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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended November 30, 2000
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Comnmission File Number: 000-26579
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TIBCO SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0449727
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3165 Porter Drive, Palo Alto, CA 94304
(Address of principal executive offices) (Zip Code)
(650) 846-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value per share
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of February 9, 2001, there were 195,964,971 shares of the Registrant's
Common Stock outstanding, and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on The Nasdaq National Market on February 9, 2001) was approximately
$2,077,240,276 Shares of common stock held by each executive officer and
director and by each entity that owns 5% or more of the outstanding common
stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's definitive Proxy Statement for the 2001
Annual Meeting of Stockholders to be held on April 26, 2001 are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
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TIBCO SOFTWARE INC. FORM 10-K
For the Fiscal Year Ended November 30, 2000
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS...................................................... 3
ITEM 2. PROPERTIES.................................................... 8
ITEM 3. LEGAL PROCEEDINGS............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 9
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS....................................................... 10
ITEM 6. SELECTED FINANCIAL DATA....................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..... 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF TIBCO SOFTWARE INC........ 24
ITEM 11. EXECUTIVE COMPENSATION........................................ 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON
FORM 8-K...................................................... 25
SIGNATURES.............................................................. II-1
EXHIBIT INDEX
2
PART I
ITEM 1. BUSINESS
The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Predictions of future
events are inherently uncertain. Actual events could differ materially from
those predicted in the forward-looking statements as a result of the risks set
forth in the following discussion and, in particular, the risks discussed below
in Item 7 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Factors that May Affect Operating Results."
Overview
We are a leading provider of e-business infrastructure software products
that enable business-to-business, business-to-consumer and business-to-employee
solutions. Our software products enable businesses to link internal operations,
business partners and customer channels in real time. Our software products
allow multiple distinct applications, web sites, databases and other content
sources to be integrated and managed within a common framework. Our products
also enable enterprises to extend their information technology infrastructures
and business processes across the Internet to conduct all forms of electronic
business using the Internet: business-to-business, business-to-consumer and
business-to-employee. Our core technology, known as The Information Bus(TM) or
the TIB(TM), is software that enables enterprises and users to automatically
transmit, receive, filter and personalize digital information in real-time. The
Information Bus also facilitates real-time, two-way communications between
applications across distributed computer networks and mobile information
devices such as hand-held computers, pagers and digital cellular phones. Our
products are currently in use by over 1,000 companies in diverse markets such
as telecommunications, manufacturing, energy, financial services and Internet
portals.
Driven by accelerating competition and the increasing demands of customers,
many enterprises today are seeking to expand and improve the scope, speed and
efficiency of their business processes by using the Internet to become e-
businesses. A company conducting e-businesses engages in one or more of the
following activities:
Integrates internal systems and business processes. Integrating business
systems is the foundation of e-business. Integrating applications and databases
lets enterprises become more efficient by automating routine business
processes.
Extends its systems and processes to employees, customers and partners. When
an enterprise becomes automated, it is important to maintain the human element
by extending its processes to customers, partners and employees. Portals give
users personalized displays that let them monitor and interact with the
information, processes and transactions that are processed by the systems
connected to the portal.
Connects its systems and processes with other businesses. Another
fundamental aspect of e-business is the connection that it enables between
enterprises. The interconnection and cross-company process automation of B2B
commerce brings buyers and sellers together, enabling the real-time, "straight-
through" processing of transactions.
Our solution allows multiple computer applications and platforms to
communicate in real-time across the Internet and intranets. The TIB technology
facilitates the distribution of information and the integration of business
processes by connecting each application to the network through a single
interface, instead of linking each application directly to all others. The
benefits of the TIB technology are realized through our integrated suite of
software products. These products provide support for a broad range of key e-
business technologies such as eXtensible Markup Language, or XML, an emerging
standard for sharing data over the Internet, and related XML, e-commerce
frameworks, such as RosettaNet.
3
Our objective is to establish the TIB technology as the leading software
solution for e-business infrastructure. The core elements of our strategy
include promoting the widespread adoption of our technology, pursuing a license
driven business strategy, leveraging our vertical market expertise,
capitalizing on the presence of Reuters, our major stockholder, in the
financial services industry, expanding our international presence and
continuing to enhance our technology and products.
The TIB Products
Our product set includes literally dozens of applications and technologies
that solve very fine-grained technical challenges. To present these products as
easily-understandable business solutions, we package them in product lines that
address each of the key challenges mentioned above. All of our products can be
sold as individual pieces to solve specific technical challenges that a
business may be facing, but the emphasis of our sales efforts is to sell them
as a complete solution that solves an entire business problem. Our four product
lines are:
. TIBCO ActiveEnterprise(TM), an Enterprise Application Integration (EAI)
platform that lets applications talk to each other in real-time and
automates business processes.
. TIBCO ActivePortal(TM), a portal infrastructure platform that lets people
interact with systems and information using the Web and wireless devices.
. TIBCO ActiveExchange(TM), a B2B Integration (B2Bi) platform that lets
businesses automate transactions and processes with other companies.
. TIBCO Extensibility(TM), a platform that lets businesses efficiently
manage XML documents and business objects, as well as the rules that
define those documents and objects.
TIBCO ActiveEnterprise
Integrating all of the disparate applications, databases and business
processes that it takes to make an entire company run is complex. Turning a set
of disconnected applications and sub-processes into a cohesive system, however,
can dramatically improve the way a business works. TIBCO ActiveEnterprise does
this by performing the following functions:
Application-to-Application Communications: TIBCO ActiveEnterprise routes
information through businesses by connecting enterprise applications and
information sources. It enables real-time communications among CRM, ERP and e-
procurement applications, databases and mainframes, and even home-grown and
legacy applications and information sources.
Business Process Automation: TIBCO ActiveEnterprise automates complete
business processes by automating electronic tasks and managing the workflow of
tasks performed by people.
System Monitoring and Management: TIBCO ActiveEnterprise lets businesses
remotely monitor and manage hardware and software assets to help them keep
their systems up-and-running 24 hours a day.
TIBCO ActivePortal
By giving customers, suppliers, and employees the ability to interact with
systems through portals, businesses can improve loyalty and retention. TIBCO
ActivePortal lets businesses do this by performing the following functions:
Aggregation of Content & Services: TIBCO ActivePortal aggregates content and
services from a wide range of sources and gives users access to it through a
single convenient interface.
Anytime, Anywhere Access: TIBCO ActivePortal lets users retrieve information
and interact with systems not only through the Web, but also through wireless
devices such as pagers, WAP-enabled phones and PDAs. It also delivers real-time
alerts to users based on predefined events.
4
User Management and Personalization: TIBCO ActivePortal lets companies
control which information and services are available to each user, and lets
each of those users create their own custom interfaces. This enables businesses
to efficiently target communications at individual users, and lets users create
their own most efficient means of interacting with the business.
TIBCO ActiveExchange
The first benefit of B2B integration is improving the execution of existing
business processes. The second benefit is doing entirely new things by
automating interactions with other businesses, making those interactions more
dynamic and collaborative. TIBCO ActiveExchange lets businesses do both by
performing the following functions:
Automating Business Processes with Partners: TIBCO ActiveExchange automates
business processes between companies such as the placement of a purchase order,
the return of excess inventory, or the act of updating a catalog entry. The
basic building block of this functionality is the secure exchange of documents
over the Internet, but the automation of the process by which those documents
are exchanged is where the most benefit is found.
Enhancing Interaction with Partners of All Sizes: TIBCO ActiveExchange lets
businesses establish process-based relationships with other large enterprises,
and also lets them interact with smaller partners in basic business document
exchange-oriented relationships. This lets them efficiently expand their
network of trading partners to include companies of all sizes around the world.
Ensure the Security of B2B Interactions: TIBCO ActiveExchange provides
security mechanisms that help ensure the security of interactions, and supports
many leading standards and data formats.
