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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 0-27358
DOCUMENTUM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4261421
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6801 KOLL CENTER PARKWAY, PLEASANTON, CALIFORNIA 94566-7047
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(Registrant's telephone number, including area code): (925) 600-6800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Nasdaq National Market
Common Stock, $0.001 par value
(TITLE OF CLASS)
Indicate by check mark whether the registrant 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 [x]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on February
28, 2001 as reported on the Nasdaq National market, was approximately
$781,200,354. Shares of Common Stock held by each officer and director and by
each person who 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.
The number of outstanding shares of the registrant's Common Stock, par
value $.001 per share, was 36,547,385 on February 28, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for Registrant's 2001 Annual
Meeting of Stockholders to be held May 24, 2001 are incorporated by reference in
Part III of this Form 10-K.
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FORM 10-K
INDEX
PART I
Item 1. Business ................................................................................. Page 3
Item 2. Properties ............................................................................... Page 19
Item 3. Legal Proceedings ........................................................................ Page 19
Item 4. Submission of Matters to a Vote of Security Holders ...................................... Page 19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................ Page 20
Item 6. Selected Consolidated Financial Data ..................................................... Page 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................... Page 24
Item 7A Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk .......... Page 31
Item 8. Consolidated Financial Statements and Supplementary Data ................................. Page 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures .............................................................................. Page 31
PART III
Item 10. Directors and Executive Officers of the Registrant ....................................... Page 32
Item 11. Executive Compensation ................................................................... Page 32
Item 12. Security Ownership of Certain Beneficial Owners and Management ........................... Page 32
Item 13. Certain Relationships and Related Transactions ........................................... Page 32
PART IV
Item 14. Exhibits, Consolidated Financial Statements, Financial Statement Schedules, and
Reports on Form 8-K ...................................................................... Page 33
SIGNATURES ............................................................................................ Page 34
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PART I
ITEM 1. BUSINESS
General
Documentum develops, markets, and supports an open, flexible, Internet-scalable
content management platform that enables companies to create, deliver, publish
and personalize content in various formats across ebusiness applications.
Documentum's adaptable collaboration and content management solutions enable
corporate developers and Internet Systems Integrators to implement robust
e-business applications with the reliability, scalability, and interoperability
required by today's 24x7 Internet economy. From its inception through December
1992, the Company's activities consisted primarily of developing its products,
establishing its infrastructure and conducting market research. The Company
shipped the first commercial version of its Documentum Server product in late
1992, and since then substantially all of the Company's revenue has been from
licenses of its family of internet-scale content management system products and
related services, which include maintenance and support, training and consulting
services. The Company continues to invest in research and development in order
to update its family of products and expand its market focus to deliver products
to support content management for customers, partners, and employees. In 1999,
the Company introduced Documentum 4i, the next generation open, standards-based
content management platform. This platform allows for the creation, delivery,
management and personalization of content and the delivery of that content to an
information device, including the Web, cellular phone, pager, fax machine,
printer, CD or PDA device. In 2000 the Company introduced four packaged Editions
based on the Documentum 4i platform. These editions - Web Content Management,
Portal Content Management, B2B Content Management, and Compliance -- offer a
tailored mix of core technology from Documentum 4i that can manage volumes of
content. The Company expects that license and service revenue from Documentum 4i
and newer product offerings will account for substantially all of the Company's
revenue for the foreseeable future. As a result, the Company's future operating
results are dependent upon continued market acceptance of these products.
Documentum is leveraging its strong heritage in managing dynamic content for
business-critical documents and is extending it to facilitate e-business
connections. Since 1993, Documentum has delivered solutions that enable global
collaboration and knowledge sharing within an enterprise. These solutions have
been largely applied toward accelerating business processes that reduce new
product time to market and time to revenue.
Increasingly, Documentum's content management solutions are being used to
accelerate and extend companies' online presence, delivering active and trusted
content to multiple channels. These solutions enable more than 1100 Internet and
Global 2000 companies to apply trusted content within and between organizations,
driving e-business applications that connect employees, customers and business
partners. Content management solutions that facilitate customer and business
connections have proven to be a logical extension of traditional Documentum
solutions targeting employee connections. Documentum content management
solutions drive customer connections by delivering active and trusted content on
demand to enable 24x7 customer self-service, online commerce and personalized
promotions. Online procurement, 24x7 partner self-service, and collaborative
innovation and planning are examples of Documentum content management solutions
that enable business connections. In all cases, Documentum content management
solutions offer the same level of security, scalability, business process
integration, and responsiveness required for e-business interactions.
As of December 31, 2000, the Company employed 893 persons, including 339 in
sales and marketing, 126 in its consulting and training services organization,
80 in customer technical support, 205 in research and development and 143 in
finance and administration. Of these, 223 are located in Europe, 29 are located
in Asia Pacific and the remainder is located in North America.
The Company was incorporated in Delaware in January 1990. The Company's
principal executive offices are located at 6801 Koll Center Parkway, Pleasanton,
California, 94566. Its telephone number is (925) 600-6800. The Company's home
page can be located on the World Wide Web at http://www.documentum.com. As used
in this document, the "Company" and "Documentum," and other similar terms refer
to Documentum, Inc. and its subsidiaries.
Documentum(R), Documentum 4i(TM), Documentum e-Content Server(TM), Documentum
Desktop Client(TM), Documentum Intranet Client(TM), Documentum Web
Publisher(TM), Documentum Content Personalization Services(TM), Documentum
RightSite(R), Documentum Administrator(TM), Documentum Developer Studio(TM),
Documentum Content
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Authentication Services(TM), Documentum Site Delivery Services(TM), Documentum
WebCache(TM), Documentum ContentCaster(TM), Documentum e-Connectors(TM),
(including Documentum e-Connector for SAP(TM), Documentum e-Connector for Notes
Mail(TM), Documentum e-Connector for BEA(TM), Documentum e-Connector for
ATG(TM), and Documentum e-Connector for JDBC), Documentum CADLink(TM),
Documentum iTeam(TM), Documentum DocControl Manager(TM), Documentum Corrective
Action Manager(TM), Documentum Dynamic Content Assembly(TM), GMPharma(TM),
Documentum DocInput(TM), Documentum DocViewer(TM), Documentum DocLoader(TM),
AutoRender(TM), Documentum Reporting Gateway(TM), Documentum Print Services
Manager(TM), Docbase(TM), and Docbroker(TM) are trademarks of Documentum, Inc.
All other trademarks or service marks appearing in this document are the
property of their respective holders.
Industry Background
A connected global economy is unleashing substantial e-business potential.
Electronic storefronts, business exchanges, collaborative design and
development, and online customer service represent new opportunities to engage
customers, forge partnerships, foster business relationships and expand markets.
Whether the objective is to drive global interactions or on-line transactions,
content is the cornerstone of e-business.
The ability to create, manage, personalize and publish dynamic content on demand
is vital to e-business connections. Content motivates on-line buying decisions
and extends market reach. It lets knowledge workers collaborate on product
research, design, manufacturing and marketing regardless of their location or
business affiliation. Content makes possible self-service customer support over
the Web. It is indispensable to the contracts, invoices and requests for
proposals that result from effective negotiations.
Applying content for e-business is a big leap from first-generation Web sites
that published primarily static information. The content management requirements
for a static site differ significantly from the content management requirements
for an e-commerce or e-business site that offer sophisticated transactional and
interactional capabilities. In these latter examples, outdated content is
unacceptable. Outdated content can discourage online purchases and cause
e-commerce customers to take their business elsewhere. Furthermore, it can
increase call center activity and the costs of e-business. Publishing inaccurate
information has other consequences: loss of credibility and threats of lawsuits.
According to a Forrester Research study on Web site content management, nearly
three-quarters of respondents cited either a lack of resources or keeping
content up-to-date as the biggest challenges in managing content. The
requirements for personalization significantly add to the complexity of content
management. Through personalization, the corporate Web site becomes a
conglomeration of many small, tailored sites. Without an infrastructure that
supports dynamic content assembly and delivery, organizations must create Web
pages manually. Before long, that process becomes unmanageable.
Other obstacles to effective content management result from the inability to
integrate with complementary enterprise systems, application servers, and
commerce servers. Add to that the need for publishing to multiple channels such
as corporate, partner and affiliate Web sites as well as in print, and to fax,
e-mail, cellular phones and PDA devices. Without a content management solution
that can provide best-of-breed integrations, manage the overwhelming volume of
content, and publish content anywhere, organizations cannot effectively leverage
electronic interactions with employees, customers and business partners to
exploit e-business opportunities.
Documentum's Solution
Documentum is taking advantage of this market opportunity with content
management solutions that help Internet companies and established
brick-and-mortar organizations manage the incredible amount of dynamic content
needed to fuel their e-business connections with customers, business partners
and employees. These solutions automate the essential functional requirements of
content management: content contribution, collaboration, content
personalization, site management and content delivery. By integrating with
desktop systems, enterprise systems, e-commerce and Web application servers, and
XML/HTML tools, Documentum content management solutions serve as a technology
component of an Internet-scalable e-business infrastructure.
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Today, more than 1100 Global 2000 organizations rely on the Documentum 4i(TM)
eBusiness Edition, a product architecture with XML capabilities, to manage
dynamic content within and between their organizations to drive e-business
interactions with customers, business partners, and employees.
Documentum 4i helps to ensure that content applied for e-business is live,
trusted, smart and available in the required format. It facilitates content
creation among collaborative teams and speeds deployment by integrating with
complementary system components of the "content supply chain." This contributes
to increased efficiency and predictability, improved accuracy, and repeatable
best practices. In addition, Documentum 4i can automate business processes that
drive the creation, management, approval, distribution, and archival of content,
whether for delivery to a Web site or for internal use. This can involve
partners, customers, employees, or other members of a virtual community.
Smart content personalization is another valuable feature of Documentum 4i that
tailors content delivery across multiple media. With Documentum 4i, content can
be pulled directly from its centralized content repository, dynamically
assembled and tailored to the interests and preferences of specific users.
Content delivery can be to the Web, or to a cellular phone, pager, fax machine,
printer, CD or PDA device.
Enterprise integration is key to fast, effective deployment. Through its open
and standards based architecture, Documentum 4i integrates with the core
components of a global computing infrastructure. This includes integration with
commerce platforms such as IBM and Microsoft, enterprise systems such as
PeopleSoft and SAP that drive back office business processes, target marketing
tools and Web Application Servers from companies such as BEA Systems,
BroadVision, and Art Technology Group (ATG), and authoring tools such as
FrontPage, DreamWeaver and Microsoft Office. Documentum 4i also supports
industry-standard development environments, techniques, languages and
directories such as Microsoft Interdev, JSP, ASP, JavaScript, Java, COM,
Enterprise Java Beans and LDAP.
Built on top of Documentum 4i are content management solutions that are
fundamental to accelerating e-business initiatives with specific packages
designed to help companies engage in online transactions, business exchanges,
partner and supplier relationships, and related e-business interactions. These
packages include Documentum 4i Web Content Management Edition for establishing
true processes and controls that solve Web site production bottlenecks;
Documentum 4i Compliance Edition for content assurance in regulated or
controlled environments; Documentum 4i Portal Content Management Edition for
extending portal capabilities to allow users to advance workflows and act on
what they see; and the Documentum 4i B2B Edition for bringing advanced content
management to marketplace exchanges and commerce sites.
Documentum Products
Documentum 4i eBusiness Platform Edition. Documentum 4i is an Internet-scale
enterprise-wide content management platform offering automated services that
support content creation, management, staging and delivery. At the heart of
Documentum 4i is the e-Content Server, which implements the Documentum content
repository and a rich set of content contribution, workflow, process automation
services, and lifecycle automation services for controlling and managing content
and processes throughout and between distributed enterprises. Included in
Documentum 4i are the Desktop and Intranet clients that help users access and
view trusted content stored in one or more Documentum content repositories from
their desktops or a Web browser. With XML capability, Documentum 4i enables XML
authoring, management, and reuse thereby allowing non-technical users to create
and publish XML content. Companies can leverage XML for delivering personalized,
re-purposed content to multiple Web sites and multiple wireless devices.
Documentum Developer Studio. Developer Studio is a rapid application development
environment and is integrated within Documentum 4i eBusiness Edition. Developer
Studio enables developers to rapidly create and package together the elements
that comprise e-business applications, enabling fast deployment of content
management solutions that solve specific business problems. Industry-standard
tools and technologies including Java, VJ++ and Visual InterDev, as well as ASP
and JSP development tools are leveraged to offer an entirely graphical
environment for creating, reusing, and assembling components to speed
development of e-business applications. The Developer Studio includes Documentum
Foundation Class (DFC) and the Web Development Kit (WDK). The DFC is an
object-oriented API layer written in Java that provides direct access to a
robust and dependable API set, a variety of industry-standard languages and
developer tools, and platform functionality. The WDK is a developer's toolkit
for creating custom Web applications that leverage the Documentum eContent
Server and repository. Built
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on an extensible J2EE framework, WDK provides a familiar development environment
that allows developers to easily create or customize reusable components that
encapsulate standardized functions or incorporate functionality provided by
other Documentum components.
Documentum Administrator. Included within Documentum 4i eBusiness Edition,
Documentum Administrator is a powerful Web administration tool designed to
remove the complexity of deploying and maintaining distributed content across
multiple internal and external sites. Because it supports standard Web browsers,
Documentum Administrator provides a universal point of access from any desktop
platform for managing and administering all repositories, servers, users, and
groups regardless of their location across a virtual enterprise. By automating
administrative tasks, Documentum Administrator helps provide enterprise-wide
integrity of business-critical content while lowering the cost of owning and
maintaining e-business applications.
Documentum Editions. Documentum offers four packaged Editions built on the
Documentum 4i eBusiness Edition. Each Edition offers a tailored mix of core
technology from Documentum 4i and leverages Documentum 4i's ability to manage
the unlimited volumes of trusted content. Support and services (including
maintenance and training) are purchased with each Edition. As companies grow, 4i
Editions offer flexibility, scalability, and expandability by allowing the
addition of other 4i platform components. The four Edition packages are:
- - Documentum 4i Web Content Management Edition. The Documentum 4i WCM
Edition provides enterprise-scale Web content management system with the
ability to create, manage, personalize, and deliver dynamic content
across the Web. Documentum 4i Platform is extended by adding components
specifically required for developing and deploying trusted content to
corporate Web sites, quickly, and easily.
- - Documentum 4i Portal Content Management Edition. The Documentum 4i
Portal Edition is currently scheduled to be released during 2001. The
Documentum 4i Portal Edition extends and enhances portal capabilities by
transforming corporate portals into interactive e-business tools that
allow users within and beyond the enterprise to access and act on
trusted content. Whether unlocking enterprise information or enabling
collaborative projects, the Documentum 4i Portal Edition provides an
easy-to-use entryway to business-critical content.
- - Documentum 4i B2B Edition. The Documentum 4i B2B Edition is currently
scheduled to be released during 2001. The Documentum 4i B2B Edition will
be designed to solve many of the content requirements for companies
engaged in strategic exchange of goods with customers, vendors, and
channel partners.
- - Documentum 4i Compliance Edition. The Documentum 4i Compliance Edition
is designed to allow compliance with standards and regulatory rulings
that govern how a company does business. This Edition provides the full
set of products required to control, audit, report, and secure trusted
content, the basis on which companies bring their products to market.
Documentum Site Delivery Services (SDS). Site Delivery Services includes two
major components, Documentum WebCache and ContentCaster, enabling the delivery
and deployment of content. WebCache is a content caching feature that provides
high-speed, Internet-scalable content delivery. WebCache scales outside the
firewall providing fast delivery of content and meta-data to a variety of web
site delivery engines such as application servers, single web server or multiple
web servers, and web farms. ContentCaster allows for reliable and quick content
deployment.
Content Personalization Services (CPS). CPS streamlines the tedious work of
content tagging and categorization by automatically analyzing content for
concepts and keywords and storing the results as tags. With CPS, users can
select from a list of optional metadata defined by site administrators or click
a button to create a list of suggested metadata based on content parsing --
reducing or altogether eliminating manual tagging, searching, and updating.
iTeam. iTeam is an intuitive, Web-based portal that accelerates project
execution and increases efficiency by enabling all users within and beyond the
enterprise to participate in projects through contribution and collaboration.
