identify the most significant risks to its
business, the Company cannot predict whether, or to what extent, any of such
risks may be realized, nor can there be any assurance that the Company has
identified all possible issues which the Company might face.
ITEM 1. BUSINESS
Progress Software Corporation ("PSC" or the "Company") is a global supplier
of application development, deployment and management technology, Internet and
intranet enabling technologies and support services to business, industry and
government. To compete in a volatile, global, technology-driven economy,
businesses need applications built and deployed within an architecture that is
as flexible as fast-changing markets demand. The Company's software products and
services address these challenges by increasing developer productivity, by
delivering applications with a low total cost of ownership and by enhancing
performance and availability. The Company's products include application
servers, databases, development tools and application management products for
Internet/Web, extranet and intranet applications as well as for client/server
and host/terminal applications.
PSC offers several product lines. The Progress product line is an
integrated, component-based visual development environment for building and
deploying multi-tier, enterprise-class business applications. The Company's
other product lines enable the development and deployment of distributed,
multi-tier Java Internet business applications, and make it easy to measure,
monitor and manage Internet, intranet and extranet solutions. To provide
customers with the benefits of a total solution, PSC offers professional
services from its worldwide consulting, education and technical support
organizations.
PSC sells software products and services worldwide to organizations that
develop and use mission-critical enterprise business applications. More than
half of the Company's worldwide revenue is realized in partnership with
Independent Software Vendors ("ISVs") who market applications that utilize the
Company's technology. These ISVs sell Internet and networked business
applications across diverse markets such as manufacturing, distribution, retail
and health care. PSC also sells software products and services to the
Information Technology ("IT") organizations of businesses and governments. The
Company operates throughout North America, Latin America, Europe, Middle East,
Africa ("EMEA") and the Asia/Pacific region through a network of subsidiaries
and independent distributors.
Progress and WebSpeed are registered trademarks of PSC. Apptivity,
ProVision, ProVision Plus, Open AppServer, SmartObjects, AppBuilder, SonicMQ,
SmartAdapters, "Future Proof", IPQoS, IPAccounting and ASPEN are trademarks of
PSC. All other trademarks or trade names appearing in this Form 10-K are the
property of their respective owners.
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BUSINESS STRATEGY
The Company was founded in 1981 to develop and market application
development and deployment software. Its business strategy has been developed in
response to user needs for application development tools that enable the rapid
development and deployment of business-critical applications regardless of the
computing environment. The Company's mission today is to deliver superior
software products and services that empower its partners and customers to
dramatically improve their development and deployment of quality applications
worldwide. This mission encompasses the following strategic points:
- Rapid Application Development The Company's development tools and
technologies are designed to be easy-to-use, intuitive, highly visual and
component-based. This allows the Company's products and services to
improve the productivity of developers in creating and maintaining
complex applications.
- Application Deployment Flexibility The Company's products allow
deployment across all major computing and networked environments:
Internet/Web, client/server and host/terminal. The Progress Open
AppServer and the Progress Apptivity Application Server provide "n-tier"
computing support in order to improve application performance. The
Company designs its products to operate across a broad range of midrange
systems, workstations and PCs. The Company believes that application
developers need the flexibility to deploy their applications across
hardware, operating system platforms, databases and user interfaces that
may be different from those on which their applications are originally
developed. In addition, end-users need the flexibility to continue to use
applications with minimal re-programming, even as they modify or upgrade
their computing environments.
- Future Proof Business Applications A major focus for the Company is
protecting the business application investments of its customers, making
their applications "Future Proof." The Company's latest product releases
offer a standards-based path for building and deploying functionally
rich, distributed multi-tier applications.
- "Buy, Build, Subscribe" The Company enables sophisticated business
applications to be bought, built or acquired as a service. As a result,
complex application functionality is available to a broader group of
businesses, including those that have not traditionally been able to cost
justify large-scale IT investments. This strategy means that an
organization can take advantage of three options in accessing business
applications. When packaged functionality does not already exist, or when
a company seeks to out-distance the competition with unique capabilities
that go beyond the offerings of any commercial software package,
organizations can use PSC technologies to quickly and efficiently build
or customize application functionality that is easy to deploy, maintain
and enhance for a competitive edge. Organizations can also buy
commercially available applications from an ISV, thus gaining standard or
customizable functionality for immediate business benefit. A third option
is also emerging: businesses can now access complex applications as a
service from Application Service Providers ("ASPs"), and thus subscribe
to applications over the Internet or other wide-area networks, rather
than licensing software.
- Balanced Distribution The Company chose at an early stage to implement
both direct and indirect channels of distribution to broaden its
geographic reach, accelerate its sales expansion and leverage its sales
force. The Company sells to both ISVs and to IT departments of
corporations and government agencies. ISVs develop end-user applications
for resale, and both IT customers and ISVs generally license additional
deployment copies of the Company's products to run applications. To
minimize channel conflict, PSC neither develops application software for
distribution nor plans to do so in the future.