TIBCO Extensibility
One of the benefits of integrating all of a businesses' applications and
data sources is that it enables the business to more efficiently manage
business documents because business documents are now shared resources on the
network instead of inaccessible objects maintained by specific applications in
their own data format. TIBCO Extensibility gives businesses the tools they need
to efficiently and securely manage these shared and publicly accessible
document formats, including XML and related formats and standards such as CXML,
XML Schema, SOX and RosettaNet.
Services
Professional Services
Our professional services offerings include a wide range of consulting
services such as systems planning, architecture and design, custom development
and systems integration for the rapid deployment of our TIB products. We offer
professional services with the initial deployment of our products, as well as
on an ongoing basis to address the continuing needs of our customers. Our
professional services staff is primarily located in Palo Alto, London and
Sydney, enabling us to perform installations and respond to customer demands
rapidly across the Americas, Europe and Asia. As of November 30, 2000, our
professional services group consisted of 145 employees, including individuals
with domain expertise in the telecommunications, energy and other industries.
Many of our professional services employees have advanced degrees and/or
substantial industry expertise in systems architecture and design. We expect
that the number of service professionals and the scope of the services offered
will increase as we continue to address the expanding e-business infrastructure
needs of large organizations.
We also have relationships with resellers, professional service
organizations and system integrators, including Deloitte Consulting, Accenture,
Cap Gemini/Ernst & Young, KPMG and Sapient, to cooperate in the
5
deployment of our products to customers. These relationships help promote our
TIB products and provide additional technical expertise to enable us to provide
the full range of professional services our customers require to deploy our
products.
Maintenance and Support
We offer an array of software maintenance and support services to our
customers. Our support organization provides services seven days a week,
twenty-four hours a day. We have a worldwide support organization with key
operations centers in Palo Alto, Cambridge (Massachusetts), Chapel Hill, London
and Sydney to ensure global coverage for our customers. These centers provide
the infrastructure for our around-the-clock call centers and hotline support.
We offer a range of support packages that allow our customers to choose the
level of support that fits the needs and budgets of their organizations.
Customers also have access to on-site support which is charged on a time and
materials basis.
Training
We provide training for customer personnel at our main office in Palo Alto
and in training centers in Cambridge (Massachusetts), Oxford and Sydney as well
as at customer locations. We also provide training for our professional
services partners to enhance their effectiveness in integrating our products.
In addition, we develop custom education programs to address the specific needs
of individual customers and partners.
Sales and Marketing
Sales
We currently market our software and services primarily through a direct
sales organization, complemented by indirect sales channels. As of November 30,
2000, our direct sales force included 78 commissioned sales professionals
located in twenty-one U.S. cities and in eighteen locations internationally
across North America, Latin America, Europe, Australia and Asia. We have
established distribution and licensing relationships with several strategic
hardware vendors, database providers, software and toolset developers, systems
integrators and implementation consultants. We have also developed alliances
with key solution providers to target vertical industry sectors, including
energy, telecommunications, manufacturing and Internet portals.
Under the terms of our license agreement with Reuters, we generally cannot
sell our products directly into the financial services market. Accordingly, we
generally sell our products to companies in the financial services industry
through third-party distributors and systems integrators. Reuters is the
preferred distributor of our products in that market. The distribution
relationship with Reuters, a global news and information group, accounted for
15%, 19% and 8% of our total revenue in fiscal 1998, 1999 and 2000,
respectively.
Marketing
We utilize a wide variety of marketing programs which are intended to
attract potential customers and to promote TIBCO Software(TM) and its brand
names. We use a mix of market research, analyst updates, seminars, direct mail,
print advertising, trade shows, speaking engagements, public relations,
customer newsletters, and web site marketing in order to achieve these goals.
Our marketing department also produces collateral material for distribution to
potential customers including presentation materials, white papers, brochures,
and fact sheets. We also host annual user conferences for our customers and
provide support to our channel partners with a variety of programs and training
and product marketing support materials.
6
Product Development
We have been granted a perpetual, royalty-free license to the underlying TIB
messaging technology as it existed on December 31, 1996. We have concentrated
our product development efforts since then both on enhancing this licensed
technology and on developing new products. We expect that most of our
enhancements to existing products and new products will be developed
internally. However, we will evaluate on an ongoing basis the acquisition of
externally developed technologies for integration into our product lines.
We expect that a substantial majority of our research and development
activities will focus on enhancing and extending our TIB products.
Historically, our products development efforts were focused on creating our
core product solutions. Our development focus has now shifted to expanding the
number of available TIB/Adapters,(TM) by which applications are connected to
the TIB environment, and developing additional packaged integration solutions
for specific markets.
As of November 30, 2000, there were 239 employees in our research and
development organization. We expect that we will continue to commit significant
resources to product development in the future. To date, all product
development costs have been expensed as incurred.
Competition
The market for our products and services is extremely competitive and
subject to rapid change. While we offer a comprehensive suite of application
integration solutions, we compete with various providers of more limited
application integration products including IBM, New Era of Networks, Mercator,
SeeBeyond, Iona, Vitria and CrossWorlds. We believe that of these companies,
IBM has the potential to offer the most complete set of products for
application integration. We also compete in certain product areas with e-
business connectivity companies such as WebMethods and other emerging
companies. We expect additional competition from other established and emerging
companies. In addition, we may face pricing pressures from our current
competitors and new market entrants in the future. We believe that the
competitive factors affecting the market for our products and services include
product functionality and features; quality of professional services offerings;
performance and price; ease of product implementation; quality of customer
support services; customer training and documentation; and vendor and product
reputation. The relative importance of each of these factors depends upon the
specific customer environment. Although we believe that our products and
services currently compete favorably with respect to such factors, we may not
be able to maintain our competitive position against current and potential
competitors.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
or competition may intensify and harm our business and operating results. If we
are not successful in developing enhancements to existing products and new
products in a timely manner, achieving customer acceptance or generating higher
average licensing prices, our gross margins may decline, and our business and
operating results may suffer.
Our license agreement with Reuters does not prohibit Reuters from providing
enterprise infrastructure software products and services in competition with
us. Reuters currently sells our products to financial services companies and
creates products based on the TIB technology specifically for financial service
companies. In addition, pursuant to the license agreement, Reuters has access
to the source code for our products. Although Reuters currently does not create
TIB-based products designed for general use in all markets, if Reuters were to
decide to begin providing information integration products and services in our
markets, we would face additional competition for customers in these markets.
7
Proprietary Technology
Our success is dependent upon our proprietary software technology. We
license the patents for the TIB technology underlying some of our TIB products,
including TIB/Rendezvous(TM), from Reuters. Consequently, we can assert
infringement of these products only through Reuters or with the consent of
Reuters. While we have pending patent applications, we do not currently have
any issued patents and rely principally on trade secret, copyright and
trademark laws, nondisclosure and other contractual agreements to protect our
technology. We also believe that factors such as the technological and creative
skills of our personnel, product enhancements and new product developments are
essential to establishing and maintaining a technology leadership position. We
enter into confidentiality and/or license agreements with our employees,
distributors and customers, and limit access to and distribution of our
software, documentation and other proprietary information. Nevertheless, the
steps we have taken may fail to prevent misappropriation of our technology, and
the protections we have may not prevent our competitors from developing
products with functionality or features similar to our products. Furthermore,
third parties might independently develop competing technologies that are
substantially equivalent or superior to our technologies. In addition,
effective copyright and trade secret protection may be unavailable or limited
in certain foreign countries. If we fail to protect our proprietary technology,
our business could be seriously harmed.