Through project reuse, iTeam leverages existing knowledge, captures best
practices, and builds on previous experience.
DocControl Manager (DCM). Included with the Documentum 4i Compliance Edition,
DCM allows users in highly regulated industries to create, review, revise,
approve, and distribute controlled documents online to meet stringent
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quality goals and compliance requirements. DocControl Manager provides a
familiar Web interface that lets users link disconnected processes for
collecting, sharing, and applying knowledge in an audited environment.
Corrective Action Manager. Complementary with the DocControl Manager, Corrective
Action Manager allows users to track necessary changes to quality processes
quickly and easily in a controlled manner that meets the most stringent
regulatory standards. Corrective Action Manager includes functionality to
automate and streamline every aspect of correction action for the complete
document lifecycle from submission through analysis. Some of Corrective Action
Manager's system capabilities include web interface, security controls,
customized content, user notification of amendments to a corrective action at
any lifecycle stage, statistical report generation, and attachment of related
documents to a corrective action at any life cycle stage.
Content Authentication Services. Documentum Content Authentication Services is a
software development kit within the Documentum 4i Compliance Edition that, when
integrated with Documentum-based applications, enables both trusted and
regulated content management. Content Authentication Services provides standard
methods for enabling an extensive audit trail, securely links signatures to
documents, and manages system functions such as user authorization, signature
verification, and system configuration. It also provides a standard Web-based
user interface designed for records management professionals and system
administrators. Through this interface, these users can configure specific
details of the audit trails and electronic signature handling to conform with
the records migration and records management policies of their organizations.
GMPharma. As part of the Documentum 4i Compliance Edition, Documentum also
offers a joint pharmaceutical industry solution with PricewaterhouseCoopers
(PwC) called GMPharma(TM) aimed at streamlining regulatory compliance processes
in the pharmaceutical industry. Co-developed and co-marketed by Documentum and
PwC, GMPharma brings together the deep domain expertise in delivering for
scalable enterprise content management solutions and PwC's consulting expertise
in managing complex, global EDM deployments for pharmaceutical companies.
In addition to the above products, the Company integrates a number of
third-party products that help to provide a whole solution tailored to a
customers e-business needs. Among those products are AutoRender Pro, which
transforms common desktop application files into PDF or HTML for broad-based
distribution, Documentum DocLoader, which allows the rapid and controlled
bulkloading of any kind of documents from legacy and external sources into
Documentum 4I, Documentum DocViewer, which enables access to different types of
images, such as TIFF and PDF, Documentum DocInput, which enables users to easily
capture paper documents into the Documentum content repository, CADLink, which
automates the full-drawing lifecycle management of CAD drawings in a Documentum
content repository, and provides Contributors, Consumers and Coordinators with
specific tools that are targeted to the particular requirements of their roles,
and Framelink, which is a family of products that accelerate the process of
developing and delivering technical documentation, product manuals, and other
complex, customized documents that undergo multiple reviews and revisions -- all
from within the FrameMaker interface.
Integrations to Enterprise and Desktop Applications. In addition to its content
management platform and e-business applications, the Company offers a number of
integrations with major business applications and server technologies. These
integrations enable customers to extend their existing enterprise applications
with Documentum functionality and provide knowledge workers with access to
business-critical content from within their familiar applications. The Company's
product integrations include:
Documentum e-Connector for SAP. Documentum e-Connector for SAP is an integrated
suite of products that enhances SAP with robust content management capabilities.
The Documentum 4i platform automates business processes to control, share,
manage and reuse valuable corporate content. DocLink for SAP provides additional
services that integrate this content and SAP-generated content with SAP
processes in a paperless, distributed, electronic environment. With DocLink for
SAP, both SAP and non-SAP users can access information such as vendor contracts,
invoices, standard operating procedures, material safety data sheets,
engineering drawings, specifications and related content directly from their
desktops, eliminating the personnel time and costs of searching for, filing and
storing this content.
Documentum e-Connector for Notes Mail. Documentum e-Connector Notes Mail is an
integration between the Lotus Notes Mail client and the Documentum server that
supports participation in content review cycles, and the archiving of e-mail,
without a Documentum client. This real-time "external client to Documentum
server"
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integration is a substantial change from Documentum's traditional proprietary
client approach. With e-Connector for Notes Mail, customers have the ability to
expand usage of content management across the enterprise while avoiding much of
the maintenance and training costs associated with the deployment of an
additional desktop client. In the application hosting market, this product
allows Notes-based customers to add document management to their current
infrastructure without any content management infrastructure investment and a
very minimal setup time.
Documentum e-Connector for CAD Product Suite. Documentum e-Connector for CAD is
a suite of products for managing and accelerating the creation, access,
approval, and release of CAD drawings. e-Connector for CAD tightly integrates
the AutoCAD and MicroStation CAD systems with Documentum's content management
platform for a comprehensive CAD management solution. CADLink enables true
engineering drawing lifecycle management, integrating the design workshop with
the many enterprise users who require access to the critical information held in
CAD drawings.
Documentum e-Commerce Server Integrators and Documentum Web Application Server
Integrators. These products integrate the Documentum 4i content management
platform with popular e-commerce platforms and Web application servers.
Documentum/PeopleSoft Integration. Documentum and PeopleSoft have teamed to
provide an integration of Documentum 4i with PeopleSoft Manufacturing. The
Documentum/PeopleSoft integration links engineering, manufacturing, and
downstream functions into a single system for managing product information,
documents and data seamlessly across the enterprise.
Consulting and Training Services
Deploying enterprise content management solutions involves both a strategic
vision and a tactical implementation methodology. Global organizations needing
assistance in developing or refining their approach to such a solution can
engage directly with the Documentum Worldwide Consulting Services organization.
Documentum Consulting understands the requirements for defining an enterprise
strategy, and offers architectural design support and best-in-class
implementation approaches for each of the Documentum 4i Editions, as well as for
the underlying eBusiness Platform. These service offerings help to enable
e-business initiatives within and between global organizations, with
time-to-deployment as a primary objective.
Documentum Consulting is strategically aligned by Edition to deliver
best-practice services that apply product and deployment expertise to the
support of market and customer requirements including:
- - Creation of enterprise-scale web content management solutions with the
ability to create, manage, personalize and deliver dynamic content
across the web;
- - Enabling real-time contribution and collaboration through the
integration of enterprise corporate content and portal interfaces;
- - Managing the control, auditing, reporting and security processes
associated with content required to demonstrate regulatory compliance
and adherence to industry standards and practices;
- - Facilitating the aggregation, transformation and syndication of content
for online exchanges and support for the automation of the e-business
supply chain for vendors, partners and customers;
- - Supporting fundamental platform technology management functions
including administration, performance, capacity planning,
high-availability, strategic architecture design and deployment
strategies; and
- - Providing design and deployment support to system integrator and
technology partners in the design and deployment of industry solutions
and best-of-breed integrations.
Documentum Education offers a curriculum of courses on Documentum products for
End Users, Application Developers and System Administrators. Courses are
available at the Company's training centers in Pleasanton, Chicago,
Philadelphia, London, Munich, and Paris. Documentum Education can also be
delivered at a customer's site.
Technical Support Services
Documentum offers four technical support options. At the cornerstone of the
Documentum Customer Support program is the Standard Support Services agreement.
The Standard Services agreement provides free maintenance releases and upgrades,
access to the wealth of information and online help via our Electronic Service
Center, and
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expert technical phone support for all Documentum products during normal local
business hours. Documentum's Electronic Service Center is a Web site that
provides learning, technical tips, and problem resolutions shared by
Documentum's network of support and competency centers.
For customers with round-the-clock production Documentum Mission-Critical
Support provides worldwide technical support 24 hours a day, 365 days a year.
Documentum currently operates four Technical Support Centers in geographic
locations that provide local support in all major time zones and for those
customers with a Mission-Critical Support agreement, a 24x7 follow-the-sun
support model. The service centers are located in California, the United
Kingdom, Germany, and Australia. Each center offers different levels of hotline
technical support, remote dial-in services for problem identification and access
to maintenance and patch releases for supported and purchased products.
With Documentum Developer Support, customers can leverage Documentum's
development experts' knowledge and experience in the latest technical tools and
capabilities to help streamline their Documentum development process and ensure
maximum coding efficiency and quality.
In addition to Standard Support Services, Developer Support, and
Mission-Critical Support, Documentum offers the Premier Account Support. Global
and leading-edge companies require significant knowledge of Documentum plans and
strategies in order to prepare and quickly implement their applications. With
Premier Account Support, customers receive in-depth and regular communication on
plans, directions, partner activities and technical topics. Documentum's Premier
Account Support program offers structured sharing of plans and strategies for
managing content in B2B, B2C, and B2E environments.
Strategy
The Company's objective is to be the leader in enterprise content management.
Our strategy is to provide superior products and related services to accelerate
e-business initiatives within the Global 2000. To achieve this objective, we
have adopted the following strategies:
Maintain Leadership in the Content Management Market. The Company's
industry-leading solutions for e-business applications enable enterprises to
accelerate their online presence. These solutions enable customers to create,
deliver, and personalize content of all formats -- from internal and external
contributors, for business processes that extend beyond the enterprise, to
multiple delivery channels (print, Web, and PDA) and across an extensive network
of affiliate and partner sites. These customers are applying trusted content
within and between their organizations for online commerce and personalized
promotions, 24x7 customer and partner self-service, online exchanges, electronic
procurement, collaborative planning and innovation and related e-business
applications. With our flagship product Documentum 4i, we offer a platform for
businesses of any size to achieve a competitive online presence. We intend to
enhance our technology leadership position through continued innovation on our
Documentum 4i content management platform and e-business applications suite to
enable an end-to-end content supply chain within and between organizations.
During Q4 of 2000, Documentum introduced the next generation version of the 4i
eBusiness Platform offering end-to-end XML content management and the ability to
store content and properties of any language in a single repository.
Expand Channel Reach and Effectiveness. We expand our channel reach by
strengthening our network of sales and strategic e-business and technology
partners. The Company has accelerated the development, introduction and
acceptance of Documentum solutions through select systems integrators, Internet
professional services providers, e-commerce technology partners, and resellers.
These e-business partners serve as extensions of the sales force and development
staff, enabling the Company to achieve high growth rates without incurring
additional overhead and infrastructure expenses. They bring valuable technical
and domain expertise and established business relationships with companies
seeking to bring their businesses online. By reorganizing our sales and
consulting into a single field organization and assembling teams of e-business
experts to help reduce sales cycles in e-business engagements, we are
accelerating the deployment of content management solutions. As of December 31,
2000, Documentum developed relationships with over 30 partners in the eBusiness
ecosystem, including BEA, ATG, PwC, Plumtree, IBM, and many others.
Become the Preferred Supplier of Content Management Solutions for ASPs. We
license our software to Application Service Providers, or ASPs, for companies
that want a third party to host their e-business software solutions or services.
ASPs offer customers the benefits of access to business software without the
need to build and maintain the
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hardware and network infrastructure or hire and retain personnel to support it.
Documentum intends to pursue new business opportunities with the mid-tier market
through this ASP channel. Documentum has established the ASPire program to
attract and retain leading ASPs, offering access to Documentum technology,
marketing and sales resources and the technical assistance necessary to deploy
Documentum-based technology solutions. Through the Company's ASPire program,
customers "rent" access to Documentum content management technology to meet
their business computing needs.
Expand our Global Presence. We combine extensive operations in North America,
Europe and Asia with a worldwide network of partners to provide dedicated
service to businesses worldwide. The Company intends to build upon its
successful international business performance by growing its sales, consulting
and technical support operations around the world. We intend to leverage this
global presence to capitalize on the rapid worldwide growth of the electronic
commerce and e-business market. In 2000, the Company formed global account teams
to better manage large global business opportunities, and opened new sales
offices in Hong Kong, Singapore, and Taiwan.
Increase Brand Awareness and Leverage Deep Vertical Presence. The Company
intends to continue investing in branding and awareness building efforts to
drive greater mind share of Documentum as the leading provider of enterprise
content management solutions that power today's e-business. At the same time, we
will extend our established vertical presence to cultivate and drive emerging
e-business opportunities. We will also invest in establishing thought leadership
focused on demonstrating how our solutions are critical for new and emerging
business models. Recently, Forrester Research ranked Documentum in the top three
best technologies for content management. Also in 2000, Imaging and Document
Solutions Magazine awarded Documentum our second consecutive Product of the Year
Award for content management.
Customers
With over 270 new customers in 2000, Documentum set another record for adding
new customers in a single year. More than 1100 of the Global 2000 organizations
and Internet companies now rely on Documentum solutions to manage dynamic
content within and between their organizations. These customers include:
Administaff, AT&T, Bayer AG, BMW AG, BP Amoco, Bristol Myers-Squibb, Brodia,
Charles Schwab, Chevron, Colgate Palmolive, Delta Airlines, Deutsche Bank, Dow
Chemical, Entergy, Halliburton, Linklaters, Monsanto, Nortel Networks, Origin,
PeopleSoft, Pfizer, Purdue Pharmaceuticals, Rhone-Poulenc Rorer, Royal & Sun,
Scudder, Telstra, UBS Warburg, United Airlines, Volkswagen AG, and Wellington
Management.
Sales and Marketing
The Company licenses its products through its own direct sales force as well as
complementary indirect channels primarily consisting of key systems integrators,
distributors, technical partners, and application service providers (ASPs).
Sales teams are organized in regional markets and the Company currently has 14
sales offices in the United States, three sales offices in Europe, sales offices
in Japan, Korea, Hong Kong, Singapore, Taiwan, and Australia, as well as
distributors in Europe, the Middle East, Asia-Pacific and South Africa.
The Company's field sales force conducts multiple presentations and
demonstrations of the content management solutions to management and users at
the customer site as part of the direct sales effort. One of the Company's
objectives is to reduce customers' product development time and increase
operational efficiency by designing Web applications for particular
business-critical processes. Traditional sales cycles generally last from three
to nine months, but are much shorter when delivering Web-based solutions. The
direct sales force is responsible for local partner support, joint sales efforts
and management of multiple channels. See "Risk Factors--Lengthy Sales and
Implementation Cycles."
Our direct sales staff is currently based at the Company's corporate
headquarters in Pleasanton, California and at field sales offices in the U.S.
metropolitan areas of Atlanta, Boston, Chicago, Cleveland, Dallas, Denver,
Detroit, Houston, Los Angeles, Minneapolis, New York, Philadelphia, San
Francisco, and Washington, D.C., and abroad in London, Munich, Paris, Tokyo,
Seoul, Hong Kong, Singapore, Taipei, and Melbourne. To support its sales force,
the Company conducts comprehensive marketing programs, which include public
relations, telemarketing, seminars, trade shows, education and user group
conferences.
Product Development
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The Company has committed, and expects to continue to commit, substantial
resources to product development. The Company's existing products were designed
after extensive work with potential customers to assess their needs. The Company
reviews customer feedback on existing products and works with customers and
potential customers to anticipate future functionality requirements, as part of
its product development efforts.
The Company expects to continue to enhance its existing products, develop new
products and augment its product and technology base through the Company's own
efforts as well as through acquisitions. For the years ended December 31 2000,
1999 and 1998, research and development expenses were $35.3 million, $25.8
million, and $18.2 million, respectively. Historically, the Company has expensed
its software development costs as incurred.
With future releases of Documentum 4i, Documentum will extend the functionality
to offer robust new capabilities for content management. These include enhanced
publishing and delivery services that will scale content to Internet levels and
provide one-to-one delivery. Other new features will include enhanced XML
management services and business-to-business engagement services. XML services
will address the next generation of content interchange. Business-to-business
engagement services will extend engagements beyond a single session and delivery
to different media. A new set of content management application services will
allow site developers to construct content and site management applications from
standard components.