- Recurring Revenue The Company's distribution and pricing strategies are
intended to generate recurring revenue. The sale of a development system
can lead to follow-on sales as ISVs license additional copies of the
Company's development and deployment products upon successful
distribution of their applications, or as end-users deploy such
applications within their organizations or upgrade their systems.
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- Worldwide Market The Company has emphasized international sales through
its subsidiaries and a network of independent distributors. Approximately
61% of the Company's revenue was derived from customers outside of North
America in fiscal 1999.
- Customer Service The Company has made a strategic commitment to customer
service. The Company believes that rapid changes in technology require
not only continuous product enhancement but also a strong customer
service effort to encourage product usage and maintain customer
satisfaction. The Company provides a variety of technical support and
service options under its annual maintenance programs, including an
option for 24 hour, 7 day a week service. The Company also offers an
extensive selection of training courses and on-site consulting services.
PROGRESS SOFTWARE PRODUCTS
The Company continues to deliver on its traditional strengths with
intuitive development tools that empower developers to deliver high-quality
applications -- faster and more productively. The Company delivers reliable,
high-performance deployment products -- such as application servers, databases
and Internet messaging servers -- that are essential to successful use of the
application, result in low total cost of ownership and extend application
lifecycles. The Company also has products that ensure overall network and
application quality through measuring, monitoring and management. All Progress
product lines are designed to continually integrate open standards while
delivering high levels of performance.
The Company's core product line consists of Progress ProVision Plus,
Progress WebSpeed, Progress RDBMS, Progress Open AppServer and Progress
DataServers. The Progress product line provides a high degree of portability
across a wide range of computing and networked environments while affording
developers the flexibility to build applications on a range of database
management products. The Company began shipping Progress Version 9, the latest
major release of the Company's flagship product line of application development
and deployment products, in December 1998.
DEVELOPMENT TECHNOLOGIES
PROGRESS PROVISION PLUS
Progress ProVision Plus is a programming environment that provides
developers with a "visual road map" for developing and deploying complex
enterprise applications. Progress ProVision Plus contains a set of integrated,
graphical development tools that support a range of development approaches,
including structured, procedural, event-driven and object approaches. Progress
ProVision Plus is an Integrated Development Environment for developing and
managing enterprise applications, whether they are web-based, client/server or
distributed. Progress ProVision Plus lets developers share common business logic
among a variety of clients, simplifying the creation and management of
enterprise applications.
Developers can create all the required components for mission-critical,
enterprise applications using Progress ProVision Plus. The product's tight
integration with the Progress RDBMS allows developers to build a single, central
repository that not only describes the database definitions but the application
defaults and business rules as well. The Progress 4GL allows developers to build
application business logic quickly and efficiently. Progress ProVision Plus also
includes Progress SmartObjects, which makes creating attractive and effective
graphical user interfaces fast and easy.
Progress ProVision Plus delivers one of the most comprehensive 4GL
development and deployment toolsets in the industry. Based on the combined
technologies of Progress ProVision and Progress WebSpeed Workshop, Progress
ProVision Plus ensures that development efforts can be reused for greater
efficiency. The Company also offers Progress ProVision and Progress WebSpeed
Workshop as standalone products. Progress WebSpeed Workshop supports a component
development paradigm that allows developers to create and share business logic
across web and client/server applications. Developers can define and reuse
SmartObjects in web and client/server applications, offering code inheritance,
encapsulation and other object-oriented development
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features. Progress ProVision Plus provides common tools for web-based and
client/server development, including:
- AppBuilder -- a productivity-enhancing suite of tools for client/server,
web and character development.
- Roundtable Lite -- an integrated source code management and team
collaboration system that provides version control, secure check-in/out,
task management, impact analysis, change auditing, cross referencing and
incremental compiling.
- Open Client Toolkit -- provides Open Client access to Progress Open
AppServer functionality.
- AppServer Partition Deployment ProTool -- defines the location of
business logic at runtime, increasing ease of development and deployment
of distributed applications.
- Progress ProVision Plus Development Server -- includes a development
database, AppServer and WebSpeed Transaction Server for quickly and
easily testing distributed applications.
- WebTools -- a set of browser-based tools used for building and testing
web applications.
- Progress Explorer -- defines and manages the Progress database, Progress
Open AppServer and Progress WebSpeed Transaction Server.
- Progress Data Dictionary -- a central repository that describes the
database definitions, application defaults and business rules.
- SmartObjects -- component technology that offers code inheritance,
encapsulation and other object-oriented development features that allow
the creation, customization and automatic assembly of components.
- Progress 4GL -- a high-level application development language that
reduces development complexity by addressing all development needs within
a single language.