Although we do not believe our products infringe the proprietary rights of
any third parties, third parties may nevertheless assert infringement claims
against us or our customers in the future. Furthermore, we may initiate claims
or litigation against third parties for infringement of our proprietary rights
or to establish the validity of our proprietary rights. Litigation, whether
resolved in our favor or not, would cause us to incur substantial costs and
divert our management resources from productive tasks, which could harm our
business. Parties making claims against us could secure substantial damages, as
well as injunctive or other equitable relief which could effectively block our
ability to license our products in the United States or abroad. Such a judgment
could seriously harm our business. If it appears necessary or desirable, we may
seek licenses to intellectual property if we believe that our technology
potentially infringes on such technology. We may not, however, be able to
obtain such licenses on commercially reasonable terms or at all, and the terms
of any offered licenses might not be acceptable to us. The failure to obtain
necessary licenses or other rights could seriously harm our business. As the
number of software products in our industry increases and the functionality of
those products further overlaps, we believe that software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, would probably be time consuming and expensive to defend, and could
seriously harm our business. We are not aware of any currently pending claims
that our products, trademarks or other proprietary rights infringe upon the
proprietary rights of third parties.
"TIBCO", "Information Bus", "TIB", "TIBCO ActiveEnterprise", "TIBCO
ActivePortal", TIBCO ActiveExchange", "TIBCO Extensibility", "TIB/Adapters",
"TIB/Rendezvous" and "TIBCO Software" and the names of our products are our
trademarks or tradenames.
Employees
As of November 30, 2000, we employed 934 persons, including 298 sales and
marketing, 239 in research and development, 129 in finance and administration
and 268 in professional services and technical support. Of our 934 employees,
140 were located in Europe, and 75 in Australia and Asia. We believe that our
relationship with our employees is good.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing and service development
facilities are located in an approximately 92,000 square foot building and an
approximately 96,675 square foot building, each in Palo Alto, California. We
hold these buildings pursuant to leases which expire in 2005 and at the end of
2010, respectively. In addition, we lease field support offices in 41 cities
throughout the world. The field offices range from small executive offices to a
19,448 square foot facility. Lease terms range from month-to-month on
8
certain executive offices to eleven years on certain direct leases. Because our
professional services are generally performed at the client site, field
facilities are generally small. Field facilities are generally used for
periodic meetings, training and administration and by account managers. We have
field facilities in Atlanta, Georgia; Bethesda, Maryland; Brussels, Belgium;
Calgary, Canada; Cambridge, Massachusetts; Chapel Hill, North Carolina;
Charlotte, North Carolina; Chicago, Illinois; Cincinnati, Ohio; Dallas, Texas;
Denver, Colorado; Detroit, Michigan; Dusseldorf, Germany; Houston, Texas;
Irvine, California; Lima, Peru; London, England; Madrid, Spain; Melbourne,
Australia; Memphis, Tennessee; Mexico City, Mexico; Miami, Florida;
Minneapolis, Minnesota; Munich, Germany; New York, New York; Orlando, Florida;
Oslo, Norway; Ottawa, Canada; Paris, France; Philadelphia, Pennsylvania; Rome,
Italy; Rio de Janeiro, Brazil; San Francisco, California; Seattle, Washington;
Singapore, Singapore; Seoul, Korea; Stockholm, Sweden; Sydney, Australia;
Taipei, Taiwan; Tokyo, Japan; Toronto, Canada and Woy Woy, Australia. We are
continually evaluating the adequacy of existing facilities and facilities in
new cities, and we believe that suitable additional space will be available in
the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
9
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our Common Stock has been quoted on The Nasdaq National Market under the
symbol "TIBX" since July 1999. The following table presents, for the periods
indicated, the high and low sale prices per share of our common stock during
the quarters indicated, as reported on The Nasdaq National Market.
High Low
------- ------
First Quarter (from December 1, 1999 to February 29, 2000).. $137.94 $29.13
Second Quarter (from March 1, 2000 to May 31, 2000)......... $147.00 $32.38
Third Quarter (from June 1, 2000 to August 31, 2000)........ $129.00 $59.06
Fourth Quarter (from September 1, 2000 to November 30,
2000)...................................................... $111.38 $31.69
We had 494 stockholders of record as of November 30, 2000.
We have never declared or paid any cash dividends on our common stock, and
we do not anticipate paying any cash dividends in the foreseeable future.
On September 5, 2000, in connection with our acquisition of Extensibility,
Inc., we issued approximately 829,000 shares of our common stock to the
stockholders of Extensibility in exchange for all of the outstanding shares of
capital stock of Extensibility. We believe that the securities issued were
exempt from the registration requirements of the Securities Act by virtue of
Section 3(a)(10) thereof. The terms and conditions of the share exchange were
approved by the Secretary of State of North Carolina after a public hearing
upon the fairness of such terms and conditions.
10
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and notes thereto
included elsewhere in this annual report on Form 10-K. The historical results
presented below are not necessarily indicative of future results.
Eleven Months
Year Ended November 30, Ended Year Ended
---------------------------- November 30, December 31,
2000 1999 1998 1997 1996
-------- -------- -------- ------------- ------------
(in thousands, except per share amounts)
Statement of Operations:
Revenue:
License revenue....... $181,601 $ 56,916 $ 17,495 $ 6,219 $ 6,066
Service and
maintenance revenue.. 70,196 39,524 35,262 29,055 24,249
-------- -------- -------- ------- -------
Total revenue....... 251,797 96,440 52,757 35,274 30,315
Cost of revenue.........
Stock-based
compensation(/1/).... 3,025 1,113 490 460 --
Other cost of
revenue.............. 61,493 36,612 27,682 15,847 19,606
-------- -------- -------- ------- -------
Gross profit............ 187,279 58,715 24,585 18,967 10,709
-------- -------- -------- ------- -------
Operating expenses:
Research and
development..........
Stock-based
compensation(/1/)... 18,525 2,707 971 491 --
Other research and
development......... 57,861 27,478 14,787 9,385 6,576
Sales and marketing...
Stock-based
compensation(/1/)... 33,637 4,281 2,304 1,968 1,098
Other sales and
marketing........... 92,228 33,130 15,242 7,008 2,949
General and
administrative.......
Stock-based
compensation(/1/)... 1,729 1,151 1,299 1,753 1,098
Other general and
administrative...... 18,489 8,229 4,025 3,565 2,077
Acquired in-process
research and
development(/2/)..... 2,260 2,800 -- -- --
Amortization of
goodwill and acquired
intangibles(/2/)..... 10,479 521 -- -- --
-------- -------- -------- ------- -------
Total operating
expenses........... 235,208 80,297 38,628 24,170 13,798
-------- -------- -------- ------- -------
Loss from operations.... (47,929) (21,582) (14,043) (5,203) (3,089)
Interest income and
other, net............. 26,678 2,101 1,092 540 (1,551)
Realized loss in equity
investments............ (1,812) -- -- -- --
-------- -------- -------- ------- -------
Loss before income
taxes.................. (23,063) (19,481) (12,951) (4,663) (4,640)
Provision for income
taxes.................. (1,888) -- -- -- --
-------- -------- -------- ------- -------
Net loss................ $(24,951) $(19,481) $(12,951) $(4,663) $(4,640)
======== ======== ======== ======= =======
Net loss per share:
Basic and diluted..... $ ( 0.14) $ ( 0.19) $ (0.22) $ (0.08)
======== ======== ======== =======
Weighted average
common shares
outstanding(/3/)..... 184,177 104,112 60,033 57,606
======== ======== ======== =======
11
November 30,
--------------------------------- December 31,
2000 1999 1998 1997 1996
-------- -------- ------- ------- ------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents, deposits
held by Reuters and short-term
investments.................... $582,900 $ 89,807 $15,970 $18,318 $ --
Working capital................. 596,303 95,603 18,301 15,168 (2,167)
Total assets.................... 829,215 179,638 36,289 31,046 10,996
Owner's net investment
(liability).................... -- -- -- -- 451
Stockholders' equity............ 729,535 137,918 21,704 17,167 --
- --------
(1) See Notes 2 and 8 of Notes to Consolidated Financial Statements for an
explanation of stock-based compensation.