In addition, Documentum is committed to developing a family of e-business
applications on top of the Documentum 4i platform targeting specific customer
requirements for making e-business connections with customers, business partners
and employees. The focus will be on developing solutions for managing content
vital to emerging e-business exchanges, virtual communities, and build-to-order
business collaboration. These applications will leverage Documentum's strengths
in content management, dynamic content assembly and delivery, workflow
technology and collaboration to create a "dynamic supply Web" that accelerates
the delivery of vital e-business content anytime, anywhere, to any device.
Industry Standards
Documentum provides an open, standards-based content management platform and
family of e-business applications targeted to customers' unique e-business
requirements. The Company is active in numerous standards efforts for the Web,
including the Web Distributed Authoring and Versioning (WebDAV) standard and
Extensible Markup Language (XML), and the Company's products are designed for
interoperability with critical Web standards such as HTTP and HTML.
Documentum is the repository of choice for customers using XML. Many of our most
sophisticated customers use their content repository today for this purpose, and
search XML zones there to find the right content at the right time. With its
latest release of the 4i eBusiness Platform, Documentum now supports end-to-end
XML capabilities, including the creation of XML content using industry standard
tools, disassembly and reassembly of XML content components (fragments),
validation of various XML schemas and transformation between schemas as needed.
Documentum's XML capabilities power emerging XML e-business applications and
will allow businesses to transfer content seamlessly with other businesses,
enabling efficient business-to-business operations across the Internet and
multiple proprietary secure networks.
The Company has enhanced the architecture of its open, extensible server to
support industry-standard platforms, applications, multi-channel services (i.e.,
pagers, cellular phones and handheld devices) and networks including the Web.
For example, the Company is actively involved in the Wireless Access Protocol
(WAP) standard. Other industry-leading technologies that Documentum is actively
supporting include LDAP, OLE DB, COM/DCOM, Java, ASP, JSP, and J2EE. As Internet
standards emerge and tools to support those standards evolve, Documentum will
continue to take a leadership position in support of those standards. Documentum
has also provided support for other information delivery vehicles such as SAP,
Lotus Notes, CAD systems, and PeopleSoft.
As a result of its enterprise document management heritage, Documentum has
participated in the leading organization that has taken the initiative to define
standards specifically for the document management arena, the Open Document
Management API (ODMA). In addition, the Company is participating in the Workflow
Management Coalition (WfMC), which has established widely accepted workflow
standards. Documentum's workflow solutions are fully compliant with the WfMC
standard.
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RISK FACTORS
The Company's operating results are unpredictable and may vary. Our future
operating results may vary significantly and are difficult to predict due to a
number of factors, of which many are beyond our control. These factors include:
- - demand for our products;
- - the level of product and price competition;
- - the length of our sales cycle;
- - the size and timing of individual license transactions;
- - the delay or deferral of customer implementations;
- - our success in expanding our customer support organization, direct sales
force and indirect distribution channels;
- - the timing of new product introductions and product enhancements;
- - changes in our pricing policy;
- - the publication of opinions concerning us, our products or technology by
industry analysts;
- - the mix of products and services sold;
- - levels of international sales;
- - activities of and acquisitions by competitors;
- - the timing of new hires;
- - changes in foreign currency exchange rates;
- - our ability to develop and market new products and control costs; and
- - domestic and international economic and political conditions.
One or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly.
Readers should not rely on our quarterly operating results as an indication of
our future results because they are subject to significant fluctuations. These
fluctuations may negatively impact our stock price. Our net revenue and
operating results may vary drastically from quarter to quarter because of
numerous factors largely beyond our control, including the following:
- - the potential delay in recognizing revenue from license transactions;
- - the discretionary nature of our customers' budget and purchase cycles;
- - variations in our customers' fiscal or quarterly cycles;
- - the size and complexity of our license transactions;
- - the timing of new product releases;
- - seasonal variations in operating results; and
- - the tendency to realize a substantial amount of revenue in the last
weeks, or even days, of each quarter.
Each customer makes a discretionary decision to implement our products that is
subject to its resources and budget cycles. Additionally, our license sales
generally reflect a relatively high amount of revenue per order, and as a
result, the loss or delay of individual orders, could have a significant impact
on quarterly operating results and revenue. Furthermore, the timing of license
revenue is difficult to predict because of the length of our sales cycle, which
typically ranges from three to nine months from initial contact. Also, our
strategy of providing customers with complete content management solutions
typically results in software licenses being bundled with services. In these
cases, the delivery of services may delay recognition of license revenue.
Because our operating expenses are based on anticipated revenue trends and
because a high percentage of these expenses is relatively fixed, any shortfall
from anticipated revenue or a delay in the recognition of revenue from license
transactions could cause significant variations in operating results from
quarter to quarter and could result in operating losses. If these expenses
precede, or are not followed by, increased revenue, our operating results would
be lower than expected and our stock price may fall.
As a result of the foregoing and other factors, operating results for any
quarter are subject to significant variation, and we believe that
period-to-period comparisons of our results of operations are not necessarily
meaningful in terms of their relation to future performance. You should not rely
upon these comparisons as indications of future performance. Furthermore, it is
likely that our future quarterly operating results from time to time will not
meet the
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expectations of public market analysts or investors, in which case there would
likely be a drop in the price of our common stock.
The Company's sales and implementation cycles are lengthy and difficult to
predict. In general, the timing of the sales and implementation of our products
is lengthy and not predictable with any degree of certainty. You should not rely
on prior sales and implementation cycles as an indication of future cycles.
The licensing of our software products is often an enterprise-wide decision by
prospective customers and generally requires us to engage in a lengthy sales
cycle (generally between three and nine months) to provide a significant level
of education to prospective customers regarding the use and benefits of our
products. Additionally, the size and complexity of any particular transaction
can also cause delays in the sales cycle. The implementation of our products can
involve a significant commitment of resources by customers over an extended
period of time and is commonly associated with substantial reengineering efforts
by the customer. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays over which
we have little or no control. A delay in the sale or customer implementation of
even a limited number of license transactions result in lower than expected
revenue and cause our operating results to vary significantly from quarter to
quarter.
A substantial portion of the Company's revenue is attributable to one family of
products and related services. To date, substantially all of our revenue has
been attributable to sales of licenses of the Documentum EDMS and Documentum 4i
family of products and related services. We expect Documentum 4i and related
services to continue to account for a substantial majority of our future
revenue. As a result, factors adversely affecting the pricing of or demand for
such products, such as competition or technological change, harm our business,
financial condition and results of operations.
The Company's failure to identify new product opportunities or to develop new
products or versions could harm business. The content management software and
services market in which we compete is characterized by (1) rapid technological
change, (2) frequent introduction of new products and enhancements, (3) changing
customer needs, and (4) evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. Accordingly, the life
cycles of our products are difficult to estimate. To keep pace with
technological developments, evolving industry standards and changing customer
needs, we must support existing products and develop new products. Our future
success also depends in part on our abilities to execute on our strategy of
developing web content management and business-to-business solutions and to
maintain and enhance relations with technology partners, including RDBMS
vendors, in order to provide our customers with integrated product solutions.
The Company may not be successful in maintaining and enhancing the
aforementioned relationships or in developing, marketing and releasing new
products or new versions of our products that respond to technological
developments, evolving industry standards or changing customer requirements. We
may also experience difficulties that could delay or prevent the successful
development, introduction and sale of these enhancements. In addition, these
enhancements may not adequately meet the requirements of the marketplace and may
not achieve any significant degree of market acceptance. If we fail to
successfully maintain or enhance relationships with our technology partners or
to execute on our integrated product solution strategy, or if release dates of
any future products or enhancements are delayed, or if these products or
enhancements fail to achieve market acceptance when released, our business,
operating results and financial condition could be harmed. We have in the past
experienced delays in the release dates of enhancements to our products. While
the delays we have experienced to date have been minor (not exceeding six
months), there can be no assurance that we will not experience significant
future delays in product introduction.
The Company is dependent on the market for content management solutions, which
may not continue to grow. The market for content management software and
services is intensely competitive, highly fragmented and rapidly changing. Our
future financial performance will depend primarily on the continued growth of
the market for content management software and services and the adoption of our
products by organizations in this market. If the content management software and
services market fails to grow or grows more slowly than we currently anticipate,
our business, financial condition and operating results would be harmed.
The Company faces intense competition from several competitors and may be unable
to compete. Our products target the emerging market for Web-based and
client/server software solutions. This market is intensely competitive, rapidly
changing and significantly affected by new product introductions and other
market activities of
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industry participants. We encounter direct competition from a number of public
and private companies that offer a variety of products and services addressing
this market. These companies include FileNet, OpenText, Interwoven and Vignette.
Additionally, several other enterprise software vendors, such as Microsoft,
Oracle and Lotus (a division of IBM) are potential competitors in the future.
Many of these current and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition and a larger installed base of customers
than we do. In addition, several of these companies, including Microsoft,
Oracle, Lotus and others, have well-established relationships with our current
and potential customers and strategic partners, as well as extensive resources
and knowledge of the enterprise software industry that may enable them to more
easily offer a single-vendor solution. As a result, these competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products, than we can.
We also face indirect competition from systems integrators. We rely on a number
of systems consulting and systems integration firms for implementation and other
customer support services, as well as for recommendations of our products during
the evaluation stage of the purchase process. Although we seek to maintain close
relationships with these service providers, many of them have similar, and often
more established, relationships with our competitors. If we were unable to
develop and maintain effective, long-term relationships with these third
parties, our competitive position would be materially and adversely affected.
Further, many of these third parties possess industry-specific expertise and
have significantly greater resources than we do, and may market software
products that compete with us in the future.
There are many factors that may increase competition in the market for Web-based
and client/server software solutions, including (1) entry of new competitors,
(2) alliances among existing competitors and (3) consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could harm our business,
financial condition and operating results. If we cannot compete successfully
against current and future competitors or overcome competitive pressures, our
business, operating results and financial condition may be harmed.
The Company is dependent on a relatively small number of customers and those
customers tend to be concentrated in several industries. Our success depends on
maintaining relationships with our existing customers. A relatively small number
of customers have accounted for a significant percentage of our revenue.
Additionally, our customers are somewhat concentrated in the process and
discrete manufacturing, pharmaceutical, financial services and high technology
industries. We expect that sales of our products to a limited number of
customers and industry segments will continue to account for a significant
percentage of revenue for the foreseeable future. The loss of a small number of
customers or any reduction or delay in orders by any such customer, or our
failure to market successfully our products to new customers and new industry
segments could harm our business and our prospects.
The Company relies on a number of relationships with third parties for sales,
distribution and integration. We have established strategic relationships with a
number of organizations that we believe are important to our sales, marketing
and support activities and the implementation of our products. We believe that
our relationships with these organizations, including indirect channel partners
and other consultants, provide marketing and sales opportunities for our direct
sales force, expand the distribution of our products and broaden our product
offerings through product bundling. These relationships allow us to keep pace
with the technological and marketing developments of major software vendors and
provide us with technical assistance for our product development efforts. Our
failure to maintain these relationships, or to establish new relationships in
the future, could harm our business.
The Company depends on the services of key personnel. Our future performance
depends in significant part on the continued service of our key technical, sales
and senior management personnel, none of whom is bound by an employment
agreement with us. The loss of services of one or more of our executive officers
or key technical personnel could harm our business, operating results and
financial condition.
Our future success also depends on our continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that we can retain key
employees or that we can attract, assimilate or retain other highly qualified
personnel in the future.
The Company is subject to risks associated with international operations. Our
revenue is primarily derived from large multi-national companies. To service the
needs of these companies, we must provide worldwide product
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support services. The Company has offices in London, Paris, Munich, Tokyo,
Melbourne, Hong Kong, Singapore, Taipei, and Seoul. The Company operates its
international technical support operations in the London, Munich and Melbourne
offices. We have expanded, and intend to continue expanding, our international
operations and enter additional international markets. This will require
significant management attention and financial resources that could adversely
affect our operating margins and earnings. We may not be able to maintain or
increase international market demand for our products. If we do not, our
international sales will be limited, and operating results would suffer.
Our international operations are subject to a variety of risks, including (1)
foreign currency fluctuations, (2) economic or political instability, (3)
shipping delays, (4) various trade restrictions, (5) our limited experience in,
and the costs of, localizing products for foreign countries, (6) longer accounts
receivable payment cycles and (7) difficulties in managing international
operations, including, among other things, the burden of complying with a wide
variety of foreign laws.
The Company's industry is characterized by vigorous protection and pursuit of
intellectual property rights that could result in substantial cost to us. We
rely primarily on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect our proprietary
rights. We also believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position. We seek to
protect our software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult,
and while we are unable to determine the extent to which piracy of our products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect our proprietary rights as
fully as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate.
Additionally, our competition may independently develop similar technology.
Although we do not believe that we are infringing any proprietary rights of
others, third parties may claim that we have infringed their intellectual
property rights. Furthermore, former employers of our former, current or future
employees may assert claims that such employees have improperly disclosed to us
the confidential or proprietary information of such former employers. Any such
claims, with or without merit, could (1) be time-consuming to defend, (2) result
in costly litigation, (3) divert management's attention and resources, (4) cause
product shipment delays, and (5) require us to pay money damages or enter into
royalty or licensing agreements. A successful claim of intellectual property
infringement against us and our failure or inability to license or create a
workaround for such infringed or similar technology may result in substantial
damages payments or termination of sales of infringing products.
We license certain software from third parties, including software that is
integrated with internally developed software and used in our products to
perform key functions. These third-party software licenses may not continue to
be available to us on acceptable terms. The loss of, or inability to maintain,
any of these software licenses could result in shipment delays or reductions,
resulting in lower than expected operating results.
The Company may face product liability claims from our customers. Our license
agreements with our customers typically contain provisions designed to limit our
exposure to potential product liability claims. It is possible, however, that
the limitation of liability provisions contained in our license agreements may
not be effective under the laws of certain jurisdictions. A successful product
liability claim brought against us could result in payment of substantial
damages.
The Company is subject to risks associated with product defects and
incompatibilities. Software products frequently contain errors or failures,
especially when first introduced or when new versions are released. Also, new
products or enhancements may contain undetected errors, or "bugs," or
performance problems that, despite testing, are discovered only after a product
has been installed and used by customers. Errors or performance problems could
cause delays in product introduction and shipments or require design
modifications, either of which could lead to a loss in or delay in recognition
of revenue.
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Our products are typically intended for use in applications that may be critical
to a customer's business. As a result, we expect that our customers and
potential customers will have a greater sensitivity to product defects than the
market for software products generally. Despite extensive testing by us and by
current and potential customers, errors may be found in new products or releases
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, damage to our reputation, diversion of development
resources, the payment of monetary damages or increased service or warranty
costs, any of which could harm our business, operating results and financial
condition.
The Company is subject to risks associated with acquisitions. As part of our
business strategy, we frequently evaluate strategic opportunities available to
us and expect to make acquisitions of, or significant investments in, businesses
that offer complementary products and technologies. Any future acquisitions or
investments would, expose us to the risks commonly encountered in acquisitions
of businesses. Future acquisitions of complementary technologies, products or
businesses will result in the diversion of management's attention from the
day-to-day operations of our business and the potential disruption of our
ongoing business. Additionally, such acquisitions may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies. Future acquisitions may also result in
dilutive issuances of equity securities, the incurrence of debt and amortization
expenses related to goodwill and other intangible assets. Our failure to
successfully manage future acquisitions may harm our business and financial
results.
The Company's stock price is extremely volatile. The trading price of our common
stock is subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant orders, changes in
earning estimates by analysts, announcements of technological innovations or new
products by us or our competitors, general conditions in the software and
computer industries and other events or factors. In addition, the stock market
in general has experienced extreme price and volume fluctuations which have
affected the market price for many companies in industries similar or related to
ours and which have been unrelated to the operating performance of these
companies. These market fluctuations may decrease the market price of our common
stock.
Some provisions in our certificate of incorporation and our bylaws could delay
or prevent a change in control. Our Board of Directors is authorized to issue up
to 10,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further approval by our stockholders. The preferred stock
could be issued with voting, liquidation, dividend and other rights superior to
those of the common stock. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of our outstanding voting stock. We have
instituted a classified Board of Directors in our Amended and Restated
Certificate of Incorporation. We have also implemented a Share Purchase Plan (or
"Rights Plan") under which all stockholders of record as of February 24, 1999
received rights to purchase shares of a new series of preferred stock. The
rights are exercisable only if a person or group acquires 20% or more of our
common stock or announces a tender offer for 20% or more of the common stock.