- Wizards -- tools that speed development through the creation of reusable
SmartObjects or Web Objects.
- Integration with ActiveX components for greater user interface
flexibility and OLE automation for application interoperability.
- Integrated reporting tools including Report Builder, a graphical report
writing tool for business analysts and application developers, and
Results, an interactive data access and reporting tool that allows non-
technical end-users to create ad-hoc queries and reports.
PROGRESS APPTIVITY DEVELOPER
Progress Apptivity Developer is an integrated application environment
designed to simplify and accelerate the development of distributed, Web-deployed
business applications that leverage the capabilities of the Progress Apptivity
Application Server. The product provides a comprehensive toolset and component
framework for developing both the client and server portions of the application.
Progress Apptivity Developer provides a single integrated environment for
building data-centric HTML pages, interactive Java forms and reusable Enterprise
JavaBeans server components. The toolset includes a customizable environment, a
color-coded editor, an integrated Java debugger and other productivity tools.
Progress Apptivity Developer supports team-based development and speeds the
development process with its SmartComponent framework and comprehensive set of
wizards that perform many functions including page layout, creating client and
server business logic and working with CORBA objects.
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DEPLOYMENT TECHNOLOGIES: APPLICATION AND MESSAGING SERVERS
PROGRESS OPEN APPSERVER
Progress Open AppServer supports distributed enterprise applications that
leverage existing investments, support new technologies, and communicate with
other applications as needed. An integrated application server for both Progress
Version 9 4GL-based applications and Progress WebSpeed Version 3 web-based
applications, Progress Open AppServer forms a middle tier between an
application's user interface and its back-end data. Progress Open AppServer
allows interoperability with various clients and various data sources and
improves the performance and scalability of business applications. Progress Open
AppServer uses a component-based model for partitioning an application for
efficient deployment. Progress 4GL procedures can be encapsulated into
components that represent an application's business logic. These components can
then be placed on client systems or onto faster server machines distributed
throughout the enterprise or the web. When distributed, the business logic
components are reusable across multiple applications. A new feature called the
SmartDataObject gives developers the ability to create these components.
Progress Open AppServer components can run on a single Windows NT or UNIX
workstation for faster processing or on multiple machines for failover
capabilities. Additionally, all business logic and components can be accessed by
multiple user interfaces for broad client support. The AppServer Partitioning
Tool, part of Progress Version 9, makes it possible to code applications using
distributed components or "partitions" that can be run either remotely on a
Progress Open AppServer or locally on the client. Furthermore, the decision on
whether to run remotely or locally can be made at runtime without recompiling
the client application. A developer can create and compile an application once
and deploy it in many different Progress Open AppServer configurations. Progress
Open AppServers can connect across the network to other Progress Open AppServers
in complex multi-tier configurations, allowing more effective enterprise
business solutions that maximize available computing resources.
PROGRESS SONICMQ
Progress SonicMQ is a fast, flexible, scalable Internet messaging server
designed to simplify the development and integration of today's highly
distributed enterprise applications and Internet-based business solutions.
Progress SonicMQ is one of the only standards-based Internet messaging servers
that fully complies with Sun Microsystems' Java Messaging Server ("JMS") and the
World Wide Web Consortium's XML specifications. Progress SonicMQ is designed to
meet the most demanding performance requirements of business-to-business ("B2B")
e-commerce.
Messaging allows distributed applications to exchange data and business
logic with each other asynchronously. At its core stands an Internet messaging
server, which manages the constant flow of business events between applications.
The messaging server is like a postmaster who will deliver reliably, even if the
message must be preserved until a disconnected receiver returns online. Messages
marked for guaranteed delivery will arrive once, and only once, at the
subscriber's address. Progress SonicMQ allows developers to quickly establish
and maintain an efficient high-performance messaging structure that can handle
the most complex business logic flow requirements without compromising
application functionality.
Progress SonicMQ provides high-speed messaging capabilities for a large
number of connections. Progress SonicMQ's feature set, including guaranteed
delivery, durable subscriptions and persistent messaging, supports both data and
message integrity. Progress SonicMQ supports both point-to-point and publish-
and-subscribe communication models. The product's administration tools simplify
the creation and maintenance of an efficient messaging system, which can be
configured and managed remotely.
PROGRESS WEBSPEED TRANSACTION SERVER
Progress WebSpeed is a comprehensive environment for web-enabling existing
applications and building new applications that deliver a high level of database
connectivity and transaction management. Progress WebSpeed Transaction Server is
one of two components within the Progress WebSpeed product line. Progress
WebSpeed Transaction Server provides a robust platform for Internet Transaction
Processing ("ITP")
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applications that require high scalability and rapid response rates. Progress
WebSpeed Transaction Server provides high throughput, dynamic load balancing and
scalability to handle thousands of simultaneous users. Progress WebSpeed
Transaction Server includes record locking, transaction rollback and two-phase
commit capabilities that safeguard application and data integrity, even if
transactions are interrupted, and ensures the integrity of transactions that
span multiple databases.