(2) See Notes 2 and 10 of Notes to Consolidated Financial Statements for an
explanation of acquired in-process research and development and
amortization of goodwill and acquired intangibles.
(3) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of shares used to compute net loss per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below in "Factors That May Affect Operating Results".
The following discussion should be read in conjunction with the consolidated
financial statements and related notes that appear beginning on page F-3.
We are a leading provider of e-business infrastructure software products
that enable business-to-business, business-to-consumer and business-to-employee
solutions. We are the successor to a portion of the business of Teknekron
Software Systems, Inc. Teknekron developed software, known as the TIB
technology, for the integration and delivery of market data, such as stock
quotes, news and other financial information, in trading rooms of large banks
and financial services institutions. In 1992, Teknekron expanded its
development efforts to include solutions designed to enable complex and
disparate manufacturing equipment and software applications--primarily in the
semiconductor fabrication market--to communicate within the factory
environment. Teknekron was acquired by Reuters Group PLC, the global news and
information group, in 1994. Following the acquisition, continued development of
the TIB technology was undertaken to expand its use in the financial services
markets.
In January 1997, our company, TIBCO Software Inc., was established as an
entity separate from Teknekron. We were formed to create and market software
solutions for use in the integration of business information, processes and
applications in diverse markets and industries outside the financial services
sector. In connection with our establishment as a separate entity, Reuters
transferred to us certain assets and liabilities related to our business and
granted to us a royalty-free license to the intellectual property incorporated
into some of our current software products. Reuters also assigned to us at that
time license and service contracts primarily within the high-tech manufacturing
and energy markets, including contracts with NEC, Motorola, Mobil and Chevron.
Our software products enable businesses to link internal operations,
business partners and customer channels in real time. Our software products
allow multiple distinct applications, web sites, databases and other content
sources to be integrated and managed within a common framework. Our products
also enable enterprises to extend their information technology infrastructures
and business processes across the Internet to conduct all forms of electronic
business using the Internet: business-to-business, business-to-consumer and
business-to-employee. Our core technology, known as The Information Bus or the
TIB, is software that enables enterprises and users to automatically transmit,
receive, filter and personalize digital information in real-time. The
Information Bus also facilitates real-time, two-way communications between
applications across distributed computer networks and mobile information
devices such as hand-held computers, pagers and digital cellular phones. Our
products are currently in use by over 1,000 companies in diverse markets such
as telecommunications, manufacturing, energy, financial services and Internet
portals.
During fiscal 1998, we expanded our product development activities and
continued to invest in creating a product marketing organization, engaging in
advertising programs to build our corporate brand identity. We also built our
domestic and international direct sales force and created a general and
administrative infrastructure. During the second half of fiscal 1998, we began
initial shipments of our TIBCO ActiveEnterprise products, to companies such as
PageNet, Philips Medical, Compaq and 3Com. We also formally introduced our
TIBCO.net product and service offering for creating and managing e-business
activities, and generated revenue from Yahoo! and Netscape for enabling their
stock quotation services. During fiscal 1999, we added approximately 200 new
customers for our TIBCO ActiveEnterprise and TIBCO.net products, and we
strengthened our position in our key vertical markets--telecommunication,
Internet portals, manufacturing, energy and financial services. New customers
included AT&T, AltaVista, AOL/Netscape, Procter and Gamble, SAP, Philips,
Enron, Chemdex, FT.com, Ericsson, Siemens, Williams Communications
13
and Sprint. We also established and strengthened strategic relationships with
leading companies aimed at providing complementary business to business e-
commerce and Internet solutions. These companies included Ariba, Cisco Systems,
Oracle, Sun Microsystems, SAP, Yahoo! Portal Software, AvantGo, Deloitte
Consulting, Selectica, i2 Technologies, Siebel Systems, and Sybase. We also
released the TIB/PortalBuilder, a product for the creation and management of
portals. During fiscal 2000, we continued to focus on strengthening our
position in our significant vertical markets and our relationships with major
system integrators such a KPMG, Cap Gemini/ Ernst & Young and Deloitte &
Touche. We also introduced our TIBCO ActiveExchange product suite, which is
used to more dynamically and collaboratively automate interactions among
businesses. In addition, we added more than 300 new customers during fiscal
2000, including such industry leaders as Agilent, El Paso Energy, Schering
Plough, Enron Corporation, and The Limited.
Our revenue in fiscal 1999 and 2000 consisted primarily of license and
product fees from our customers and distributors, including from Reuters
pursuant to our license agreement with it, both of which were primarily
attributable to sales of our TIBCO ActiveEnterprise product suite. In addition,
we receive fees from our customers for providing project integration services.
We also receive revenue from our TIBCO.net customers. Revenue from these
customers is a combination of fixed service charges, a percentage of the
advertising fees generated from their TIBCO.net-enabled web pages and a charge
for each user visit to these web pages. We also receive revenues from our
strategic relationships with business partners who embed our products in their
hardware and networking systems as well as from systems integrators who resell
our products.
We recognize license revenue when a signed contract or other persuasive
evidence of an arrangement exists, the software has been shipped or
electronically delivered, the license fee is fixed or determinable, and
collection of the resulting receivable is probable. When contracts contain
multiple elements wherein vendor specific objective evidence exists for all
undelivered elements, we account for the delivered elements in accordance with
the "Residual Method" prescribed by SOP 98-9. Any maintenance revenue included
in these arrangements is recognized ratably over the term of the arrangement.
Revenue from subscription license agreements, which include software, rights to
future products and maintenance, is recognized ratably over the term of the
subscription period. Revenue on shipments to resellers, which is generally
subject to certain rights of return and price protection, is recognized when
the products are sold by the resellers to the end-user customer.
We recognize service revenue as the services are performed or on the
percentage-of-completion method of accounting, depending on the nature of the
project. Under the percentage-of-completion method, revenue recognized is that
portion of the total contract price equal to the ratio of costs expended to
date to the anticipated final total costs, based on current estimates of the
costs to complete the project. To the extent that these arrangements include
license fees, such fees are recorded as license revenue based on the
percentage-of-completion ratio. If the total estimated costs to complete a
project exceed the total contract amount, indicating a loss, the entire
anticipated loss would be recognized currently.
Our distributors generally pay us negotiated royalties on their sales of our
products. Reuters distributes our products to customers in the financial
services market segment. Through December 2001, Reuters must pay us product
fees based on a percentage of the revenue it derives from the sale of licenses
and maintenance for our products. Under our license agreement with Reuters,
minimum guaranteed product fees were $16 million in calendar 1999 and $18
million in calendar 2000 and are $20 million in calendar 2001. We recognized
$18.3 million in fees from Reuters in fiscal 2000. We will recognize revenue in
the amount of these guaranteed product fees ratably over the contractual
period. In any period where actual product fees exceed the minimum guaranteed
product fees for the year, the actual product fees and cumulative minimum
guaranteed product fees will be recognized as revenue.
14
The following table sets forth, for the periods indicated, certain financial
information as a percentage of total revenue:
Year Ended
November 30,
------------------
2000 1999 1998
---- ---- ----
Revenue:
License revenue....................................... 72% 59% 33%
Service and maintenance revenue....................... 28 41 67
--- --- ---
Total revenue....................................... 100 100 100
--- --- ---
Cost of revenue.........................................
Stock-based compensation.............................. 1 1 1
Cost of revenue....................................... 24 38 52
--- --- ---
Gross profit............................................ 75 61 47
--- --- ---
Operating expenses:
Research and development..............................
Stock-based compensation............................. 8 3 2
Other research and development....................... 23 28 28
Sales and marketing...................................
Stock-based compensation............................. 13 4 4
Other sales and marketing............................ 37 34 29
General and administrative............................