These provisions and certain other provisions of our Amended and Restated
Certificate of Incorporation and certain provisions of our Amended and Restated
Bylaws and of Delaware law, could delay or make more difficult a merger, tender
offer or proxy contest.
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EXECUTIVE OFFICERS
As of March 1, 2001, the executive officers of the Company and their ages are as
follows:
NAME AGE POSITION
Jeffrey A. Miller 50 Chairman and Chief Executive Officer
David DeWalt 36 President and Chief Operating Officer
Bob L. Corey 49 Executive Vice President and Chief Financial Officer
Russell A. Harris 45 Executive Vice President, Field Operations
Howard I. Shao 45 Co-Founder and Chief Technology Officer
Jeffrey A. Miller became Chairman of the Board of the Company in January 2001.
He has served as the Company's Chief Executive Officer and member of the Board
of Directors since July 1993. From July 1993 to January 2001 he was also
President of the Company. Mr. Miller received his M.B.A. and B.S. in Electrical
Engineering and Computer Science from Santa Clara University.
David DeWalt joined Documentum in August 1999 as Executive Vice President and
General Manager, eBusiness Unit. In October 2000, Mr. DeWalt was promoted to the
position of Executive Vice President and Chief Operating Officer and in January
2001, he was promoted to President and Chief Operating Officer. From August 1997
to December 1998 Mr. DeWalt was founding principal and vice president of Eventus
Software, a web content software company, where he was responsible for sales and
marketing, consulting services and support, product management and business
development. Following Eventus' 1998 acquisition by Segue Software, and
ebusiness software company, Mr. DeWalt served as vice president, North American
sales for Segue. From July 1995 to July 1997 Mr. DeWalt held the position of
vice president of sales and marketing at Quest Software, a provider of
performance management solutions, Mr. DeWalt also held various positions in
sales management at Oracle Corporation, a database software company, from August
1989 to July 1995. Mr. DeWalt holds a Computer Science and Electrical
Engineering Degree from the University of Delaware and conducted graduate work
in Finance at the University of California, Berkeley.
Bob L. Corey was appointed Executive Vice President and Chief Financial Officer
in May 2000. Prior to joining Documentum, Mr. Corey was Senior Vice President of
Finance and Administration and Chief Financial Officer for Forte Software, Inc.,
a provider of software development tools and services, from May 1998 to April
2000 and in February 1999 Mr. Corey was elected to the Board of Directors of
Forte. Forte completed a merger with Sun Microsystems, Inc., a computer hardware
and applications company, in October 1999. Mr. Corey was Executive Vice
President and Chief Financial Officer of SyQuest Technology Inc., a provider of
removable storage solutions, from July 1997 to April 1998. Prior to that Mr.
Corey was Vice President and Chief Financial Officer of Primavera
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Systems, a provider of project management software and services for PC's, from
April 1996 to July 1997. From March 1992 to March 1996, Mr. Corey was Executive
Vice President and Chief Financial Officer of MTI Technology Inc., a provider of
storage solutions. Mr. Corey holds a B.A. in Business Administration from
California State University at Fullerton. Mr. Corey joined Arthur Andersen & Co.
after completing college where he earned his certificate as a Certified
Public Accountant.
Russell A. Harris joined the Company as Vice President of Worldwide Sales in
July 1999. In November 1999, Mr. Harris was promoted to the position of
Executive Vice President Field Operations in charge of Worldwide Sales and
Consulting Organizations. Prior to joining the Company, Mr. Harris held a number
of different sales management positions at Electronic Data Systems ("EDS"), a
consulting services company, including Sales Vice President of its Hi-Tech
Business Unit from 1990 to 1999. Mr. Harris holds a B.S. in Accounting from
Indiana University.
Howard I. Shao, a founder of the Company, has served as Chief Technology Officer
since 1999. From 1997 to 1999, Mr. Shao was the Company's Vice President,
Product Development. Prior to that, Mr. Shao was the Company's Vice President,
Research and Development since June 1990. Mr. Shao received his M.B.A. from
Pepperdine University and a B.S. in Computer Science from the Massachusetts
Institute of Technology.
EMPLOYEES
As of December 31, 2000, the Company employed 893 persons, including 339 in
sales and marketing, 126 in its consulting and training services organization,
80 in customer technical support, 205 in research and development and 143 in
finance and administration. Of these, 223 are located in Europe, 29 are located
in Asia Pacific and the remainder is located in North America. The Company's
employees are not represented by a labor union. The Company has experienced no
work stoppages and believes its relationship with its employees is good.
Competition for qualified personnel in the Company's industry is intense. The
Company believes that its future success will depend in part on its continued
ability to attract, hire and retain qualified personnel.
ITEM 2. PROPERTIES
The Company's headquarters, which contain the principal administrative,
engineering, marketing and sales operations, are currently located in two
facilities in Pleasanton, California. The buildings consist of a total of
approximately 225,000 square feet under two leases which expire in May 2005 and
March 2006. The Company also currently leases offices in Atlanta, Georgia;
Bellevue, Washington; Bridgewater, New Jersey; Burlington, Massachusetts;
Chicago, Illinois; Dallas Texas; Fairfax, Virginia; Frankfurt, Germany; Hong
Kong, Hong Kong; Horsham, Pennsylvania; Houston, Texas; Hudson, Ohio; Irvine,
California; Melbourne, Australia; New York, New York; North Easton,
Massachusetts; Novi, Michigan; Saddle Brook, New Jersey; San Francisco,
California; Singapore, Singapore; Taipei, Taiwan; Tokyo, Japan; Uxbridge, UK;
and Yeongdeungpo-ku, Korea. These smaller offices currently house various sales,
marketing and customer service activities.
The Company believes its current facilities are sufficient to support the
Company's projected growth; however, should the Company grow more rapidly than
anticipated, the Company could experience difficulty finding adequate space for
expansion. Failure to obtain it on reasonably attractive commercial terms may
inhibit the Company's ability to grow, or otherwise adversely effect the
Company's operations and financial results.
ITEM 3. LEGAL PROCEEDINGS
None.
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 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded over-the-counter on the Nasdaq National
Market under the symbol "DCTM". The following table sets forth, for the periods
indicated, the high and low sale prices for the Common Stock as reported by
Nasdaq National Market.
High Low
------ ------
Fiscal 1999:
First Quarter $27.07 7.19
Second Quarter 9.57 4.69
Third Quarter 12.25 6.10
Fourth Quarter 31.75 10.63
Fiscal 2000:
First Quarter $47.88 $24.19
Second Quarter 44.69 19.72
Third Quarter 49.16 21.82
Fourth Quarter 59.38 32.88
The trading price of the Company's Common Stock is subject to wide fluctuations
in response to quarterly variations in operating results, announcements of new
products by the Company or its competitors, announcements of technological
innovations, as well as other events or factors. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations that
have particularly affected the market price of many high technology companies
and which often have been unrelated to the operating performance of these
companies. These broad market fluctuations may decrease the market price of the
Company's Common Stock.
As of December 31, 2000, the number of common stockholders of record was 201.
The Company believes that the number of beneficial holders of its common stock
is in excess of 6,500.
The Company has never paid any cash dividends on its capital stock and does not
expect to pay any such dividends in the foreseeable future. In addition, an
existing bank credit agreement currently restricts the Company's ability to pay
cash dividends without the bank's consent.
On February 3, 1999, the Board of Directors declared a dividend distribution,
payable to stockholders of record on that date, of one Preferred Share Purchase
Right for each outstanding share of Common Stock (par value $0.001). The Rights
were issued on February 24, 1999, expire 10 years after issuance, and will be
exercisable only if a person or group becomes the beneficial owner of 20% or
more of the Common Stock (such person or group, a "20% holder") or commences a
tender or exchange offer which would result in the offeror beneficially owning
20% or more of the Common Stock. Each Right entitles the registered holder to
buy one one-hundredth of a share of newly issued Series A Junior Participating
Preferred Stock at an exercise price of $200.00 subject to certain adjustments.
Each one one-hundredth of a share of Preferred Shares has designations and
powers, preferences and rights, and the qualifications, limitations and
restrictions which make its value approximately equal to the value of a Common
Share. The Company will generally be entitled to redeem the Rights at $0.001 per
Right at any time prior to the day of the first public announcement of the
existence of a 20% holder. The description and terms of the Rights are set forth
in a Rights Agreement (the "Rights Agreement"), dated as of February 3, 1999
entered into between the Company and BankBoston, N.A., as rights agent (the
"Rights Agent"). The Rights Agreement was filed as an exhibit to the Company's
Current Report on Form 8-K dated February 3, 1999, filed with the SEC.
The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Company's Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired.
On October 18, 2000, the Board of Directors approved a two-for-one stock split
that entitled each stockholder of record at the close of business on November 1,
2000 to receive one additional share for every share of the
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Company's common stock held on that date. Shares resulting from the split were
distributed by the transfer agent on or about November 13, 2000. The Company's
stock reflected the completion of the stock dividend at the opening of the
Nasdaq trading session on November 14, 2000. The stock prices in the table set
forth above have been adjusted to reflect this split.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
(in thousands, except per share data) 2000 1999 1998 1997 1996
-------- --------- --------- -------- -------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
License $117,861 $ 72,007 $ 80,546 $ 54,536 $34,630
Service 79,726 55,957 43,283 21,099 10,672
-------- --------- --------- -------- -------
Total revenue 197,587 127,964 123,829 75,635 45,302
-------- --------- --------- -------- -------
Cost of revenue:
License 7,738 5,497 4,179 2,453 1,923
Service 38,605 32,118 25,684 12,327 6,845
-------- --------- --------- -------- -------
Total cost of revenue 46,343 37,615 29,863 14,780 8,768
-------- --------- --------- -------- -------
Gross profit 151,244 90,349 93,966 60,855 36,534
-------- --------- --------- -------- -------
Operating expenses:
Sales and marketing 84,098 61,486 50,425 35,084 19,909
Research and development 35,340 25,832 18,181 10,986 7,880
General and administrative 23,784 19,549 10,255 5,976 4,114
Acquisition related costs -- -- 2,171 -- --
Purchased in process research
and development -- -- 34,622 -- --
-------- --------- --------- -------- -------
Total operating expenses 143,222 106,867 115,654 52,046 31,903
-------- --------- --------- -------- -------
Income (loss) from operations 8,022 (16,518) (21,688) 8,809 4,631
Interest and other income, net 5,021 3,773 4,395 2,333 2,268
-------- --------- --------- -------- -------
Income (loss) before income tax provision (benefit) 13,043 (12,745) (17,293) 11,142 6,899
Provision for (benefit from) income taxes 4,304 (4,333) 6,231 3,788 2,415
-------- --------- --------- -------- -------
Net income (loss) $ 8,739 $ (8,412) $ (23,524) $ 7,354 $ 4,484
======== ========= ========= ======== =======
Net income (loss) per
basic common share (1), (2) $ 0.25 $ (0.25) $ (0.73) $ 0.25 $ 0.16
======== ========= ========= ======== =======
Shares used in basic per
share computation (1), (2) 35,584 33,382 32,442 28,926 27,580
======== ========= ========= ======== =======
Net income (loss) per diluted
common share (1), (2) $ 0.22 $ (0.25) $ (0.73) $ 0.24 $ 0.15
======== ========= ========= ======== =======
Shares used in diluted per
share computation (1), (2) 39,654 33,382 32,442 30,196 29,468
======== ========= ========= ======== =======
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 43,918 $ 18,286 $ 16,240 $ 14,236 $ 5,369
Short-term investments 59,216 64,258 84,203 78,895 46,803
Working capital 105,041 76,760 97,544 91,697 51,821
Total assets (3) 218,460 169,002 156,195 127,203 74,944
Long-term obligations -- 73 -- -- 211
Stockholders' equity 149,290 110,979 116,813 102,033 59,332
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(1) See Note 8 of Notes to Consolidated Financial Statements for an
explanation of shares used in computing net income (loss) per basic and
diluted shares.
(2) For comparative purposes, the earnings per share results and shares used
to calculate such results for all periods have been revised to reflect a
two-for-one stock split which occurred on November 14, 2000.
(3) Certain prior year balances have been reclassified to conform to current
year's presentation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed herein as well as those discussed under
the caption "Risk Factors". Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's other
reports filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
OVERVIEW
Documentum, which was formed in 1990, develops, markets, and supports an open,
flexible, Internet-scalable content management platform that enables companies
to create, deliver, publish and personalize content in various formats across
ebusiness applications. Documentum's adaptable collaboration and content
management solutions enable corporate developers and Internet Systems
Integrators to implement robust e-business applications with the reliability,
scalability, and interoperability required by today's 24x7 Internet economy.
From its inception through December 1992, the Company's activities consisted
primarily of developing its products, establishing its infrastructure and
conducting market research. The Company shipped the first commercial version of
its Documentum Server product in late 1992, and since then substantially all of
the Company's revenue has been from licenses of its family of internet-scale
content management system products and related services, which include
maintenance and support, training and consulting services. The Company continues
to invest in research and development in order to update its family of products
and expand its market focus to deliver products to support content management
for customers, partners, and employees. In 1999, the Company introduced
Documentum 4i, the next generation open, standards-based content management
platform. This platform allows for the creation, delivery, management and
personalization of all content and the delivery of that content to any
information device, including the Web, cellular phone, pager, fax machine,
printer, CD or PDA device. In 2000 the Company introduced four packaged Editions
based on the Documentum 4i platform. These editions - Web Content Management,
Portal Content Management, B2B Content Management, and Compliance -- offer a
tailored mix of core technology from Documentum 4i that can manage unlimited
volumes of content. The Company expects that license and service revenue from
Documentum 4i and newer product offerings will account for substantially all of
the Company's revenue for the foreseeable future. As a result, the Company's
future operating results are dependent upon continued market acceptance of these
products.
The United States has been experiencing a general decline in economic
conditions. The downturn in general economic conditions has led to reduced
demand for a variety of goods and services, including many technology products.
If conditions continue to worsen, or fail to improve, we could see a significant
decrease in the overall demand for our products and services that could harm our
operating results.
Since inception, the Company has invested significant resources in developing
its software and related solutions, as well as building its sales, services,
marketing, and general administrative organizations. As a result, since
inception the Company's operating expenses have increased in absolute dollar
amounts and are expected to continue to increase.
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RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statements of operations as a percentage of total revenue for the periods
indicated:
Year Ended December 31
---------------------------
2000 1999 1998
---- ---- ----
Revenue:
License 60% 56% 65%
Service 40% 44% 35%
---- ---- ----
Total revenue 100% 100% 100%
---- ---- ----
Cost of revenue:
License 4% 4% 3%
Service 20% 25% 21%
---- ---- ----
Total cost of revenue 24% 29% 24%
---- ---- ----
Gross profit 76% 71% 76%
---- ---- ----
Operating expenses:
Sales and marketing 43% 48% 41%
Research and development 18% 20% 15%
General and administrative 12% 15% 8%
Acquisition and related costs -- -- 2%
Purchased in process research and development -- -- 28%
---- ---- ----
Total operating expenses 73% 83% 94%
---- ---- ----
Income (loss) from operations 3% (12%) (18%)
Interest and other income, net 3% 3% 4%
---- ---- ----
Income (loss) before income tax provision (benefit) 6% (9%) (14%)
Provision for (benefit from) income taxes 2% (3%) 5%
---- ---- ----
Net income (loss) 4% (6%) (19%)
==== ==== ====
As a percentage of related revenue:
Cost of license revenue 7% 8% 5%
Cost of service revenue 48% 57% 59%
Revenue
The Company's revenue is derived from the sale of licenses for its
internet-scale content management solutions and related services, which include
maintenance and support, consulting and training services. Revenue from license
arrangements are recognized upon contract execution, provided all shipment
obligations have been met, fees are fixed or determinable, and collection is
probable. The Company uses the residual method to recognize revenue when a
license agreement includes one or more elements to be delivered at a future date
if evidence of the fair value of all undelivered elements exists. If an
undelivered element of the arrangement exists under the license arrangement,
revenue is deferred based on vendor-specific objective evidence of the fair
value of the undelivered element. If vendor-specific objective evidence of fair
value does not exist for all undelivered elements, all revenue is deferred until
sufficient evidence exists or all elements have been delivered. Allowances for
estimated future returns are provided upon shipment. Amounts billed or payments
received in advance of revenue recognition are recorded as deferred revenue.