PROGRESS APPTIVITY APPLICATION SERVER
The Progress Apptivity Application Server is an open, standards-based and
highly scalable application server that simplifies the process of web-enabling
legacy business applications and data. The product includes numerous features
such as SmartAdapters that allow applications to access an external data source
through a standard data interface model. Since Progress Apptivity Application
Server maintains business logic on a central server, applications can be
deployed faster and with lower maintenance costs. Progress Apptivity's
SmartConnect capabilities, which include native support for JDBC- and
ODBC-compliant databases, allow developers to build content-rich applications
that dynamically aggregate and manage data from diverse business processes and
data sources. Progress Apptivity Application Server has multi-threaded server
architecture that provides a secure and scalable foundation for business
applications. Progress Apptivity Application Server includes comprehensive
security, load balancing and automatic failover that ensures no single point of
failure and provides a high level of application reliability and scalability.
DEPLOYMENT TECHNOLOGIES: DATABASES
PROGRESS RDBMS
The Progress RDBMS products are high-performance relational databases that
can scale from a single-user Windows 95 system to massive symmetric
multiprocessing ("SMP") and cache coherent non-uniform memory access ("ccNUMA")
systems, supporting thousands of concurrent users. In addition to offering one
of the lowest total costs of ownership and scalability, the Progress RDBMS
products offer high availability, reliability, performance, and platform
portability. With full support for ANSI SQL-92 Entry Level specification,
Progress RDBMS products integrate with enterprise applications, tools and
numerous third-party data management systems.
The three Progress RDBMS products -- the Progress Enterprise RDBMS, the
Progress Workgroup RDBMS, and the Progress Personal RDBMS -- allow users to
select a solution that satisfies their business objectives. The benefit to
customers is that they pay for what is needed today and, as their requirements
grow, they can upgrade to a more robust solution without changing program code.
The Progress Enterprise RDBMS is designed for large user environments and
the transaction processing throughput of high volume SQL-based and Progress
4GL-based on-line transaction processing ("OLTP") applications. The Progress
Enterprise RDBMS was developed with a flexible, multithreaded, multiserver
architecture. The Progress Enterprise RDBMS is a powerful, open and large-scale
enterprise database that can run across multiple hardware platforms and
networks.
The Progress Enterprise RDBMS includes the functionality needed to meet
demanding OLTP requirements. These capabilities include row-level locking,
roll-back and roll-forward recovery, point-in-time recovery, distributed
database management with two-phase commit, a complete suite of on-line utilities
and full support for ANSI-standard SQL-92. Sophisticated self-tuning
capabilities and simple graphical interfaces for system administration make the
Progress Enterprise RDBMS easy to install, tune and manage. With low
administration costs, low initial cost of licenses and upgrade fees and limited
software implementation costs, the Progress Enterprise RDBMS provides a
significant cost-of-ownership advantage over competing database products.
The Progress Workgroup RDBMS, which offers many of the same powerful
capabilities as the Progress Enterprise RDBMS, is optimized for workgroups of
two to thirty simultaneous users. This cost-effective, department-level solution
provides high performance, multi-user support and cross-platform
interoperability. The Progress Workgroup RDBMS meets the needs of workgroup
applications by running on a wide variety of
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hardware and operating system platforms. Because the flexible database
architecture provides optimal throughput on all supported platforms, a database
developed on one machine can serve applications on other systems and network
configurations.
The Progress Personal RDBMS is bundled with Progress development tools,
including Progress ProVision Plus, and is suitable for deploying single-user
SQL-based and 4GL-based applications and for developing, prototyping and testing
applications.
DEPLOYMENT TECHNOLOGIES: DATASERVERS
PROGRESS DATASERVERS
The Company provides developers with a transparent interface to a wide
range of database management systems through Progress DataServers. These
products offer full read, write, update and delete capabilities to diverse data
management systems and enable developers to write applications once and deploy
them across a broad spectrum of data sources. Progress DataServers also enable
existing Progress 4GL and web-based applications to access non-Progress data
sources and allow the integration of new and legacy applications with diverse
databases.
Progress DataServer products include the Progress Oracle DataServer, the
Progress ODBC DataServer, which is available in Enterprise and Personal
editions, and the Progress/400 DataServer. These products provide an environment
for developing and deploying Progress 4GL and web-based applications designed
for heterogeneous, distributed computing environments.
APPLICATION MANAGEMENT PRODUCTS
The Internet Software Quality ("ISQ") product line includes a set of
products designed to provide solutions geared toward the management of
applications and networks by monitoring their availability, performance and
recoverability. The ISQ product line consists primarily of Progress IPQoS and
Progress IPAccounting Framework.