Stock-based compensation............................. 1 1 3
Other general and administrative..................... 7 9 8
Acquired in-process research and development.......... 1 3 --
Amortization of goodwill and acquired intangibles..... 4 1 --
--- --- ---
Total operating expenses............................ 94 83 74
--- --- ---
Loss from operations.................................... (19) (22) (27)
Other income, net....................................... 11 2 2
Realized loss in equity investments..................... (1) -- --
--- --- ---
Net loss before income taxes............................ (9) (20) (25)
Provision for income taxes.............................. (1) -- --
--- --- ---
Net loss................................................ (10%) (20%) (25%)
=== === ===
Results of Operations
Total Revenue
Revenue was $251.8 million, $96.4 million and $52.8 million in fiscal 2000,
1999, and 1998, respectively, representing increases of $155.4 million, or
161%, from fiscal 1999 to fiscal 2000 and $43.7 million, or 83%, from fiscal
1998 to fiscal 1999. Revenue from Reuters accounted for 8%, 19% and 15% of our
total revenue in fiscal 2000, 1999 and 1998 respectively. In fiscal 2000 and
1999, revenue from Reuters of $20.8 million and $18 million, respectively,
consisted primarily of product fees on its sales of our products under our
license agreement with Reuters. In fiscal 1998, revenue from Reuters consisted
primarily of maintenance and consulting fees for services we performed for
Reuters. In fiscal 1998, Cedel Global Services accounted for 17% of total
revenue.
License Revenue
License revenue was $181.6 million, $56.9 million and $17.5 million in
fiscal 2000, 1999 and 1998, respectively. License revenue increased $124.7
million, or 219%, from 1999 to fiscal 2000. This increase
15
was due primarily to the increased volume of sales from a broader suite of
products. License revenue increased $39.4 million, or 225%, from fiscal 1998 to
fiscal 1999. This increase was due primarily to the increased volume of sales
of our TIBCO ActiveEnterprise products. License revenue was 72%, 59% and 33% of
total revenue in fiscal 2000, 1999 and 1998, respectively. The increases in
license revenue as a percentage of total revenue reflect our strategy of
pursuing a license-driven business model, the increasing acceptance of our
products in key vertical markets and the expansion of our relationships with
systems integrators which effectively leverages our direct sales of software
products. We believe that license revenues will grow in absolute dollars and
will increase slightly as a percentage of total revenue in fiscal 2001.
Service and Maintenance Revenue
Service and maintenance revenue was $70.2 million, $39.5 million and $35.3
million in fiscal 2000, 1999 and 1998, respectively, representing increases of
$30.7 million, or 78%, from fiscal 1999 to fiscal 2000 and $4.2 million, or
12%, from fiscal 1998 to fiscal 1999. Service and maintenance revenue was 28%,
41% and 67% of total revenue in fiscal 2000, 1999 and 1998, respectively. These
increases were primarily a result of additional maintenance revenue related to
the growth in license revenue. We believe service and maintenance revenue in
fiscal 2001 as a percentage of total revenue as license revenue continues to
increase as a percentage of total revenue.
Cost of Revenue
Cost of revenue consists primarily of salaries and third party contractor
and associated expenses related to providing project implementation services,
the cost of providing maintenance and customer support services, and royalties.
The majority of our cost of revenue is directly related to our service revenue.
Cost of revenue, excluding stock based compensation charges, was $61.5 million,
$36.6 million and $27.7 million in fiscal 2000, 1999 and 1998, respectively,
representing increases of $24.9 million, or 68%, from fiscal 1999 to fiscal
2000 and $8.9 million, or 32%, from fiscal 1998 to fiscal 1999. Cost of revenue
was 24%, 38% and 52% of total revenue in fiscal 2000, 1999 and 1998,
respectively. The increases in cost of revenue in absolute dollars in fiscal
2000 and 1999 resulted from increased service and maintenance revenue and the
decreases as a percentage of total revenue were due primarily to increases in
license revenue as a percentage of total revenue.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs associated with the development of our TIBCO ActiveEnterprise, TIBCO
ActiveExchange, and TIBCO ActivePortal product suites. Research and development
expenses, excluding stock based compensation charges, were $57.9 million,
$27.5 million and $14.8 million in fiscal 2000, 1999 and 1998, respectively
representing increases of $30.4 million, or 111%, from fiscal 1999 to fiscal
2000 and $12.7 million, or 86%, from fiscal 1998 to fiscal 1999. These
increases were due primarily to increases in our development staff as we
continued to expand the product suites and upgrade the performance of existing
products. Research and development expenses were 23%, 28% and 28% of total
revenue in fiscal 2000, 1999 and 1998, respectively. We believe that continued
investment in research and development is critical to attaining our strategic
objectives and, as a result, expect that spending on research and development
will continue to increase in absolute dollars in fiscal 2001.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel and related
costs of our direct sales force and marketing staff and the cost of marketing
programs, including advertising, trade shows, promotional materials and
customer conferences. Sales and marketing expenses, excluding stock based
compensation charges, were $92.2 million, $33.1 million and $15.2 million in
fiscal 2000, 1999 and 1998, respectively, representing increases of $59.1
million, or 178%, from fiscal 1999 to fiscal 2000 and $17.9 million, or 117%,
from fiscal 1998 to fiscal 1999. These increases resulted primarily from the
continued expansion of our domestic and international direct sales force in
order to sell our expanding suite of products. Sales and marketing expenses
16
were 37%, 34% and 29% of total revenue in fiscal 2000, 1999 and 1998,
respectively. We intend to continue to increase staff in our direct sales
organization and to develop product marketing and branding campaigns and,
accordingly, expect that sales and marketing expenditures will continue to
increase substantially in absolute dollars for fiscal 2001.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including executive, legal,
finance, accounting, human resources and information technology. General and
administrative expenses, excluding stock based compensation charges, were $18.5
million, $8.2 million and $4.0 million in fiscal 2000, 1999 and 1998,
respectively, representing increases of $10.3 million, or 125%, from fiscal
1999 to fiscal 2000 and $4.2 million, or 104%, from fiscal 1998 to fiscal 1999.
These increases were primarily a result of increased staffing and associated
operational costs related to building our general and administrative
infrastructure. We believe that general and administrative expenses will
increase in absolute dollars and remain relatively stable as a percentage of
total revenue for fiscal 2001 as we develop our infrastructure to support a
rapidly growing global company.
Stock-based Compensation
In connection with the grant of stock options to employees and non-employee
directors during fiscal 1998 and 1999, we recorded aggregate unearned
compensation of $22.8 million, representing the difference between the deemed
fair value of our common stock at the date of grant and the exercise price of
such options. Such amount is presented as a reduction of stockholders' equity
and is amortized over the vesting period of the applicable option and is shown
by expense category. We expect to amortize $3.3 million, $1.9 million,
$0.8 million and $0.1 million of unearned stock-based compensation in fiscal
2001, 2002, 2003 and 2004, respectively. Stock-based compensation expense
related to employees and non-employee directors was $5.5 million, $5.7 million
and $4.8 million in fiscal 2000, 1999 and 1998, respectively.
Stock-based compensation expense related to stock options granted to
consultants is recognized as earned using the multiple option method as
prescribed by FASB Interpretation No. 28, and is shown by expense category. At
each reporting date, we re-value the stock-based compensation using the Black-
Scholes option pricing model. As a result, the stock-based compensation expense
will fluctuate as the fair market value of our common stock fluctuates. In
connection with the grant of stock options to consultants prior to the
Company's initial public offering, we recorded stock-based compensation expense
of $34.8 million, $3.5 million and $0.3 million in fiscal 2000, 1999 and 1998,
respectively. As of November 30, 2000, we expect to amortize stock-based
compensation expense of $6.6 million in fiscal 2001, assuming no change in the
underlying value of our common stock.