Revenue from annual maintenance and support agreements are deferred and
recognized ratably over the term of the contract. Revenue from consulting and
training are deferred and recognized when the services are performed and
collectibility is deemed probable. During 2000, the company has recognized
revenue in accordance with Statement of Position (SOP) 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions. In
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addition, during the fourth quarter of 2000 the company adopted the provisions
of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which explains how the SEC staff believes existing
revenue recognition rules should be applied or analogized to for transactions
not addressed by existing rules. The adoption of SAB 101 did not have a material
impact on the Company's financial position or results of operations. Prior to
2000, the company recognized revenue in accordance with SOP 97-2, in conjunction
with SOP 98-9.
License revenue increased by 64% to $117.9 million in 2000, decreased by 11% to
$72.0 million in 1999, and increased by 48% to $80.5 million in 1998,
representing 60%, 56%, and 65% of total revenue in the respective periods. The
growth in license revenue in 2000, in both absolute dollars and as a percentage
of total revenue, was due to an increase in the number of licenses sold as the
Company rebounded from an overall softness in the market in 1999. In addition,
the Company made a significant investment in the size of its sales organization
in 2000, resulting in a continued penetration of sales to new as well as
existing customers. This increase reflected customer acceptance of Documentum
4i, which was released in the second half of 1999 and expanded the Company's
product offerings into web content management. In 1999, license revenue was
adversely impacted by a general industry slowdown in customer license sales for
enterprise software applications. In addition, the Company experienced a
weakness in customer demand and difficulty in closing large license contracts
with customers in the first half of 1999. The growth in license revenue in 1998
was due to an increase in the number of licenses sold, reflecting increased
acceptance of the Company's EDMS family of products, as well as an increase in
the number of customers who purchased additional product licenses, and the
expansion of the Company's sales organization. The decreases in license revenue
as a percentage of total revenue in both 1999 and 1998 were due to increased
service revenue, as discussed below, as well as an overall decrease in license
revenue due to the industry slowdown. For the years ended December 31, 1999 and
1998 license revenue from Xerox and certain Xerox affiliates, as systems
integrators, accounted for 1% and 12% of total license revenue, respectively.
The loss of a major customer or any reduction or delay in orders by such
customers would have a material adverse effect on the Company's business,
operating results and financial condition. Also, the Company's strategy to
provide customers with whole solutions could result in software licenses being
bundled with services. Therefore, with certain future transactions, the delivery
of services may delay recognition of license revenue.
Service revenue increased by 42% to $79.7 million in 2000, by 29% to $56.0
million in 1999, and by 105% to $43.3 million in 1998, representing 40%, 44%,
and 35% of total revenue in the respective periods. The increase in absolute
dollars was attributable to a larger installed base of customers receiving
ongoing maintenance, training and support services and increases in the
Company's professional services staff in conjunction with the Company's focus to
expand solution offerings to customers. The decrease in service revenue as a
percentage of total revenue in 2000 was primarily due to an overall increase in
license revenue as the Company rebounded from an overall market softness in
1999, as discussed above. The increase in service revenue as a percent of total
revenue in 1999 was mainly due to a decrease in total license revenue as
discussed above.
The Company markets its products through its direct sales force and its indirect
channel partners. While historically the Company has generated the majority of
its revenue from its direct sales force, the Company has also focused on
complementing its direct sales channel with indirect channels, consisting of
systems integrators, distributors, and application service providers. Revenue
from all indirect channel partners comprised 38%, 30%, and 31% of license
revenue in 2000, 1999, and 1998, respectively. Revenue from indirect partners
for any period is subject to significant variations. As a result, the Company
believes that period to period comparisons of indirect revenue are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
International revenue represented 42%, 48%, and 32% of license revenue in 2000,
1999, and 1998, respectively. The decrease in international revenue as a percent
of license revenue in 2000 was primarily due to an overall rise in domestic
license revenue as compared to 1999. The general industry slowdown in 1999
negatively impacted domestic revenue to a greater extent than international
revenue, however, the Company rebounded from that slowdown in 2000. In addition,
in 1999 the Company had an enterprise-wide sale to a single global customer in
the amount of $4.5 million in Europe, which increased international revenue as a
percentage of overall worldwide sales. The Company classifies license revenue as
domestic or international based upon the billing location of the customer. In
many instances, especially with large purchases from multinational companies,
the customer has the right to deploy the licenses anywhere in the world. Thus,
the percentages discussed herein represent where licenses were sold, and may or
may not represent where the products are used. As a result, the Company believes
that period to period comparisons of international revenue are not necessarily
meaningful and should not be relied upon as an indication of future performance.
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Cost of revenue
Cost of license revenue consists primarily of the royalties paid to third-party
vendors, packaging, documentation, production and freight costs. Royalties,
which are paid to third-parties for selected products, include both fixed fees
and variable fees. Cost of license revenue increased by 40% to $7.7 million in
2000, by 31% to $5.5 million in 1999, and by 70% to $4.2 million in 1998,
representing 7%, 8%, and 5% of the related license revenue in 2000, 1999, and
1998, respectively. The fluctuation in cost of license revenue as a percentage
of overall license revenue over the three-year period was related to a continued
shift in the mix of products being sold. Although the Company sold more royalty
bearing products in 2000 than those sold in 1999, the sales of these products
did not grow proportionately to license revenue thus resulting in a decline as a
percentage of overall license revenue. The Company currently carries more third
party products and is selling a greater number of those products than it had in
prior years. Thus, royalty expenses associated with the increase in sales of
third party products have increased over the three-year period. The Company
expects the cost of license revenue to fluctuate in absolute dollar amount and
as a percentage of overall license revenue as the related license revenue
fluctuates.
Cost of service revenue consists primarily of personnel-related costs incurred
in providing consulting services, training to customers, and maintenance
services, which includes telephone support. Cost of services revenue increased
by 20% to $38.6 million in 2000, by 25% to $32.1 million in 1999, and by 108% to
$25.7 million in 1998, representing 48%, 57%, and 59% of the related service
revenue in 2000, 1999, and 1998, respectively. The increase in the cost of
service revenue in absolute dollar amount was a result of increased
personnel-related costs as the Company expanded its consulting, training, and
maintenance operations to support a larger installed customer base, as well as
an increase in solutions offered to customers. The decrease in cost of service
revenue as a percentage of service revenue in 2000 and 1999 was primarily due to
economies of scale realized as certain expenses such as consulting costs grew
proportionately less than consulting revenue. The Company expects the cost of
services revenue to increase in absolute dollar amount as the related service
revenue increases.
Operating expenses
Sales and marketing. Sales and marketing expenses consist primarily of salaries,
benefits, sales commissions and other expenses related to the direct sales
force, various marketing expenses and costs of other market development
programs. Sales and marketing expenses increased by 37% to $84.1 million in
2000, by 22% to $61.5 million in 1999, and by 44% to $50.4 million in 1998,
representing 43%, 48%, and 41% of total revenue for 2000, 1999, and 1998,
respectively. The increase in absolute dollar amount for all periods and as a
percentage of revenue for 1999 was the result of the Company's strategy to
continue to invest in its sales and marketing infrastructure, including an
increase in the number of sales teams and marketing programs over the comparable
period. Additionally, in 1999, costs were incurred in an effort to rebrand the
Company. These costs included the design and development of the Company's new
logo. The decrease in sales and marketing expenses as a percentage of total
revenue in 2000 was primarily due to a significant increase in worldwide
revenue. The Company expects that sales and marketing expense will continue to
increase in absolute dollar amount.
Research and development. Research and development expenses consist primarily of
salaries and benefits for software developers, contracted development efforts
and related facilities costs. Research and development expenses increased by 37%
to $35.3 million in 2000, by 42% to $25.8 million in 1999, and by 65% to $18.2
million in 1998, representing 18%, 20%, and 15% of total revenue in 2000, 1999,
and 1998, respectively. The increase in absolute dollar amount for all periods
and as a percentage of revenue for 1999 reflects the expansion of the Company's
engineering staff and related costs required to support the development of new
products, including Documentum 4i, which was introduced in the second quarter of
1999, localization of Documentum 4i, which began in the second quarter of 2000,
and enhancements to existing products. The decrease in research and development
expenses as a percentage of total revenue in 2000 was primarily due to the
Company's decision to invest in research and development at a slower rate and
invest more heavily in sales and marketing. Based on the Company's research and
development process, costs incurred between the establishment of technological
feasibility and general release have been insignificant and therefore have been
expensed as incurred. The Company expects research and development costs will
continue to increase in absolute dollar amount in order to support continued
development efforts to both existing and new products.
General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, information technology, legal, human
resources and general management as well as outside professional services.
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General and administrative expenses increased by 22% to $23.8 million in 2000,
by 91% to $19.5 million, and by 72% to $10.3 million in 1998, representing 12%,
15%, and 8% of total revenue in 2000, 1999, and 1998, respectively. The increase
in absolute dollar amount for all periods and the increase as a percentage of
revenue in 1999, is primarily due to increased staffing and professional fees
necessary to manage and support the Company's planned growth, as well as
consulting costs associated with changes to the Company's information systems.
The decrease in General and Administrative expenses as a percentage of total
revenue in 2000 was primarily due to economies of scale realized as well as an
overall increase in total revenue. The Company expects general and
administrative expenses to continue to increase in absolute dollar amount in
order to support the growing needs of the Company, but decline as a percentage
of revenue.
Acquisitions and related costs. On January 5, 1998, the Company acquired all the
outstanding shares of WMI, a privately-held company, in exchange for
approximately 192,473 shares of the Company's common stock valued on the
transaction date at $6.7 million. The acquisition was accounted for as a pooling
of interests. WMI was a professional services firm with approximately 35
employees located in Oakland, California specializing in the design, the
development and the implementation of document management systems for the
semiconductor industry. The acquisition of WMI is part of the Company's
strategic plan to add specific domain expertise in targeted vertical industries.
In the first quarter of 1998, the Company recorded merger expenses of $2.2
million, primarily for accounting and legal fees and other related transactions
costs, in connection with the acquisition.
On July 16, 1998, the Company acquired all the outstanding shares of Relevance
Technologies, Inc., a privately held company, in exchange for consideration
totaling approximately $36.5 million, including 578,488 shares of the Company's
common stock. The acquisition was accounted for by the purchase method of
accounting. Relevance was a development stage software company with
approximately 25 employees (as of the date of the acquisition) located in San
Francisco, California specializing in the development of content mining
technology for unstructured information. As of May 31, 1998, Relevance had no
revenue and had gross assets of approximately $3.6 million. The Company recorded
a charge of $34.6 million pursuant to an allocation of the purchase price by an
independent appraiser, as a write-off of acquired research and development
related to Relevance's data mining technology to be completed and integrated
into the Company's family of Documentum products. At the date of acquisition, a
technological feasible prototype of Relevance's product did not exist. The
Company spent $2.4 million in additional research and development during 1998 in
an effort to further develop the technology to produce a commercially viable
product. At the date of acquisition, the only identifiable intangible assets
acquired were the technology under development and the in-place workforce.
Accordingly, essentially all of the excess purchase price over net assets
acquired, except for amounts assigned to net current assets, fixed assets and
workforce-in-place, was assigned to in-process research and development. The
valuation of acquired research and development was prepared using the income
approach and contemplated that sales of products incorporating the Relevance
technology would be $139,000 in 1998, $5.9 million in 1999, $15 million in 2000,
$24.6 million in 2001 and declining thereafter. The Company based revenue
increases upon the historical growth rate of software sales for Documentum
products. Operating costs as a percentage of revenue ranged from 110% to 47% for
the years 1999 through 2001 based on the Company's normal operating margin.
Operating cash flows were reduced by an expected effective tax rate of 35%. Net
cash flows were discounted to their present value at the acquisition. Through
the end of 2000, there was no revenue recognized by the Company attributable to
the Relevance technology.
Interest and other income, net
Interest and other income, net, consists primarily of interest income earned on
the Company's cash and cash equivalents and short term investments, and other
items including foreign exchange gains and losses, the gain on sale of fixed
assets, and interest expense. Interest and other income, net increased by 32% to
$5.0 million in 2000, decreased by 14% to $3.8 million in 1999, and increased by
88% to $4.4 million in 1998. The increase in 2000 is a result of higher average
cash balances and higher average interest rates earned on these cash balances.
The Company has shifted its investment strategy in 2000 from a portfolio
containing predominantly tax-exempt securities to include more higher-yielding,
taxable securities. The decrease in 1999 from 1998 in interest and other income
was primarily due to interest income earned on higher cash and investment
balances in 1998. To date, the Company's international sales have been generally
denominated in U.S. dollars and the Company has not engaged in hedging
activities as the exposure to currency fluctuations has been insignificant. In
the future, as the Company expands its international operations, the Company
expects to have an increased amount of non-U.S. dollar denominated contracts.
Unexpected changes in the exchange rates for these foreign currencies could
result in significant fluctuation in the foreign currency translation gains and
losses in future periods.
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Income taxes
The Company's effective tax rate was 33% in 2000, and 34% in both 1999 and 1998.
The decrease in the Company's effective tax rate is a result of increased
benefit from the Federal Research and Development Credit due to the recent
extension of the credit to June 30, 2004. In 1999, the Company recorded a tax
benefit of $4.3 million, which it believed was fully recoverable for income tax
purposes based on carryback potential against taxes previously paid. To date,
the Company has recovered approximately $3.6 million of that benefit and expects
to recover the remainder in subsequent periods. The effective tax rate for 1998
excludes the effects of the non-deductible write off of in-process research and
development as a result of the acquisition of Relevance and the non-deductible
items related to the acquisition of WMI.
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has financed its operations primarily through the sale
of stock and through cash generated from operations. In February 1996, the
Company completed its initial public offering, selling 2,058,000 shares of its
common stock, and receiving net proceeds of approximately $45 million. In
October 1997, the Company completed a secondary public offering, selling
1,115,700 shares of its common stock, and receiving net proceeds of
approximately $31 million.
The Company's cash, cash equivalents and short-term investments totaled $103.1
million at December 31, 2000 representing 47% of total assets. The Company has
invested its cash in excess of current operating requirements in investment
grade securities. The investments have variable and fixed interest rates and
primarily short-term maturities. In accordance with SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities" such investments are
classified as "available-for-sale."
Net cash provided by operating activities was $15.5 million, $2.7 million, and
$11.5 million in 2000, 1999 and 1998, respectively. For the year ended December
31, 2000 the cash generated by operations was primarily attributable to net
income of $8.7 million, adjusted for depreciation and amortization of $11.0
million, provision for doubtful accounts of $2.4 million, loss on sale of fixed
assets of $0.6 million, an increase in accrued liabilities of $10.5 million,
deferred revenue of $2.8 million and deferred tax asset of $0.3 million, offset
by an increase in accounts receivable of $22.1 million and a decrease in other
current assets of $1.8 million. For the year ended December 31, 1999, the cash
generated by operations was primarily attributable to a net loss of $8.4
million, adjusted for depreciation and amortization of $8.3 million, provision
for doubtful accounts of $0.9 million, an increase in deferred revenue of $8.4
million, accrued liabilities of $8.1 million, and accounts payable of $2.5
million, offset by an increase in accounts receivable of $10.2 million, other
assets of $3.5 million, and deferred tax assets of $3.3 million. For the year
ended December 31, 1998, the cash generated by operations was primarily
attributable to net loss of $23.5 million adjusted for in process research and
development write off of $34.6 million, provision for doubtful accounts of $1.5
million, depreciation and amortization of $5.5 million, increase in accrued
liabilities of $10.3 million, and deferred revenue of $6.2 million, offset by an
increase in accounts receivable of $14.1 million and in other assets of $9.0
million. In 2000 and 1999, capital expenditures were primarily for computer
equipment, office furniture and leasehold improvements related to the new office
facility described below as well as computer software to enhance the Company's
IT infrastructure. In 1998, capital expenditures were primarily for computer
equipment, fixed assets and leasehold improvements acquired in conjunction with
the Company's expansion to new facilities.