PROGRESS IPQOS
Progress IPQoS enables developers to introduce a new element into network
management capabilities -- the ability to monitor service levels for specific
network resources throughout the entire network. Progress IPQoS measures and
monitors the overall availability and performance of applications, file systems
and services over distributed networks. Progress IPQoS is designed to deliver a
comprehensive application and resource monitoring and measuring system that
provides reporting, notification and recoverability features.
PROGRESS IPACCOUNTING FRAMEWORK
Progress IPAccounting Framework provides developers with an environment for
the rapid development of custom business solutions that require the inspection,
analysis and logging of IP network traffic. Progress IPAccounting Framework
allows developers to create applications to capture and analyze full messages
and session content from any type of TCP/IP or UDP/IP application.
PRODUCT DEVELOPMENT
To date, most of the Company's products have been developed by its internal
product development staff. The Company believes that the features and
performance of its products are competitive with those of other available
application development and deployment tools and that none of the current
versions of its products is approaching obsolescence. However, the Company
believes that significant investments in new product development and continuing
enhancements of its current products will be required to enable the Company to
maintain its competitive position.
The Company intends to focus its principal future product development
efforts on developing new products and updating existing products in order to
realize the Company's vision of the expected direction of
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application development technology -- which the Company describes as Universal
Application Architecture ("UAA"). UAA is an approach to application development
and deployment technology that relies on server-centric performance and
maintainability, component-based modularity and standards-based interoperability
and integration.
In the server-centric UAA model, the business logic of an application
resides primarily on the server, accessed by users with Web browsers or thin
clients. Application code that is more suitable for client side execution, such
as user interface logic, data entry validation, and the like, is distributed as
needed to the client but managed by the server. Component-based modularity is an
application development technique derived from object-oriented programming in
which applications are built as encapsulated blocks of logic. The product
direction of future releases is to offer ISVs standards-based paths for building
and deploying functionally rich, distributed, integrated multi-tier
applications. This will enable them to take advantage of the emerging ASP and
Internet B2B market opportunities.
The Company's product development staff consisted of 242 employees as of
November 30, 1999. Product development is primarily conducted at the Company's
offices in Bedford, Massachusetts, Newark, California and Nashua, New Hampshire.
Limited work related to product localization may also be performed at the
Company's international subsidiaries. In fiscal years 1999, 1998 and 1997, the
Company spent $38.8 million, $32.2 million and $28.9 million, respectively, on
product development, of which $0.5 million, $2.0 million and $1.9 million,
respectively, were capitalized in those years. The Company believes that the
experience and depth of its product development staff are important factors in
the Company's success.
CUSTOMERS
The Company markets its products worldwide to ISVs and IT departments of
corporations and government agencies. No single customer has accounted for more
than 10% of the Company's total revenue in any of its last three fiscal years.
Independent Software Vendors The Company's ISVs provide the Company with
broad market coverage, offer an extensive library of commercial applications and
are a source of follow-on revenue. PSC publishes Application Catalogs and
includes ISVs in trade shows and other marketing programs. PSC also has kept
entry costs for ISVs low to encourage a wide variety of ISVs to build
applications. An ISV typically takes 6 to 12 months to develop an application.
Although many of the Company's ISVs have developed successful applications and
have large installed customer bases, others are engaged in earlier stages of
product development and marketing and may not contribute follow-on revenue to
PSC for some time, if at all. However, if an ISV succeeds in marketing its
applications, the Company obtains follow-on revenue as the ISV licenses copies
of the Company's deployment products to permit its application to be installed
and used by customers.
IT Departments PSC licenses its products to IT departments of
corporations, government agencies and other organizations to build complex
applications. Many IT departments that purchase ISV applications often also
purchase the Company's development tools to supplement their internal
application development. Like ISVs, IT customers may also license deployment
products to install applications at additional user sites.
SALES AND MARKETING
The Company sells its products through its direct sales force in the United
States and in over 20 other countries and through independent distributors in
over 50 countries outside North America. The sales, marketing and service groups
are organized by region into North America, EMEA, Asia/Pacific, Latin America
and Japan. The Company believes that this structure allows it to maintain direct
contact with and better support its customers and to control its international
distribution. The Company's international operations provide focused local
marketing efforts and are better able to directly respond to changes in local
conditions. Financial information relating to business segment and international
operations is detailed in Note 10 of Notes to Consolidated Financial Statements
on page 51 in the 1999 Annual Report to Shareholders and is incorporated herein
by reference. Risks and uncertainties related to the Company's
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international operations are detailed under the heading "Factors That May Affect
Future Results" on pages 31 to 35 in the 1999 Annual Report to Shareholders and
are incorporated herein by reference.