We recorded aggregate unearned compensation of $34.9 million in connection
with the acquisition of Extensibility Inc. related to unvested options that
were assumed as well as stock that was issued as part of the consideration for
the acquisition, which is being held in an escrow account. This amount is
amortized over the vesting period of the options and the stock, and is shown by
expense category. We expect to amortize $18.8 million, $4.3 million, $0.5
million and $0.1 million of unearned stock compensation related to the
Extensibility acquisition in fiscal 2001, 2002, 2003 and 2004, respectively.
Stock-based compensation expense related to the unvested portion of options
assumed and restricted stock granted in connection with the acquisition of
Extensibility was $11.2 million in fiscal 2000.
In fiscal 2000, the Company recognized $5.4 million as stock compensation
expense related to the employer portion of payroll taxes due as a result of
employee exercise of non qualified stock options.
Acquired In-process Research and Development
Management estimated that $2.3 million of the purchase price of
Extensibility Inc. in fiscal 2000 and $2.8 million of the purchase price of
InConcert, Inc. in fiscal 1999 represented acquired in-process research and
17
development that had not yet reached technological feasibility and has no
alternative future use. Accordingly, these amounts were immediately charged to
expense upon consummation of the acquisitions.
Development projects which had not reached technological feasibility and had
no future alternative uses, were classified as IPRD. The value of IPRD was
determined by estimating the expected cash flows from the projects once
commercially viable, discounting the net cash flows back to their present value
and then applying a percentage of completion. If the projects are not
successfully developed, the sales and profitability of the combined company may
be adversely affected in future periods.
Amortization of Goodwill and Other Acquired Intangibles
Amortization of goodwill and other acquired intangibles was $10.5 million
and $0.5 million in fiscal 2000 and 1999, respectively. Goodwill and other
acquired intangibles of $68.0 million recorded in connection with the
acquisition of Extensibility in August 2000 are being amortized over their
useful lives of two to five years. During the fourth quarter of 1999, $31.2
million of goodwill and other acquired intangibles were recorded in connection
with the asset purchase of InConcert. These items which are being amortized
over their estimated useful life of 5 years.
Other Income, Net
Other income, net includes interest and other miscellaneous income and
expense items. Other income, net was $24.9 million, $2.1 million and $1.1
million in fiscal 2000, 1999 and 1998, respectively. The increase in fiscal
2000 was primarily attributable to an increase in interest income due to higher
average cash and investment balances following the successful completion of our
follow-on offering in March 2000 and realized gains on equity securities,
offset by losses on certain investments in emerging companies. The increase in
fiscal 1999 was due primarily to interest income earned from our investments
which increased significantly as a result of the money raised in connection
with our initial public offering in July 1999. As a result of current market
conditions, we may incur additional charges on our investments in emerging
companies in the future.
Income taxes
In fiscal 2000, a $1.9 million provision was recorded for federal, state,
and foreign taxes. At November 30, 2000, we had net operating loss
carryforwards of $2.4 million and $0.8 million excluding stock compensation
deductions, and $429 million and $209 million including stock compensation
deductions, for federal and California, respectively, which expire through 2020
and 2005, respectively. We also had available tax credit carryforwards of $4.5
million and $1.5 million for federal and California, respectively, which expire
through 2020. In the event of a change in ownership, as defined under federal
and state tax laws, the utilization of these carryforwards could be subject to
certain limitations in future years.
Liquidity and Capital Resources
In March 2000, we completed a follow-on offering of 4,775,750 shares of our
common stock at $106.00 per share. Net proceeds to us aggregated approximately
$481 million (net of underwriters' commissions and of issuance costs of $1.1
million). In July 1999, we completed an initial public offering of 27,485,001
shares of our common stock at $5.00 per share. Net proceeds to us aggregated
approximately $123.5 million (net of underwriters' commissions and offering
expenses of $13.8 million).
Net cash provided by operating activities in fiscal 2000 was $37.6 million
resulting from our net loss, non-cash charges of $70.6 million, and by a net
change of $8.1 million in assets and liabilities. Net cash used by operating
activities in fiscal 1999 and 1998 was $9.7 million and $11.8 million,
respectively, resulting primarily from our net losses.
18
Net cash used in investing activities was $374.8 million, $103.8 million and
$8.2 million in fiscal 2000, 1999 and 1998, respectively. Net cash used in
investing activities in fiscal 2000 was related primarily to the purchase of
short-term investments. Net cash used for investing activities for fiscal 1999
related primarily to the purchase of short-term investments and to the
acquisition of InConcert, Inc. Net cash used in investing activities in 1998
was primarily related to the purchase of property and equipment, principally
desktop and network hardware and software, and the investment of surplus funds
received from the issuance of our capital stock.
Net cash provided by financing activities for fiscal 2000, 1999 and 1998,
respectively, was $495.9 million, $126.5 million and $12.4 million. Cash
provided by financing activities was primarily the result of net proceeds from
the sale of our common stock in fiscal 2000 and 1999 and our preferred stock in
1998.
At November 30, 2000, we had $582.9 million in cash, cash equivalents and
investments. We anticipate continued growth in our operating expenses for the
foreseeable future, particularly in sales and marketing expenses and, to a
lesser extent, research and development and general and administrative
expenses. As a result, we expect to use our cash resources to fund our
operating expenses and capital expenditures, and additionally, to fund
acquisitions or investments in complementary businesses, technologies or
product lines. We believe that our current cash, cash equivalents and
investments, will be sufficient to meet our anticipated cash requirements for
working capital and capital expenditures for at least the next twelve months.
Recent Accounting Pronouncements
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." This bulletin summarizes certain SEC's views in applying
accounting principles generally accepted in the U.S. to revenue recognition in
financial statements. Based on the SEC's timeline for implementing SAB 101, the
Company would be required to comply with the guidelines in the fourth quarter
of fiscal year 2001. The Company is currently evaluating SAB 101 and does not
expect its implementation will have a material effect on its financial
position, results of operations, or cash flows.
FACTORS THAT MAY AFFECT OPERATING RESULTS
The following risk factors could materially and adversely affect our future
operating results and could cause actual events to differ materially from those
predicted in forward-looking statements related to our business.
We have a history of losses and we expect future losses, and if we do not
achieve and sustain profitability our business will suffer and our stock price
may decline.
Although our revenue has increased in recent quarters, we may not be able to
sustain our growth or obtain sufficient revenue to achieve and sustain
profitability. We incurred net losses of approximately $25.0 million, $19.5
million, and $13.0 million in fiscal 2000, 1999, and 1998 respectively. As of
November 30, 2000, we had an accumulated deficit of approximately $62.0
million.
We have invested significantly in building our sales and marketing
organization and in our technology research and development. We expect to
continue to spend substantial financial and other resources on expanding our
direct sales and marketing activities and developing and introducing
enhancements to our existing products and new software products. As a result,
we need to generate significant revenue to achieve and maintain profitability.
We expect that our research and development expenses and our general and
administrative expenses will continue to increase in absolute dollars. We
intend to continue to increase staff in our direct sales organization and to
develop producing marketing and branding campaigns and accordingly, expect that
sales and marketing expenditures will continue to increase substantially in
absolute dollars for the foreseeable future.
19
Our future revenue is unpredictable, and we expect our quarterly operating
results to fluctuate, which may cause our stock price to decline.
Period-to-period comparisons of our operating results may not be a good
indication of our future performance. Moreover, our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that event, our stock price would likely decline. As a result of our limited
operating history, our new business strategy and the evolving nature of the
markets in which we compete, we may have difficulty accurately forecasting our
revenue in any given period. In addition to the factors discussed elsewhere in
this section, a number of factors may cause our revenue to fall short of our
expectations or cause fluctuations in our operating results, including:
. the announcement or introduction of new or enhanced products or services
by our competitors;
. the amount and timing of operating costs and capital expenditures
relating to the expansion of our operations; and
. The capital and expense budgeting decisions of our customers.