On April 15, 1999, the Board of Directors approved the repurchase of up to $20
million of the Company's common stock on the open market or in private
transactions. During 1999, the Company repurchased and retired 696,300
(pre-split) shares of its common stock for approximately $10.1 million.
During 2000, the Company received $24,407,000 and $3,774,000 in proceeds from
employee options exercises and employee stock purchase plan purchases,
respectively.
In August 1999, the Company entered into an unsecured revolving line of credit
agreement with a new bank (the "Facility"). The Facility allows for borrowings
of up to $20 million bearing interest at the Company's option of either: (1) the
bank's prime rate or (2) the LIBOR rate plus 1.50%. This line of credit expires
on July 30, 2001. The Company must comply with certain financial covenants and
conditions as described in the Facility. The Company did not have any borrowings
outstanding under this line of credit as of December 31, 2000.
28
29
In June 1998, the Company signed and made a deposit of $2.5 million to lease
approximately 122,000 square feet and 63,000 square feet in Pleasanton,
California beginning in June 1999 and November 1999, respectively, and expiring
in May 2005 and March 2006, respectively. In January 2000, the Company signed an
amendment to the existing leases, which provides for the rental of an additional
37,138 square feet of space, beginning July 2000 and expiring in March 2006. The
Pleasanton, California space serves as the Company's headquarters and contains
the principal administrative, engineering, marketing and sales facilities. The
Company has made and will continue to make significant capital purchases related
to leasehold improvements and office furniture for new facilities. The Company
currently has no other significant capital spending or purchase commitments
other than normal purchase commitments and commitments under facilities and
capital leases.
In 1999, the Company entered into two capital lease agreements, under a
sale-leaseback arrangement, for the rental of computer equipment in the amount
of $292,000 and $171,000. The lease agreements require quarterly principal and
interest payments in the amount of $37,000 and $22,000, respectively. The leases
have interest rates of 1.66% and 2.605% and maturity dates of July 2001 and
September 2001, respectively. As of December 31, 2000, the Company has made
payments in the amount of $398,000 related to these capital leases and has
recorded the current portion of these capital lease obligations in the amount of
$65,000.
The Company believes that its existing cash, cash equivalents and short-term
investment balances, its available bank financing and the cash flows generated
from operations, if any, will be sufficient to meet its anticipated cash needs
for working capital and capital expenditures for at least the next twelve
months. A portion of the Company's cash could be used to acquire or invest in
complementary businesses or products or obtain the right to use complementary
technologies. The Company periodically evaluates, in the ordinary course of
business, potential investments such as businesses, products or technologies.
See "Risk Factors -- Risks Associated with Acquisitions".
NEW ACCOUNTING STANDARDS
The Company will adopt Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting of Derivative Instruments and Hedging Activities," as amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133," when required, in
the first quarter of fiscal year 2001. As amended, SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company does not expect the adoption of SFAS No. 133, as
amended, to have a material impact on its results of operations or financial
position.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of APB Opinion No. 25 ("FIN 44"). FIN 44 establishes guidance for
the accounting for stock option grants or modifications to existing stock
options awards and is effective for option grants made after June 30, 2000. FIN
44 also establishes guidance for the repricing of stock options and determining
whether a grantee is an employee, for which the guidance was effective after
December 15, 1998 and modifying a fixed option to add a reload feature, for
which the guidance was effective after January 12, 2000. The adoption of FIN 44
did not have a material effect on the financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") staff issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which explains how the SEC staff believes existing revenue
recognition rules should be applied or analogized to for transactions not
addressed by existing rules. The Company adopted the provisions of SAB 101 in
its fourth fiscal quarter of 2000. The adoption of SAB 101 did not have a
material impact on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK -- INTEREST
RATE RISK
As of December 31, 2000 the Company's investment portfolio includes $27.8
million of short-term corporate and municipal bonds which are subject to no
interest rate risk when held to maturity but may increase or decrease in value
if interest rates change prior to maturity. The remaining $31.4 million of
short-term investments are held in short-term securities bearing stated interest
rates and are therefore subject to no interest rate risk. An immediate 10%
change in interest rates would be immaterial to the Company's financial
condition or results of operations.
29
30
The following table details the Company's short-term investments at December 31,
2000:
(in thousands)
Corporate bonds and notes $26,055
U.S. government agencies 13,017
Commercial paper 9,440
Medium term notes 8,918
Municipal bonds 1,787
-------
$59,217
=======
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
(i) On September 27, 1999, PricewaterhouseCoopers LLP resigned as the
independent public accountants of Documentum, Inc. (the "Company").
Effective October 22, 1999, the Company appointed Arthur Andersen LLP as
its independent public accountants.
(ii) The report of PricewaterhouseCoopers LLP on the financial statements of
the Company for 1998 contains no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope
or accounting principles.
(iii) The resignation of PricewaterhouseCoopers LLP as the independent public
accountants of the Company was approved by the Company's audit
committee.
(iv) For the year ending December 31, 1998 and through September 27, 1999,
the Company had no disagreements with PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of PricewaterhouseCoopers LLP would have
caused it to make reference to the subject matter of the disagreement in
its report on the financial statements of the Company for such years.
(v) For the year ending December 31, 1998 and through September 27, 1999,
the Company has had no reportable events (as defined in Item 304
(a)(1)(v) of Regulation S-K).
(vi) The Company has provided PricewaterhouseCoopers LLP with a copy of the
disclosures contained in the report and requested that
PricewaterhouseCoopers LLP furnish the Company with a letter addressed
to the Securities and Exchange Commission stating whether or not it
agrees with the statements made in subsections (i), (ii), (iv) and (v)
above. A copy of such letter, dated September 28, 1999, was filed as
Exhibit 16.1 to form 8-K, dated October 1, 1999.
30
31
PART III
Certain information required by Part III is omitted from this Report and will be
included in the Registrant's definitive Proxy Statement which will be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy
Statement") not later than 120 days after the end of the fiscal year covered by
this Report, and certain information included therein is incorporated herein by
reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Executive Officers--See the section titled "Executive Officers" in Part I,
Item 1 hereof.
(b) Directors--The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
The disclosure required by Item 405 of Regulation S-K is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Transactions."
31
32
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form:
PAGE
NUMBER
1. Consolidated Financial Statements
Reports of Independent Public Accountants ............................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............ F-3
Consolidated Statements of Operations for the three years ended
December 31, 2000 ....................................................... F-4
Consolidated Statements of Cash Flows for the three years ended
December 31, 2000 ....................................................... F-5
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 2000 ........................................... F-6
Notes to Consolidated Financial Statements .............................. F-7
2. Financial Statement Schedules for the three years ended December 31, 2000
Schedule II, Valuation and Qualifying Accounts Schedule ................. F-21
All schedules not listed above have been omitted because they are
either not applicable or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits: See accompanying Index to Exhibits. The Exhibits listed in
the accompanying Index to Exhibits are filed or incorporated by
reference as part of this Form .......................................... F-22
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 2000
32
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 30th day of March, 2001.
DOCUMENTUM, INC.
By: /s/ Jeffrey A. Miller
-------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /s/ Bob L. Corey
-------------------------------------
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints jointly and severally, Jeffrey A. Miller
and Bob L. Corey, and each one of them, his or her attorneys-in-fact, each with
the power of substitution, for him or her in any way and all capacities, to sign
any and all amendments to this Annual Report (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.
33
34
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March 2001.
Signature Title
--------- -----
/s/ Jeffery A. Miller Chairman and Chief Executive Officer
- ----------------------------------- (Principal Executive Officer)
JEFFREY A.MILLER
/s/ Bob L. Corey Executive Vice President and Chief Financial Officer
- ----------------------------------- (Principal Financial and Accounting Officer)
BOB L. COREY
/s/ Robert V. Adams Chairman Emeritus
- -----------------------------------
ROBERT V. ADAMS
/s/ Michael Pehl Director
- -----------------------------------
MICHAEL PEHL
/s/ Gary Banks Director
- -----------------------------------
GARY BANKS
/s/ Geoffrey A. Moore Director
- -----------------------------------
GEOFFREY A. MOORE
/s/ John Hamm Director
- -----------------------------------
JOHN HAMM
34
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of Documentum, Inc.
We have audited the accompanying consolidated balance sheets of Documentum, Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, cash flows and stockholders'
equity for the years then ended. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Documentum, Inc. and subsidiaries as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
January 23, 2001
F-1
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Documentum, Inc.
In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity and of cash flows of Documentum, Inc. and its subsidiaries
present fairly, in all material respects, the results of their operations and
their cash flows for the year ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 20, 1999
F-2
37
DOCUMENTUM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
(in thousands, except per share data) 2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 43,918 $ 18,286
Short-term investments 59,217 64,258
Accounts receivable, net of allowances of $2,535
and $1,829, respectively 57,156 37,492
Other current assets 13,920 14,674
--------- ---------
Total current assets 174,211 134,710
Property and equipment, net 35,667 28,030
Other assets 8,582 6,262
--------- ---------
$ 218,460 $ 169,002
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,751 $ 5,645
Accrued liabilities 42,281 33,783
Deferred revenue 21,073 18,290
Current portion of capital lease obligation 65 232
--------- ---------
Total current liabilities 69,170 57,950
--------- ---------
Long-term capital lease obligation -- 73
--------- ---------
Commitments (Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.001 par value; 200,000 shares authorized;
36,847 and 33,680 shares issued and outstanding, respectively 37 17
Additional paid-in capital 168,733 138,546
Accumulated other comprehensive loss (702) (67)
Accumulated deficit (18,778) (27,517)
--------- ---------
Total stockholders' equity 149,290 110,979
--------- ---------
$ 218,460 $ 169,002
========= =========
See accompanying notes to consolidated financial statements.
F-3
38
DOCUMENTUM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------
(in thousands, except per share data) 2000 1999 1998
--------- --------- ---------
Revenue:
License $ 117,861 $ 72,007 $ 80,546
Service 79,726 55,957 43,283
--------- --------- ---------
Total revenue 197,587 127,964 123,829
--------- --------- ---------
Cost of revenue:
License 7,738 5,497 4,179
Service 38,605 32,118 25,684
--------- --------- ---------
Total cost of revenue 46,343 37,615 29,863
--------- --------- ---------
Gross profit 151,244 90,349 93,966
--------- --------- ---------
Operating expenses:
Sales and marketing 84,098 61,486 50,425
Research and development 35,340 25,832 18,181
General and administrative 23,784 19,549 10,255
Acquisition and related costs -- -- 2,171
Purchased in process research and development -- -- 34,622
--------- --------- ---------
Total operating expenses 143,222 106,867 115,654
--------- --------- ---------
Income (loss) from operations 8,022 (16,518) (21,688)
Interest and other income, net 5,021 3,773 4,395
--------- --------- ---------
Income (loss) before income tax provision (benefit) 13,043 (12,745) (17,293)
Provision for (benefit from) income taxes 4,304 (4,333) 6,231
--------- --------- ---------
Net income (loss) $ 8,739 $ (8,412) $ (23,524)
========= ========= =========
Basic earnings (loss) per share $ 0.25 $ (0.25) $ (0.73)
========= ========= =========
Diluted earnings (loss) per share $ 0.22 $ (0.25) $ (0.73)
========= ========= =========
Shares used to compute basic earnings (loss) per share 35,584 33,382 32,442
========= ========= =========
Shares used to compute diluted earnings (loss) per share 39,654 33,382 32,442
--------- --------- ---------
See accompanying notes to consolidated financial statements.
F-4
39
DOCUMENTUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
(in thousands) 2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 8,739 $ (8,412) $ (23,524)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Loss (gain) on sale of fixed assets 559 (143) --
Depreciation and amortization 10,997 8,330 5,543
Provision for doubtful accounts 2,408 891 1,459
In process research and development write-off -- -- 34,622
Deferred tax asset (329) (3,297) (1,236)
Changes in assets and liabilities:
Accounts receivable (22,072) (10,206) (14,088)
Other current assets and other assets 1,787 (3,490) (8,963)
Accounts payable 106 2,469 1,119
Accrued liabilities 10,517 8,136 10,313
Deferred revenue 2,783 8,368 6,237
--------- --------- ---------
Net cash provided by operating activities 15,495 2,646 11,482
--------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments (262,204) (84,118) (104,661)
Sales of short-term investments 267,245 104,064 99,352
Purchases of property and equipment (19,188) (22,791) (8,326)
Cash used in acquisition -- -- (1,461)
Purchase of long-term investments (3,024) -- --
--------- --------- ---------
Net cash used by investing activities (17,171) (2,845) (15,096)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock 28,181 12,122 5,575
Repurchases of common stock -- (10,063) --
Proceeds on capital lease obligations, net -- 305 --
Payments on capital lease obligations (240) -- --
--------- --------- ---------
Net cash provided by financing activities 27,941 2,364 5,575
--------- --------- ---------
Effect of exchange rate on changes in cash (635) (119) 43
--------- --------- ---------
Net increase in cash and cash equivalents 25,630 2,046 2,004
Cash and cash equivalents at beginning of year 18,286 16,240 14,236
--------- --------- ---------
Cash and cash equivalents at end of year $ 43,916 $ 18,286 $ 16,240
========= ========= =========
Supplemental schedule of cash flow information:
Interest paid $ 12 $ 69 $ 26
Income tax (refund) paid $ (1,592) $ 500 $ 3,687
See accompanying notes to consolidated financial statements.
F-5
40
DOCUMENTUM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other Total
Common Stock Paid-in Comprehensive Accumulated Stockholders' Comprehensive
(in thousands) Shares Amount Capital Income (Loss) Deficit Equity Income (Loss)
------ ------ --------- ----- -------- --------- --------
Balance as of December 31, 1997 31,206 $ 16 $ 96,830 $ 8 $ 5,179 $ 102,033 $ 7,319
========
Stock issued for acquisitions 1,542 1 31,620 -- (760) 30,861
Common stock options exercised 588 -- 4,181 -- -- 4,181
Employee stock purchase plan 86 -- 1,292 -- -- 1,292
Tax benefit-stock option exercises -- -- 1,929 -- -- 1,929
Foreign currency translation
adjustment -- -- -- 44 -- 44 $ 44
Other (8) -- (3) -- -- (3)
Net loss -- -- -- -- (23,524) (23,524) (23,524)
------ ---- --------- ----- -------- --------- --------
Balance as of December 31, 1998 33,414 17 135,849 52 (19,105) 116,813 $(23,480)
========
Repurchases of common stock (1,392) (1) (10,062) -- -- (10,063)
Common stock options exercised 1,294 1 9,173 -- -- 9,174
Employee stock purchase plan 352 0 2,782 -- -- 2,782
Tax benefit-stock option exercises -- -- 638 -- -- 638
Foreign currency translation
adjustment -- -- -- (119) -- (119) $ (119)
Other 12 -- 166 -- -- 166
Net loss -- -- -- -- (8,412) (8,412) (8,412)
------ ---- --------- ----- -------- --------- --------
Balance as of December 31, 1999 33,680 17 138,546 (67) (27,517) 110,979 $ (8,531)
========
Common stock options exercised 2,631 2 24,407 -- -- 24,409
Employee stock purchase plan 546 -- 3,774 -- -- 3,774
Stock split -- 18 (18) 0
Tax benefit-stock option exercises -- -- 2,019 -- 2,019
Foreign currency translation --
adjustment -- -- -- (635) -- (635) $ (635)
Other (10) -- 5 -- -- 5
Net income -- -- -- -- 8,739 8,739 8,739
------ ---- --------- ----- -------- --------- --------
Balance as of December 31, 2000 36,847 $ 37 $ 168,733 $(702) $(18,778) $ 149,290 $ 8,104
====== ==== ========= ===== ======== ========= ========
See accompanying notes to consolidated financial statements.