Sales personnel are responsible for developing new ISV and IT accounts,
assisting ISVs in closing major accounts and servicing existing customers. The
Company actively seeks to avoid conflict between the sales efforts of its ISVs
and the Company's own sales efforts.
PSC uses its telephone sales and sales administration groups to enhance its
direct sales efforts and to generate new business and follow-on business from
existing customers. These groups may provide evaluation copies to ISVs or IT
organizations to help qualify them as prospective customers, and also sell
additional development and deployment products to existing customers.
The Company is investing significant resources in its ASPEN (ASP
ENablement) program. The ASP business model has the potential to revolutionize
the way software is delivered. With the Company's ASPEN program, ISVs get the
support they need to gain a foothold in this new marketplace. PSC's ASPEN
program offers business planning assistance, industry recognition, technology,
services and partnerships to help ISVs transform their Progress-based
applications into ASP-enabled applications. These new applications, available on
a subscription basis and accessed over the Internet rather than purchased, allow
small and mid-tier organizations to more quickly and economically gain access to
application functionality previously unavailable to them. ASP-enabled
applications reduce traditional IT infrastructure costs because they are
developed and maintained by service providers rather than an internal IT staff.
The Company's marketing department conducts extensive marketing programs
designed to ensure a stream of market-ready products, raise general awareness of
PSC, generate leads for the PSC sales organization and promote the Company's
various product lines. These programs include public relations, direct mail,
participation in trade shows, advertising and production of collateral
literature. The Company sponsored a single worldwide user conference in the
United States in fiscal 1999. The Company is planning to hold regional user
conferences in the United States and Spain in fiscal 2000.
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
The Company's technical support staff provides telephone support to
application developers and end-users using a computerized call tracking and
problem reporting system. PSC also provides custom software development,
consulting services and training throughout the world. The Company's software
licenses generally are perpetual licenses. Customers may also purchase an annual
maintenance service entitling them to software updates, technical support and
technical bulletins. The annual fee for maintenance is generally 15% to 20% of
the current list price of the product to be maintained; first year maintenance
is not included with the Company's products and is purchased separately. The
Company provides technical support to customers primarily through its technical
support centers in Bedford, Massachusetts, Rotterdam, The Netherlands and
Melbourne, Australia. Additional localized support may also be provided by
international subsidiaries in their own countries.
The Company's professional services organization delivers a total business
solution for customers through a combination of products, consulting and
education. The Company's worldwide consulting organization offers project
management, custom development, programming, application implementation and
Internet, migration and other services. The Company's consulting organization
also provides services to Web-enable existing applications or take advantage of
the capabilities of new product releases.
Consulting and training services for customers outside North America are
provided by personnel at the Company's international subsidiaries and
distributors. Revenue from maintenance and services was 54%, 53% and 49% of
total revenue for fiscal years 1999, 1998 and 1997, respectively.
COMPETITION
The computer software industry is intensely competitive. The Company
experiences significant competition from a variety of sources with respect to
all its products. The Company believes that the breadth and integration of its
product offerings have become increasingly important competitive advantages.
Other factors
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affecting competition in the markets served by the Company include product
performance in complex applications, application portability, vendor experience,
ease of integration, price, training and support. The Company believes that it
competes favorably with respect to these factors.
The Company competes in various markets with a number of entities including
database vendors offering development tools in conjunction with their database
systems, such as Informix Corporation, Microsoft Corporation, Oracle Corporation
and Sybase, Inc., as well as numerous application server vendors and application
development tools vendors. The Company believes that the database market is
currently dominated by Oracle and Microsoft, and that there is no dominant
application development tools or application server vendor. Some of these
competitors have greater financial, marketing or technical resources than the
Company and may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
promotion and sale of their products than can the Company. Increased competition
could make it more difficult for the Company to maintain its market presence.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
In accordance with industry practice, the Company relies upon a combination
of contractual provisions and copyright, patent, trademark and trade secret laws
to protect its proprietary rights in its products. The Company distributes its
products under software license agreements that grant customers a perpetual non-
exclusive license to use the Company's products and contain terms and conditions
prohibiting the unauthorized reproduction or transfer of the Company's products.
In addition, the Company attempts to protect its trade secrets and other
proprietary information through agreements with employees and consultants.
Although the Company intends to protect its rights vigorously, there can be no
assurance that these measures will be successful.
The Company seeks to protect the source code of its products as a trade
secret and as an unpublished copyrighted work. The Company holds a patent on
SmartObjects and has also made patent applications for some of its various other
product technologies. Where possible, the Company seeks to obtain protection of
its product names through trademark registration and other similar procedures.
The Company believes that, due to the rapid pace of innovation within its
industry, factors such as the technological and creative skills of its personnel
are as equally important in establishing and maintaining a leadership position
within the industry as are the various legal protections of its technology. In
addition, the Company believes that the nature of its customers, the importance
of the Company's products to them and their need for continuing product support
reduce the risk of unauthorized reproduction.