In addition, our quarterly operating results have historically been subject
to variations throughout the year due to a general slow-down in our sales in
the summer months, particularly in Europe. Specifically, we generally
experience relatively lower revenue in our third fiscal quarter. These seasonal
variations in our operating results may lead to fluctuations in our results of
operations from quarter to quarter throughout the year.
There can be no assurance that any of our customers will continue to purchase
our products in the future.
We do not have long-term contracts with any of our customers. There can be
no assurance that any of our customers will continue to purchase our products
in the future. As a result, a customer that generates substantial revenue for
us in one period may not be a source of revenue in subsequent periods.
Our licensing and distribution relationship with Reuters places limitations on
our ability to conduct our business.
We have a significant relationship with Reuters for licensing and
distribution. Our relationship with Reuters involves limitations and
restrictions on our business, as well as other risks, described below.
Reuters has access to the intellectual property used in our products, and
could use the intellectual property to compete with us. We license the
underlying TIB messaging technology incorporated into some of our important
TIBCO ActiveEnterprise products from Reuters. We do not own this technology.
Reuters is not restricted from using the TIB technology to produce products
that compete with our products, and it can grant limited licenses to the TIB
technology to others who may compete with us. In addition, we must license all
the intellectual property and products we create through December 2011 to
Reuters. This will place Reuters in a position to more easily develop products
that compete with our product offerings.
We must rely on Reuters and other distributors to sell our products in the
financial services market, and they may not be successful in doing so. Under
our agreements with Reuters, we are restricted from selling our products and
providing consulting services directly to companies in the financial services
market and major competitors of Reuters, and from using the TIB technology we
license from Reuters to develop products specifically for use by these
companies. Accordingly, we must rely on Reuters and other third-party resellers
and distributors to sell our products to these companies.
Substantially all of our revenue from sales in the financial services
market, excluding sales to Cedel Global Services, consists of product fees paid
to us by Reuters. Although Reuters is the preferred distributor of our products
in the financial services market and is required to pay us guaranteed minimum
product fee
20
payments until the end of 2001, Reuters has no contractual obligation to
distribute our products to financial services customers. Reuters and other
distributors may not be successful in selling our products into the financial
services market, or they may elect to sell competitive third-party products
into that market, either of which may adversely affect our revenue in that
market.
Our relationship with Reuters restricts our ability to earn revenue from
sales in the financial services market. Under the license agreement, Reuters is
required to pay us product fees based on a percentage of its revenue from sales
of our products in the financial services market, excluding products that are
embedded in any Reuters products. These product fees may be materially less
than the product fees we could obtain from other distributors or resellers in
the financial services market. In addition, when we sell our products into the
financial services market through third-party distributors other than Reuters,
Reuters receives a share of our license revenue.
Our license agreement with Reuters imposes practical restrictions on our
ability to acquire other companies. The license agreement places no specific
restrictions on our ability to acquire companies with all or part of their
business in the financial services market. However, under the terms of the
license agreement, we are prohibited from bundling or combining our products
that are based on licensed technology with an acquired company's products and
services and then selling the bundled or combined products directly to
financial services companies. This prohibition could prevent us from realizing
potential synergies with companies we acquire.
The market for e-business infrastructure software may not grow as quickly as we
anticipate, which would cause our revenues to fall below expectations.
The market for e-business infrastructure software is relatively new and
evolving. We earn a substantial portion of our revenue from sales of our e-
business infrastructure software, including application integration software,
and related services. We expect to earn substantially all of our revenue in the
foreseeable future from sales of these products and services. Our future
financial performance will depend on continued growth in the number of
organizations demanding software and services for application integration, e-
business and information delivery and seeking outside vendors to develop,
manage and maintain this software for their critical applications. Many of our
potential customers have made significant investments in internally developed
systems and would incur significant costs in switching to third-party products,
which may substantially inhibit the growth of the market for e-business
infrastructure software. If the market fails to grow, or grows more slowly than
we expect, our sales will be adversely affected.
Our acquisition strategy could cause financial or operational problems.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands, and
competitive pressures. To this end, we may acquire new and complementary
businesses, products or technologies. We do not know if we will be able to
complete any acquisitions or that we will be able to successfully integrate any
acquired business, operate them profitably, or retain their key employees. For
example, we completed the acquisition of substantially all of the assets of
InConcert, Inc. in November 1999 and the acquisition of Extensibility, Inc. in
September 2000. Integrating InConcert, Extensibility or any other newly
acquired business, product or technology could be expensive and time-consuming,
could disrupt our ongoing business, and could distract our management. We may
face competition for acquisition targets from larger and more established
companies with greater financial resources. In addition in order to finance any
acquisitions, we might need to raise additional funds through public or private
financings. In that event, we could be forced to obtain equity or debt
financing on terms that are not favorable to us and, in the case of equity
financing, that results in dilution to our stockholders. If we are unable to
integrate InConcert, Extensibility or any other newly acquired entity, products
or technology effectively, our business, financial condition and operating
results would suffer. In addition, any amortization of goodwill or other assets
or other charges resulting from the costs of acquisitions could harm our
operating results.
21
Our investment strategy could cause financial or operational problems.
As of November 30, 2000 we had invested $23.0 million in companies with
complementary technologies or products or which provide us with access to
additional vertical markets and customers, and we plan to continue making such
investments in the future. The companies in which we invest are often at early
stages of development, and no public market exists for their securities at the
time of our investment. These investments may not result in any meaningful
commercial benefit to us, and our investments could lose all or a significant
part of their value. Moreover, in certain circumstances, these investments
could subject us to restrictions imposed by the Investment Company Act of 1940.
We might have to take actions, including, buying, refraining from buying,
selling or refraining from selling securities when we would otherwise not wish
to, in order to avoid registration under the Investment Company Act of 1940.
Our stock price may be volatile, which could cause investors to lose all or
part of their investments in our stock.
The stock market in general, and the stock prices of technology companies in
particular, have recently experienced volatility which has often been unrelated
to the operating performance of any particular company or companies. If market
or industry-based fluctuations continue, our stock price could decline
regardless of our actual operating performance and investors could lose all or
part of their investments.
The rapid growth of our operations could strain our resources and cause our
business to suffer.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations and we have
recently increased our headcount substantially, both domestically and
internationally. Our growth has placed and will continue to place a significant
strain on our management systems, infrastructure and resources. We expect that
we will need to continue to improve our financial and managerial controls,
reporting systems and procedures. We will also need to expand, train and manage
our workforce worldwide. Accordingly, we believe that general and
administrative expenses will continue to increase in absolute dollars.
Furthermore, we expect that we will be required to manage an increasing number
of relationships with various customers and other third parties. Failure to
expand any of the foregoing areas efficiently and effectively could interfere
with the growth of our business as a whole.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest in marketable securities in accordance with our investment policy.
The primary objectives of our investment policy are to preserve principal,
maintain proper liquidity to meet operating needs and maximize yields. Our
investment policy specifies credit quality standards for our investments and
limits the amount of credit exposure to any single issue, issuer or type of
investment. The maximum allowable duration of a single issue is 2.5 years and
the maximum allowable duration of the portfolio is 1.3 years.
At the end of fiscal 2000 and fiscal 1999, we had an investment portfolio of
fixed income securities totaling $401.9 million and $76.1 million, excluding
those classified as cash and cash equivalents and restricted funds. Our
investments consist primarily of bank and finance notes, various government
obligations and asset-backed securities. These securities are classified as
available-for-sale and are recorded on the balance sheet at fair market value
with unrealized gains or losses reported as a separate component of
stockholders' equity. Unrealized losses are charged against income when a
decline in fair market value is determined to be other than temporary. The
specific identification method is used to determine the cost of securities
sold.
The investment portfolio is subject to interest rate risk and will fall in
value in the event market interest rates increase. If market interest rates
were to increase immediately and uniformly by 100 basis points (approximately
15% of current rates in the portfolio) from levels as of November 30, 2000, the
fair market value of the portfolio would decline by approximately $5.2 million.