F-6
41
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF THE COMPANY:
Documentum, Inc. ("Documentum" or the "Company") was incorporated in the state
of Delaware in January 1990. Documentum develops, markets, and supports an open,
flexible, Internet-scalable content management platform that enables companies
to create, deliver, publish and personalize content in various formats across
ebusiness applications. Documentum's adaptable collaboration and content
management solutions enable corporate developers and Internet Systems
Integrators to implement robust e-business applications with the reliability,
scalability, and interoperability required by today's 24x7 Internet economy.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Documentum International, Inc. and Relevance
Technologies, Inc., ("Relevance") in the United States, Nihon Documentum KK, in
Japan, Documentum Software Europe Ltd., in the United Kingdom, and Documentum
GmbH, in Germany. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
Foreign currency
The functional currency of a foreign operation is deemed to be the local
country's currency. Consequently, balance sheet accounts are translated into
U.S. dollars at exchange rates prevailing at balance sheet dates. Revenue, costs
and expenses are translated into U.S. dollars at average rates for the period.
Gains and losses resulting from translation are accumulated as a component of
stockholders' equity. Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of operations and were
not significant during any of the periods presented. To date, the Company has
not engaged in hedging activities.
Deferred revenue
Deferred revenue primarily relates to support agreements which have been paid
for by customers prior to the performance of those services. Generally, the
services will be provided in the next twelve months.
Revenue recognition
The Company's revenue is derived from the sale of licenses for its
internet-scale content management solutions and related services, which include
maintenance and support, consulting and training services. Revenue from license
arrangements are recognized upon contract execution, provided all shipment
obligations have been met, fees are fixed or determinable, and collection is
probable. The Company uses the residual method to recognize revenue when a
license agreement includes one or more elements to be delivered at a future date
if evidence of the fair value of all undelivered elements exists. If an
undelivered element of the arrangement exists under the license arrangement,
revenue is deferred based on vendor-specific objective evidence of the fair
value of the undelivered element. If vendor-specific objective evidence of fair
value does not exist for all undelivered elements, all revenue is deferred until
sufficient evidence exists or all elements have been delivered. Allowances for
estimated future returns are provided upon shipment. Amounts billed or payments
received in advance of revenue recognition are recorded as deferred revenue.
Revenue from annual maintenance and support arrangements are deferred and
recognized ratably over the term of the contract. Revenue from consulting and
training are deferred and recognized when the services are performed and
collectibility is deemed probable. The company recognizes revenue in accordance
with Statement of Position (SOP) 97-2, "Software Revenue Recognition," as
amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions." In
F-7
42
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
addition, during the fourth quarter of 2000 the company adopted the provisions
of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which explains how the SEC staff believes existing
revenue recognition rules should be applied or analogized to for transactions
not addressed by existing rules. The adoption of SAB 101 did not have a material
impact on the Company's financial position or results of operations.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash, short-term investments and accounts
receivable. The Company deposits substantially all of its cash with a single
financial institution.
The Company generally does not require collateral for its accounts receivable
and maintains reserves for potential credit losses. At December 31, 2000 and
1999, no customer comprised 10% or more of accounts receivable.
Short-term investments
The Company's short-term investments, all of which are classified as
available-for-sale, are managed by a single financial institution. At December
31, 2000, the fair value of these short-term investments approximated amortized
cost and mature within the next 12 months. Unrealized and realized gains and
losses have been insignificant for all periods presented. The following table
details the Company's short-term investments at December 31, 2000 and 1999:
(in thousands) December 31,
2000 1999
------- -------
Corporate bonds and notes $26,055 $ 8,960
U.S. government agencies 13,017 16,979
Commercial paper 9,440 --
Medium term notes 8,918 2,807
Municipal bonds 1,787 33,512
Preferred stock -- 2,000
------- -------
$59,217 $64,258
======= =======
Property and equipment
Property and equipment, including leasehold improvements, are recorded at cost.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, three to seven years, or the life of
the lease, whichever is shorter. Depreciation and amortization expense is
included in general and administrative costs and was $10,997,000, $8,330,000 and
$5,543,000 in the accompanying statements of operations for the years ending
December 31, 2000, 1999 and 1998, respectively.
Software development costs
Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards No. 86 ("SFAS
86") requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized cost is then amortized
on a straight-line basis over the estimated product life, or on the ratio of
current revenue to total projected product revenue, whichever is greater. To
date, the period between achieving technological feasibility, which the Company
has defined as the
F-8
43
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
establishment of a working model, and the general availability of such software
has been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs.
Equity-based compensation plans
In accordance with the provisions of SFAS No. 123, the Company has elected to
continue to measure compensation costs for its plans using the intrinsic value
method of accounting for stock issued to employees, in accordance with
Accounting Principles Board Opinion No. 25. However, as required by SFAS No.
123, pro forma disclosures of net income and earnings per share are reflected in
the notes to the financial statements (see Note 9) as if the fair value based
method of accounting was adopted.
Comprehensive income (loss)
Comprehensive income (loss) is comprised of net income (loss) and other
non-owner changes in stockholder's equity, including foreign currency
translation gain/loss and unrealized gains or losses on available-for-sale
marketable securities. The Company's unrealized gains and losses on
available-for-sale marketable securities have been insignificant for all periods
presented.
Reclassifications
Certain prior period balances have been reclassified to conform to current
year's presentation.
New Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company has adopted SAB
101, as amended, as required in the fourth quarter of 2000. The adoption of SAB
101 did not have a material impact on the Company's financial position or
results of operations as of, and for the year ending December 31, 2000.
The Company will adopt Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting of Derivative Instruments and Hedging Activities," as amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133," when required, in
the first quarter of fiscal year 2001. As amended, SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company does not expect the adoption of SFAS No. 133, as
amended, will have a material impact on its results of operations or financial
position.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an
interpretation of APB Opinion No. 25 ("FIN 44"). FIN 44 establishes guidance for
the accounting for stock option grants or modifications to existing stock
options awards and is effective for option grants made after June 30, 2000. FIN
44 also establishes guidance for the repricing of stock options and determining
whether a grantee is an employee, for which the guidance was effective after
December 15, 1998 and modifying a fixed option to add a reload feature, for
which the guidance was effective after January 12, 2000. The adoption of FIN 44
did not have a material effect on the financial statements.
F-9
44
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--BUSINESS ACQUISITIONS:
On January 5, 1998, the Company acquired all the outstanding shares of WMI, a
privately-held company, in exchange for 192,473 shares of the Company's common
stock valued on the transaction date at approximately $6.7 million. The
acquisition was accounted for as a pooling of interests on the date of
acquisition. WMI was a professional services firm with approximately 35
employees located in Oakland, California specializing in the design, development
and implementation of document management systems for the semiconductor
industry. As of December 31, 1997, WMI had $530,000 in total assets. The Company
recorded merger expenses of approximately $2.2 million in connection with the
acquisition in the first quarter of 1998. The $2.2 million primarily consisted
of accounting and legal fees and other related transactions costs.
On July 16, 1998, the Company acquired all the outstanding shares of Relevance,
a privately held company, in exchange for consideration totaling approximately
$36.5 million, including 578,488 shares of the Company's common stock. The
acquisition was accounted for using the purchase method of accounting on the
date of acquisition. Relevance was a development stage software company with
approximately 25 employees located in San Francisco, California specializing in
the development of content mining technology for unstructured information. As of
June 30, 1998, Relevance had no revenue and had gross assets of approximately
$3.6 million. The Company recorded $34.6 million as a charge related to the
write-off of purchased in process research and development. The following are
unaudited pro forma combined results of operations for the Company and Relevance
on the basis that the acquisition had taken place and the related charge, noted
above, was recorded at the beginning of 1998:
Year ended December 31,
----------------------
(in thousands) 1998
----------------------
Total revenue $ 123,829
Net loss ($ 26,293)
NOTE 4--BALANCE SHEET COMPONENTS: (IN THOUSANDS)
December 31,
------------------------
Other current assets: 2000 1999
------- -------
Short-term deferred tax asset $ 6,411 $ 6,270
Prepaid Royalties 2,871 1,835
Miscellaneous other current assets 4,638 6,569
------- -------
$13,920 $14,674
======= =======
December 31,
-----------------------
2000 1999
-------- --------
Property and equipment:
Computer equipment and software $ 39,461 $ 27,969
Office equipment 2,549 2,485
Furniture and fixtures 5,089 3,918
Capital lease assets 484 463
Leasehold improvements and other 17,396 11,510
-------- --------
64,979 46,345
Accumulated depreciation and amortization (29,312) (18,315)
-------- --------
$ 35,667 $ 28,030
======== ========
F-10
45
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31,
--------------------
2000 1999
------- -------
Accrued liabilities:
Compensation & related benefits $22,857 $17,512
Royalties 4,412 2,639
Taxes payable 4,013 3,946
Other current liabilities 10,999 9,686
------- -------
$42,281 $33,783
======= =======
NOTE 5-- CAPITAL LEASE OBLIGATION:
In 1999, the Company entered into two capital lease agreements, under a
sale-leaseback arrangement, for the rental of computer equipment in the amount
of $292,000 and $171,000. The lease agreements require quarterly principal and
interest payments in the amount of $37,000 and $22,000, respectively. The leases
have interest rates of 1.66% and 2.605% and maturity dates of July, 2001 and
September, 2001, respectively. As of December 31, 2000, the Company has made
payments in the amount of $398,000 related to these capital leases and has
recorded the current portion of these capital lease obligations in the amount of
$65,000.
NOTE 6--LINE OF CREDIT:
In August 1999, the Company entered into an unsecured revolving line of credit
agreement with a new bank. The agreement allows for borrowings of up to $20
million bearing interest at the Company's option of either: (1) the bank's prime
rate or (2) the LIBOR rate plus 1.50%. This line of credit expires on July 30,
2001. The Company must comply with certain financial covenants and conditions as
described in the agreement. At December 31, 2000 the Company was in compliance
with its financial covenants. The Company did not have any borrowings
outstanding under this line of credit as of December 31, 2000.
NOTE 7--STOCKHOLDERS' EQUITY:
Stock Split
On October 18, 2000, the Board of Directors approved a two-for-one stock split
that entitled each stockholder of record at the close of business on November 1,
2000 to receive one additional share for every share of the Company's common
stock held on that date. Shares resulting from the split were distributed by the
transfer agent on or about November 13, 2000. The Company's stock reflected the
completion of the stock dividend at the opening of the Nasdaq trading session on
November 14, 2000. All share and per share amounts have been adjusted
retroactively to reflect the split.
Stock Repurchase
On April 15, 1999, the Board of Directors approved the repurchase of up to $20
million of the Company's common stock on the open market or in private
transactions. During 1999, the Company repurchased and retired 696,300 shares of
common stock for approximately $10.1 million. No shares were repurchased during
2000.
Rights Plan
On February 3, 1999, the Company adopted a Share Purchase Plan ("Rights Plan")
under which all stockholders of record as of February 24, 1999 received rights
to purchase shares of a new series of preferred stock. The rights will
F-11
46
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
be exercisable only if a person or group acquires 20% or more of the Company's
common stock or announces a tender offer for 20% or more of the common stock. If
a person acquires 20% or more of the Company's common stock, all rightsholders
except the purchaser will be entitled to acquire the Company's common stock at a
50% discount. The Company's Board of Directors may redeem the rights prior to
the time a person acquires more than 20% of the Company's common stock.
NOTE 8 -- BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share is computed using the weighted average number
of shares of common stock. Diluted net income (loss) per share is computed using
the weighted average number of shares of common stock and common equivalent
shares outstanding during the period. Common equivalent shares consist of stock
options (using the treasury stock method). Common equivalent shares are excluded
from the computation if their effect is anti-dilutive.
The following is a reconciliation of the computation for basic and diluted net
income (loss) per share:
Year Ended December 31,
--------------------------
(in thousands, except per share data) 2000 1999 1998
------ ------ ------
Net income (loss) $ 8,739 $(8,412) $(23,524)
======= ======= =======
Shares calculation
Weighted average basic shares outstanding 35,584 33,382 32,442
Dilutive options 4,070 -- --
Total shares used to compute ------- ------- -------
diluted income (loss) per share 39,654 33,382 32,442
------- ------- -------
Income (loss) per basic share $ 0.25 $ (0.25) $ (0.73)
======= ======= =======
Income (loss) per diluted share $ 0.22 $ (0.25) $ (0.73)
======= ======= =======
Options to purchase 636,150, 6,835,258 and 2,615,470 shares of common stock at
prices ranging from $34.86 to $59.38, $0.16 to $26.72 and $0.16 to $29.82 per
share were outstanding as of December 31, 2000, 1999 and 1998, respectively, but
were excluded from the computation if either the option's exercise price was
greater than the average market price of the common shares or inclusion of such
options would have been anti-dilutive.
NOTE 9--STOCK OPTION AND BENEFIT PLANS:
1993 Equity Incentive Plan
In March 1993, the Board of Directors adopted the 1993 Equity Incentive Plan
(the "Plan") providing for the issuance of nonstatutory common stock options to
employees and consultants of the Company. The Board of Directors has amended the
Plan providing for the grant of incentive stock options ("ISOs"), stock bonuses
and stock appreciation rights and allowing for the sale of restricted stock.
Under the Plan a total of 11,600,276 shares have been authorized for issuance.
F-12
47
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options may be granted at an exercise price at the date of grant of not less
than the fair market value per share for ISOs and not less than 85% of the fair
market value per share for nonstatutory stock options, except for options
granted to a person owning greater than 10% of the total combined voting power
of all classes of stock of the Company, for which the exercise price of the
option must be not less than 110% of the fair market value. All options granted
under this plan have a term of 10 years with vesting periods determined by the
Board of Directors.
Options granted under the Plan may be exercisable prior to vesting subject to
repurchase of the shares by the Company at the option exercise price paid per
share with such repurchase right generally lapsing with respect to 25% after
the first year and ratably each month over the remaining thirty-six month
period. In 2000, 1999, and 1998 the Company issued 2,070,000, 901,886, and
2,246,148, options under the Plan, respectively. At December 31, 2000, 161
shares were subject to repurchase by the Company.
Non-employee Directors' Stock Option Plan
In November 1995, the Board of Directors adopted the 1995 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the issuance of up to 700,000 nonstatutory stock options to
non-employee directors of the Company. All options under this plan have a term
of 10 years. Each non-employee director of the Company was granted a
nonstatutory option to purchase 15,000 shares of common stock upon the effective
date of the initial public offering. Each non-employee director of the Company
will automatically be granted a nonstatutory option to purchase 40,000 shares of
common stock upon the date on which such person becomes a director. On June 30,
1997, each non-employee director of the Company was granted an annual option to
purchase 5,000 shares of common stock. The plan provides an additional option to
purchase 15,500 shares of common stock that will be granted on June 30 of each
year, provided such person has served continuously as a non-employee director
for the past 6 months. Options under the Directors' Plan will be granted at the
fair value of the stock and will vest one-third at date of grant and the
remaining options will vest in two equal annual installments.
In 2000, 1999 and 1998, the Company issued 140,000, 100,000, and 115,000 options
under the Directors' Plan, respectively.
1996 Non-officer Equity Incentive Plan
In October 1996, the Board of Directors adopted the 1996 Non-Officer Equity
Incentive Plan (the "Incentive Plan") providing for the issuance of either
nonstatutory common stock options, stock bonuses, or rights to purchase
restricted stock to employees and consultants of the Company. This plan
explicitly excludes directors and employees serving as officers of the Company.
Under the Incentive Plan, a total of 11,570,000 shares have been authorized for
issuance.
Options may be granted at an exercise price at the date of grant of not less
than 85% of the fair market value per share as determined by the Board of
Directors. Options granted under the Incentive Plan are exercisable only upon
vesting. All options under this plan have a term of 10 years with vesting
periods determined by the Board of Directors.
In 2000, 1999 and 1998, the Company issued 4,485,350, 5,045,140, and 6,459,916
options under the Incentive Plan, respectively.
1996 Relevance Technologies Stock Plan
Upon the acquisition of Relevance, the Company's Board of Directors adopted
Relevance's stock option plan, which was in existence at the time of purchase.