BACKLOG
The Company generally ships its products within 30 days after acceptance of
a customer purchase order and execution of a license agreement. Accordingly, the
Company does not believe that its backlog at any particular point in time is
indicative of future sales levels.
EMPLOYEES
As of November 30, 1999, the Company had 1,363 employees worldwide,
including 519 in sales and marketing, 397 in customer support and services
(including manufacturing and distribution), 242 in product development and 205
in administration. The competition in recruiting skilled technical personnel in
the computer software industry is intense. The Company believes that its ability
to attract and retain qualified employees is an important factor in its growth
and development, and that its future success will depend, in large measure, on
its ability to continue to attract and retain qualified employees. To date, the
Company has been successful in recruiting and retaining sufficient numbers of
qualified personnel to effectively conduct its business. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes its relations with employees are good.
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The Company has various equity incentive plans which permit the granting of
options to eligible employees and the purchase of shares by eligible employees.
The payment of cash bonuses and contributions to retirement plans is at the
discretion of the compensation committee of the Board of Directors and the
amounts depend on the level of attainment relative to the Company's financial
plan. These programs are designed to minimize employee turnover, although there
can be no assurance that such programs will be successful.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company.
NAME AGE POSITION
- ---- --- --------
Joseph W. Alsop........................... 54 President and Director
David G. Ireland.......................... 53 Vice President and General Manager, Worldwide
Field Operations
Richard D. Reidy.......................... 40 Vice President, Products
Norman R. Robertson....................... 51 Vice President, Finance and Administration and
Chief Financial Officer
Mr. Alsop, a founder of the Company, has been a director and President of
the Company since its inception in 1981.
Mr. Ireland joined the Company in September 1997 as Vice President, Core
Products and Services and was elected Vice President and General Manager, Core
Products and Services in March 1998 and Vice President and General Manager,
Worldwide Field Operations in December 1999. From 1994 to 1997, Mr. Ireland was
employed by Marcam Corporation, a computer software company, as a Vice President
and General Manager.
Mr. Reidy was elected Vice President, Development Tools in July 1996 and
was elected Vice President, Product Development in July 1997 and Vice President,
Products in December 1999. From 1995 to 1996, Mr. Reidy held various management
positions within the product development organization of the Company. Mr. Reidy
joined the Company in June 1985.
Mr. Robertson joined the Company in May 1996 as Vice President, Finance and
Chief Financial Officer and was elected Vice President, Finance and
Administration and Chief Financial Officer in December 1997. From 1993 to 1996
he was employed by M/A-COM, Inc., a telecommunications company, as Director of
Finance and Administration.
ITEM 2. PROPERTIES
The Company's principal administrative, sales, support, marketing and
product development facility is located in a single leased building of
approximately 165,000 square feet in Bedford, Massachusetts. The Company leases
approximately 58,000 square feet in Wilmington, Massachusetts and maintains its
manufacturing and distribution operations at this location. In addition, the
Company maintains offices in 15 other locations in North America and 35
locations outside North America. The Bedford lease expires in August 2002. The
terms of all other leases generally range from one to seven years. The Company
believes that its present and proposed facilities are adequate for its current
needs and that suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the fiscal year ended November 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information appearing under the caption "Market for Registrant's Common
Equity and Related Shareholder Matters" on page 53 of the 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected Consolidated
Financial Data" on page 20 of the 1999 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 21 to 35 of
the 1999 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under the caption "Quantitative and Qualitative
Disclosures About Market Risk" on pages 29 and 30 of the 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, related notes and independent
auditors' report appearing on pages 36 to 52 of the 1999 Annual Report to
Shareholders and the information appearing under the caption "Selected Quarterly
Financial Data" on page 53 of the 1999 Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding executive officers set forth under the caption
"Executive Officers of the Registrant" in Item 1 of this Annual Report is
incorporated herein by reference.
The information regarding directors set forth under the caption "Election
of Directors" appearing in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 20, 2000, which will be filed
with the Securities and Exchange Commission not later than 120 days after
November 30, 1999, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation"
appearing in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 20, 2000, which will be
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filed with the Securities and Exchange Commission not later than 120 days after
November 30, 1999, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Holders and Management" appearing in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on April 20, 2000, which will
be filed with the Securities and Exchange Commission not later than 120 days
after November 30, 1999, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" appearing in the Company's definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on April 20, 2000, which will be
filed with the Securities and Exchange Commission not later than 120 days after
November 30, 1999, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The following financial statements are included in the Company's 1999
Annual Report to Shareholders and are incorporated herein by reference:
Consolidated Balance Sheets as of November 30, 1999 and 1998
Consolidated Statements of Operations for the years ended November 30, 1999,
1998, and 1997
Consolidated Statements of Shareholders' Equity for the years ended November
30, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended November 30, 1999,
1998, and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
Supplemental Financial Data not covered by the Independent Auditors'
Report:
Selected Quarterly Financial Data
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the fourth quarter
of the fiscal year ended November 30, 1999.