The Relevance Plan provides for the issuance of either nonstatutory common stock
options, stock bonuses, or rights to purchase restricted stock to current
employees of the Company
F-13
48
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
who are former employees of Relevance. Relevance stock options outstanding at
the time of purchase were converted into options to purchase 73,609 shares of
Documentum common stock.
Options may be granted at an exercise price at the date of grant of not less
than 85% of the fair market value per share as determined by the Board of
Directors. Options granted under the Relevance Plan are exercisable only upon
vesting.
At December 31, 2000, 474 shares of restricted stock purchased under the
Relevance plan were subject to repurchase by the Company.
A summary of activity under all the plans is as follows:
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------- --------------
Outstanding as of December 31, 1997 5,528,636 $12.66
Granted 8,821,064 $15.36
Exercised (587,350) $ 5.67
Canceled (6,240,120) 18.39
----------
Outstanding as of December 31, 1998 7,522,230 $11.36
Granted 6,047,026 $ 8.15
Exercised (1,293,656) $ 7.06
Canceled (2,449,126) $11.15
----------
Outstanding as of December 31, 1999 9,826,474 $10.03
Granted 6,695,350 $31.65
Exercised (2,631,144) $ 9.27
Canceled (1,225,917) $15.67
----------
Outstanding as of December 31, 2000 12,664,763 $15.80
==========
On October 9, 1998, holders of stock options under the Plan, the Incentive Plan
and the Relevance Plan were granted the opportunity to exchange previously
granted options for new stock options exercisable at $24.625 per share, the fair
market value on the date of exchange. The remaining original terms of the
options were not changed. Options to purchase 2,890,543 shares were exchanged.
At December 31, 2000, options to purchase 3,846,024 shares were vested and
1,944,856 shares were available for future grant under all the plans.
F-14
49
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information regarding stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- --------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Range of Exercise Prices 2000 Life (Years) Price 2000 Price
- ------------------------ -------------- ----------- -------- -------------- --------
$ 0.5000 - $ 0.5000 5,100 4.07 $ 0.5000 5,100 $ 0.5000
$ 0.5700 - $ 6.2815 1,743,881 8.02 5.9086 1,384,468 5.8447
$ 6.3440 - $11.8125 1,474,188 8.34 8.7557 467,343 8.8032
$11.8750 - $12.3125 2,345,190 6.85 12.3048 1,590,603 12.3047
$12.4375 - $24.1875 1,427,669 8.89 19.8840 273,510 18.6597
$24.4690 - $27.1955 1,416,285 9.35 26.3426 5,000 25.3508
$27.4375 - $28.6250 1,293,000 9.29 27.8215 -- --
$29.2500 - $34.3750 536,500 9.44 32.2671 -- --
$34.7190 - $37.6250 1,547,700 9.72 37.2810 100,000 35.0000
$37.6875 - $59.3750 875,250 9.77 43.7858 20,000 44.6875
---------- ---------
$0.5000 - $59.3750 12,664,763 8.60 $21.0799 3,846,024 $10.7655
========== =========
Options outstanding and options exercisable above do not include, 635 shares
subject to repurchase by the Company at December 31, 2000.
Employee Stock Purchase Plan
In November 1995, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan"), which provides for the issuance of a maximum of
2,300,000 shares of common stock. Eligible employees can have up to 10% of their
earnings withheld, up to a maximum of $25,000 per calendar year, to be used to
purchase shares of the common stock on specified dates determined by the Board
of Directors. The price of common stock purchased under the Purchase Plan will
be equal to 85% of the lower of the fair market value of the common stock on the
commencement date of each offering period or the specified purchase date. During
2000, 1999 and 1998, approximately 546,000, 352,000, and 86,000 common shares
were purchased under the Purchase Plan, respectively.
Pro forma stock compensation disclosure
The Company applies the intrinsic value method prescribed by APB No. 25,
"Accounting for Stock Issued to Employees", in accounting for its stock-based
compensation plans. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with the fair value approach set
forth in SFAS 123, the Company's net income (loss) and earnings (loss) per share
would have been adjusted to the pro forma amounts indicated below:
F-15
50
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------------------------------
(in thousands, except per share amounts) 2000 1999 1998
---------- ---------- ----------
Net income (loss):
As reported $ 8,739 $ (8,412) $ (23,524)
Pro forma $ (31,049) $ (24,677) $ (35,150)
Basic earnings (loss) per share:
As reported $ 0.25 $ (0.25) $ (0.73)
Pro forma $ (0.87) $ (0.74) $ (1.08)
Diluted earnings (loss) per share:
As reported $ 0.22 $ (0.25) $ (0.73)
Pro forma $ (0.87) $ (0.74) $ (1.08)
Earnings (loss) per share as reported was computed as described in Note 8.
The fair value of each stock option grant on the date of grant and the fair
value of the shares granted under the Purchase Plan were estimated using the
Black-Scholes option pricing model with the following assumptions:
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
Volatility 123.48% 83.99% 72.77%
Risk-free interest rate 6.23% 5.63% 5.04%
Dividend yield -- -- --
Expected lives 4 4 4
Weighted average fair value $ 34.86 $ 11.52 $ 21.82
The pro forma effects on net income for 2000, 1999 and 1998 are not
representative of the pro forma effect on net income in future years for the
following reasons: i) the number of future shares to be issued under these plans
is unknown and ii) the assumptions do not take into consideration pro forma
compensation expense related to grants made prior to January 1, 1995.
401(k) Plan
In November 1993, the Board of Directors adopted an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the Company's
employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the statutory prescribed limit and have the
amount of such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. Employees
become 25 percent vested in the Company contributions after one year of service,
and increase their vested percentages by an additional 25 percent for each year
of service thereafter. The Company has not made any contributions to the 401(k)
Plan.
F-16
51
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--COMMITMENTS:
Operating Leases
The Company is obligated under non-cancelable operating leases for office space
which expire at various times through 2013. Certain leases for office space
provide for scheduled rent increases and contain options for additional space.
Rent expense is recognized ratably over the lease term. Future minimum lease
commitments under these leases are as follows:
(in thousands)
Year ending December 31,
2001 $ 9,820
2002 9,211
2003 9,254
2004 9,371
2005 7,585
Thereafter 8,440
-------
$53,681
-------
Total rent expense was approximately $7,766,000, $5,628,000, and $3,845,000, for
the years ended December 31, 2000, 1999, and 1998, respectively.
NOTE 11--INCOME TAXES:
The provision (benefit) for income taxes for the years ended December 31, 2000,
1999 and 1998 is as follows:
Year Ended December 31,
-----------------------------------
(in thousands) 2000 1999 1998
Current:
Federal $ 1,545 $(3,064) $ 5,021
State 428 252 1,421
Foreign 2,699 1,569 1,230
------- ------- -------
4,672 (1,243) 7,672
------- ------- -------
Deferred:
Federal (175) (1,984) (1,325)
State (193) (1,106) (116)
------- ------- -------
(368) (3,090) (1,441)
------- ------- -------
$ 4,304 $(4,333) $ 6,231
======= ======= =======
The components of income (loss) before provision for (benefit from) income taxes
are as follows:
Year Ended December 31,
-------------------------------------
(in thousands) 2000 1999 1998
-------- -------- --------
Domestic income (loss) $ 6,312 $(16,063) $(20,655)
Foreign income 6,731 3,318 3,362
-------- -------- --------
Income (loss) before provision for (benefit from) income taxes $ 13,043 $(12,745) $(17,293)
======== ======== ========
F-17
52
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax provision is reconciled to the amount computed using the federal
statutory rate as follows:
Year Ended December 31,
--------------------------------------
(in thousands) 2000 1999 1998
-------- -------- --------
Federal statutory tax provision $ 4,565 $ (4,461) $ (6,052)
State taxes, net of federal benefit 85 (855) 808
Change in valuation allowance -- 416 --
Foreign taxes - rate differential/unbenefited taxes 666 649 53
Foreign sales corporation benefit -- -- (239)
Tax exempt interest (312) (591) (574)
Purchased in process research and development -- -- 12,446
Other (700) 509 (211)
-------- -------- --------
$ 4,304 $ (4,333) $ 6,231
-------- -------- --------
The Company provides a valuation allowance for deferred tax assets when it is
more likely than not, based on available evidence, that some portion or all of
the deferred assets will not be realized. The net valuation allowance increased
by $21,836,000 in 2000. The increase is primarily attributable to net operating
loss carryforwards and tax credit carryforwards resulting from the tax benefit
associated with employee stock plans. The majority of the valuation allowance,
if realizable, will be credited to additional paid-in capital and will not be
available to offset future provision for income taxes. The significant
components of the Company's deferred tax assets are $6,411,000 and $6,270,000 in
other current assets as of December 31, 2000 and 1999, respectively and
$2,234,000 and $2,046,000 in other assets as of December 31, 2000 and 1999,
respectively are detailed as follows:
Year Ended December 31,
-----------------------
(in thousands) 2000 1999
-------- --------
Deferred tax assets:
Reserves and accruals $ 5,014 $ 4,325
Tax credit & loss carryforwards 28,108 6,632
-------- --------
Total deferred assets 33,122 10,957
Valuation allowance - provision for income taxes (416) (416)
Valuation allowance - equity (24,061) (2,225)
-------- --------
Total net deferred tax assets $ 8,645 $ 8,316
======== ========
The remaining federal net operating loss carryforwards of $60,835,000 will
expire beginning in the year 2019 and federal tax credit carryforwards of
$1,764,000 will expire beginning in the year 2012.
NOTE 12--SEGMENT INFORMATION
The Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services, geographic areas and
significant customers. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision maker is the Chief Executive Officer of the
Company.
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53
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's management considers its business activities to be focused on the
license of its products and related services to customers. Since management's
primary form of internal reporting is aligned with the offering of products and
services, the Company believes it operates in these two segments.
Internationally, the Company markets and supports its products and services
primarily through its subsidiaries and various distributors. Service revenue
consists of customer maintenance and consulting and training services. Revenues
are generally attributed to geographic areas based on the country in which the
customer is domiciled. Maintenance revenue, however, is currently recorded in
its entirety in North America. In 2000, 1999, and 1998, no one customer
accounted for more than 10% of total revenues. Long-lived assets are attributed
to geographic areas based on the country where the assets are located.
The following table presents a breakdown of revenue and long-lived assets by
geographic region for years ended December 31, 2000, 1999 and 1998:
For the year ended December 31, 2000
License Service Total Long-Lived
(in thousands) Revenue Revenue Revenue Assets
North America $ 70,282 $ 67,302 $ 137,584 $ 31,785
Europe 41,560 11,920 53,480 2,892
Asia/Pacific 2,483 504 2,987 990
Other 3,536 -- 3,536 --
--------- --------- --------- ---------
Total $ 117,861 $ 79,726 $ 197,587 $ 35,667
========= ========= ========= =========
For the year ended December 31, 1999
License Service Total Long-Lived
(in thousands) Revenue Revenue Revenue Assets
North America $ 37,906 $ 47,205 $ 85,111 $ 24,462
Europe 29,363 8,727 38,090 3,351
Asia/Pacific 3,867 25 3,892 217
Other 871 -- 871 --
--------- --------- --------- ---------
Total $ 72,007 $ 55,957 $ 127,964 $ 28,030
========= ========= ========= =========
For the year ended December 31, 1998
License Service Total Long-Lived
(in thousands) Revenue Revenue Revenue Assets
North America $ 58,506 $ 35,448 $ 93,954 $ 9,873
Europe 22,050 7,835 29,885 3,553
Asia/Pacific -- -- -- --
Other (10) -- (10) --
--------- --------- --------- ---------
Total $ 80,546 $ 43,283 $ 123,829 $ 13,426
========= ========= ========= =========
NOTE 13--RELATED PARTY TRANSACTIONS:
The Company has distribution agreements with Xerox and its affiliated entities,
which provide Xerox, or its affiliates with the non-exclusive rights to sell the
Company's products in specified territories. For the years ended December 31,
1999 and 1998, the Company recognized license revenue from Xerox and its
affiliated entities of $738,000 and $9,573,000, respectively, and incurred
expenses primarily for support services provided by Xerox and its affiliated
entities of $64,000 and $8,000, respectively. The net amount due from Xerox and
its affiliated entities
F-19
54
DOCUMENTUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
was $2,920,000 at December 31, 1999. As of December 31, 1998, Xerox owned
approximately 10% of the Company's outstanding common shares; however, on
September 29, 1999, Xerox sold a majority of its holdings and on October 6,
1999, Xerox completely divested all of their remaining holdings in the Company
and is, therefore, no longer considered a related party for fiscal year 2000.
NOTE 14-- UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA:
Summarized quarterly supplemental consolidated financial information for 2000
and 1999 is as follows:
(in thousand, except Quarter ended
per share date; unaudited) -------------------------------------------------------
March 31, June 30, September 30, December 31,
-------- -------- ------------ -----------
2000
Total revenue $ 42,172 $ 44,720 $ 51,710 $ 58,985
Gross profit 31,809 33,809 39,792 45,834
Operating income (loss) (287) 850 2,730 4,729
Net Income 332 1,518 2,569 4,320
Basic earnings per share $ 0.01 $ 0.04 $ 0.08 $ 0.12
Diluted earnings per share $ 0.01 $ 0.04 $ 0.06 $ 0.11
1999
Total revenue $ 24,005 $ 29,230 $ 33,776 $ 40,953
Gross profit 15,252 19,901 24,694 30,502
Operating loss (7,677) (5,321) (2,918) (602)
Net income (loss) (4,429) (2,742) (1,392) 151
Basic earnings (loss) per share $ (0.13) $ (0.08) $ (0.04) $ 0.00
Diluted earnings (loss) per share $ (0.13) $ (0.08) $ (0.04) $ 0.00
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55
SCHEDULE II
Documentum, Inc.
Valuation and Qualifying Schedule
Balance at Additional Write-Offs
Beginning of Charges to and Other Balance at
Classification Period Operations Deductions End of Period
- -------------------------- ------------ ----------- ----------- -------------
Allowance for doubtful
accounts, year ended:
December 31, 1998 $ 2,537,000 $ 1,459,000 $(1,500,000) $ 2,496,000
=========== =========== =========== ===========
December 31, 1999 $ 2,496,000 $ 891,000 $(1,558,000) $ 1,829,000
=========== =========== =========== ===========
December 31, 2000 $ 1,829,000 $ 2,408,000 $(1,702,000) $ 2,535,000
=========== =========== =========== ===========
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56
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(6)2.1 Agreement and Plan of Merger and Reorganization, dated as of July
16, 1998, among Registrant, RTI Acquisition Corporation and
Relevance Technologies, Inc.
(1)3.1 Registrant's Amended and Restated Certificate of Incorporation.
(6)3.2 Registrant's Amendment to Amended and Restated Certificate of
Incorporation.
(8)3.3 Registrant's Certificate of Designation of Series A Junior
Participating Preferred Stock.
(2)3.4 Registrant's Amended and Restated Bylaws.
(7)3.5 Registrant's Amendment to Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
(2)4.2 Specimen stock certificate.
(6)4.3 Registration Rights Agreement, dated July 16, 1998 between the
Registrant and certain stockholders.
(8)4.4 Rights Agreement dated as of February 3, 1999 among Registrant and
BankBoston, N.A.
(6)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory Stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(7)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated September 9, 1995, between the
Registrant and Sunol Center Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(7)10.10 Industrial Real Estate Lease, dated June 22, 1998, between the
Registrant and
Patrician Associates, Inc.
Y(3)10.11 Services Partner Agreement, dated April 1, 1996,
between the Registrant and Xerox Corporation.
(6)10.12 Registrant's 1996 Non-Officer Equity Incentive Plan as amended.
(5)10.13 Lease agreement between Registrant and Britannia Hacienda IV Limited
Partnership.
(9)16.1 Letter from Pricewaterhouse Coopers LLP dated September 28, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Independent Accountants.
27.1 Financial Data Schedule.
Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1,
as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(6) Filed as an exhibit to Registrant's Registration Statement on Form S-3
(333-59331).
(7) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended June 30, 1998 and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's current report on Form 8-K dated
February 3, 1999.
F-22
57
(9) Filed as an exhibit to Registrant's current report on Form 8-K dated October
1, 1999.
F-23