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(c) EXHIBITS
Documents listed below, except for documents identified by parenthetical
numbers, are being filed as exhibits herewith. Documents identified by
parenthetical numbers are not being filed herewith and, pursuant to Rule 12b-32
of the General Rules and Regulations promulgated by the Commission under the
Securities Exchange Act of 1934 (the "Act"), reference is made to such documents
as previously filed as exhibits with the Commission. The Company's file number
under the Act is 0-19417.
3.1 Restated Articles of Organization of the Company(1)
3.1.1 Articles of Amendment to Restated Articles of Organization
filed on January 19, 1995(2)
3.1.2 Articles of Amendment to Restated Articles of Organization
filed on November 17, 1997(3)
3.1.3 Articles of Amendment to Restated Articles of Organization
filed on May 6, 1999
3.2 By-Laws of the Company, as amended and restated(4)
4.1 Specimen certificate for the Common Stock of the Company(5)
10.1 1984 Incentive Stock Option Plan, with amendments(6)
10.2 Amended and Restated 1984 Incentive Stock Option Plan(7)
10.3 1991 Employee Stock Purchase Plan, as amended(8)
10.4 Progress Software Corporation 401(k) Plan with Fidelity
Institutional Retirement Services Company(9)
10.5 1992 Incentive and Nonqualified Stock Option Plan(10)
10.6 First Amended and Restated Lease dated August 11, 1994
between the Company and the Equitable Life Assurance Company
of the United States(11)
10.7 1994 Stock Incentive Plan(12)
10.8 1993 Directors' Stock Option Plan(13)
10.9 1997 Stock Incentive Plan, as amended(14)
10.10 Employee Retention and Motivation Agreement executed by each
of the Executive Officers(15)
10.10.1 First amendment to Employee Retention and Motivation
Agreement executed by each of the Executive Officers(16)
13.1 1999 Annual Report to Shareholders (which is not deemed to
be "filed" except to the extent that portions thereof are
expressly incorporated by reference in this Annual Report on
Form 10-K)
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule (EDGAR version only)
- ---------------
(1) Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1997.
(2) Incorporated by reference to Exhibit 3.1.1 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30, 1994.
(3) Incorporated by reference to Exhibit 3.1.2 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30, 1997.
(4) Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 31, 1991.
(5) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1, File No. 33-41223, as amended.
(6) Incorporated by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1, File No. 33-41223, as amended.
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(7) Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1, File No. 33-41223, as amended.
(8) Incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 31, 1998.
(9) Incorporated by reference to Exhibit 10.11 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30, 1991.
(10) Incorporated by reference to Exhibit 10.12 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1992.
(11) Incorporated by reference to Exhibit 10.15 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1994.
(12) Incorporated by reference to Exhibit 10.16 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1994.
(13) Incorporated by reference to Exhibit 10.17 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1994.
(14) Incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 31, 1999.
(15) Incorporated by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30, 1998.
(16) Incorporated by reference to Exhibit 10.10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 31, 1999.
(d) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown on the financial statements or notes thereto.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
February, 2000.
PROGRESS SOFTWARE CORPORATION
By: /s/ JOSEPH W. ALSOP
------------------------------------
Joseph W. Alsop
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOSEPH W. ALSOP President and Director February 25, 2000
- --------------------------------------------------- (Principal Executive Officer)
Joseph W. Alsop
/s/ NORMAN R. ROBERTSON Vice President, Finance and February 25, 2000
- --------------------------------------------------- Administration and Chief
Norman R. Robertson Financial Officer (Principal
Financial Officer)
/s/ DAVID H. BENTON, JR. Vice President and Corporate February 25, 2000
- --------------------------------------------------- Controller (Principal
David H. Benton, Jr. Accounting Officer)
/s/ LARRY R. HARRIS Director February 25, 2000
- ---------------------------------------------------
Larry R. Harris
/s/ ROGER J. HEINEN, JR. Director February 25, 2000
- ---------------------------------------------------
Roger J. Heinen, Jr.
/s/ MICHAEL L. MARK Director February 25, 2000
- ---------------------------------------------------
Michael L. Mark
/s/ ARTHUR J. MARKS Director February 25, 2000
- ---------------------------------------------------
Arthur J. Marks
/s/ SCOTT A. MCGREGOR Director February 25, 2000
- ---------------------------------------------------
Scott A. McGregor
/s/ AMRAM RASIEL Director February 25, 2000
- ---------------------------------------------------
Amram Rasiel
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