22
We develop products in the United States and sell in North America, South
America, Asia and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. A majority of sales are currently made in U.S.
dollars, however, a strengthening of the dollar could make our products less
competitive in foreign markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Consolidated Financial Statements that
appears on page F-1 of this report. The Report of PricewaterhouseCoopers LLP,
Independent Accountants, the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements listed in the Index to Consolidated Financial
Statements, which appear beginning on page F-2 of this report, are incorporated
by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item concerning our directors and executive
officers is incorporated by reference to the information set forth in the
sections entitled "Election of Directors" and "Executive Compensation and
Employment Agreements" in our Proxy Statement for the 2001 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
our fiscal year ended November 30, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the sections entitled
"Election of Directors--Director Compensation" and "Executive Compensation and
Employment Agreements" in our Proxy Statement for the 2001 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
our fiscal year ended November 30, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in our Proxy Statement for the 2001 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of our fiscal year ended November 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the sections entitled "Certain Transactions" and "Compensation Committee
Interlocks and Insider Participation" in our Proxy Statement for the 2001
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of our fiscal year ended November 30, 2000.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements. Please see the accompanying Index to
Consolidated Financial Statements which appears on page F-1 of the report.
The Report of Independent Accountants, the Consolidated Financial
Statements and the Notes to Consolidated Financial Statements listed in the
Index to Consolidated Financial Statements, which appear beginning on page
F-2 of this report, are incorporated by reference into Item 8 above.
2. Financial Statement Schedules. Financial Statement Schedules have
been omitted because the information required to be set forth therein is
either not applicable or is included in the Consolidated Financial
Statements or the notes thereto. See also Item 14(d) below.
3. Exhibits: See Item 14(c) below. The management contracts and
compensatory plans or arrangements required to be filed as exhibits to this
form pursuant to Item 14(c) are as follows:
10.4 1996 Stock Plan, as amended
10.5 1998 Director Option Plan, as amended.
10.7 Employment Agreement between Registrant and Vivek Y. Ranadive.
10.8 Employment Agreement between Registrant and Robert B. Stefanski.
10.9 Employment Agreement between Registrant and Paul G. Hansen.
(b) Reports on Form 8-K.
We filed a current report on Form 8-K on September 19, 2000 to announce our
acquisition on September 5, 2000 of the outstanding stock of Extensibility,
Inc., a Delaware corporation. The acquisition was effected by a merger of
Extensibility with and into Cardinal Acquisition Corporation, a Delaware
corporation and our wholly-owned subsidiary.
We filed a current report on Form 8-K/A on November 17, 2000 related to our
acquisition of the outstanding capital stock of Extensibility. The following
financial statements and pro forma financial information were filed as part of
this report:
(i) Financial statements of Extensibility:
Report of Independent Accountants
Balance sheet as of December 31, 1998, December 31, 1999 and June
30, 2000 (unaudited)
Statements of Operations for the period from inception to December
31, 1998, the year ended December 31, 1999 and the six months ended
June 30, 2000 (unaudited)
Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit for the period from inception to December 31,
1998, the year ended December 31, 1999 and the six months ended
June 30, 2000 (unaudited)
Statements of Cash flows for the period from inception to December
31, 1998, the year ended December 31, 1999 and the six months ended
June 30, 2000 (unaudited)
Notes to Financial Statements for the period from inception to
December 31, 1998 the year ended December 31, 1999 and the six
months ended June 30, 2000 (unaudited)
25
(ii) Pro forma financial information:
TIBCO Software Inc. Unaudited Pro Forma Condensed Combined Statement
of Operations for the year ended November 30, 1999
TIBCO Software Inc. Unaudited Pro Forma Condensed Combined Statement
of Operatons for the nine months ended August 31, 2000
TIBCO Software Inc. Unaudited Pro Forma Condensed Combined Balance
Sheet as of August 31, 2000
(c) Exhibits. The exhibits listed on the accompanying Exhibit Index
immediately following the signature page are filed as part of, or are
incorporated by reference into, this Form 10-K.
(d) Financial Statement Schedules. None
26
TIBCO SOFTWARE INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet................................................ F-3
Consolidated Statement of Operations...................................... F-4
Consolidated Statement of Stockholders' Equity............................ F-5
Consolidated Statement of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................ F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TIBCO Software Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of TIBCO Software Inc. and its subsidiaries at November 30, 2000 and
November 30, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended November 30, 2000 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
December 18, 2000
F-2
TIBCO SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
November 30,
-------------------
2000 1999
--------- --------
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 171,658 $ 13,681
Short-term investments.................................. 411,242 76,126
Accounts receivable, net................................ 89,978 38,599
Due from related parties................................ 3,411 3,886
Other current assets.................................... 17,410 5,031
--------- --------
Total current assets.................................. 693,699 137,323
Property and equipment, net............................... 27,593 10,423
Other assets.............................................. 19,673 1,171
Goodwill and acquired intangibles, net.................... 88,250 30,721
--------- --------
$ 829,215 $179,638
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 6,712 $ 7,501
Amounts due related parties............................. 2,144 --
Accrued liabilities..................................... 54,905 21,128
Deferred revenue........................................ 33,635 13,091
--------- --------
Total current liabilities............................. 97,396 41,720
Commitments (Note 7)
Deferred income taxes..................................... 2,284 --
Stockholders' equity:
Common stock, $0.001 par value; 300,000 shares
authorized; 194,882, 181,215 and 67,131 shares issued
and outstanding, respectively.......................... 195 181
Additional paid-in capital.............................. 817,077 182,939
Unearned stock-based compensation....................... (29,946) (8,083)
Accumulated other comprehensive gain (loss)............. 4,255 (24)
Accumulated deficit..................................... (62,046) (37,095)
--------- --------
Total stockholders' equity............................ 729,535 137,918
--------- --------
$ 829,215 $179,638
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended November 30,
----------------------------
2000 1999 1998
-------- -------- --------
License revenue:
Non-related parties............................ $160,700 $ 39,680 $ 14,511
Related parties................................ 20,901 17,236 2,984
-------- -------- --------
Total license revenue........................ 181,601 56,916 17,495
-------- -------- --------
Service and maintenance revenue:
Non-related parties............................ 66,841 36,601 30,577
Related parties................................ 3,355 2,923 4,685
-------- -------- --------
Total service and maintenance revenue........ 70,196 39,524 35,262
-------- -------- --------
Total revenue.............................. 251,797 96,440 52,757
-------- -------- --------
Cost of revenue:
Stock-based compensation....................... 3,025 1,113 490
Cost of license revenue........................ 4,419 2,402 984
Cost of service and maintenance revenue........ 57,074 34,210 26,698
-------- -------- --------
Total cost of revenue........................ 64,518 37,725 28,172
-------- -------- --------
Gross profit..................................... 187,279 58,715 24,585
-------- -------- --------
Operating expenses:
Research and development.......................
Stock-based compensation...................... 18,525 2,707 971
Other research and development................ 57,861 27,478 14,787
Sales and marketing............................
Stock-based compensation...................... 33,637 4,281 2,304
Other sales and marketing..................... 92,228 33,130 15,242
General and administrative.....................
Stock-based compensation...................... 1,729 1,151 1,299
Other general and administrative.............. 18,489 8,229 4,025
Acquired in-process research and development... 2,260 2,800 --
Amortization of goodwill and acquired
intangibles................................... 10,479 521 --
-------- -------- --------
Total operating expenses..................... 235,208 80,297 38,628
-------- -------- --------
Loss from operations............................. (47,929) (21,582) (14,043)
Interest income.................................. 28,064 2,707 1,394
Other income (expense), net...................... (1,386) (606) (302)
Realized loss in equity investments.............. (1,812) -- --
-------- -------- --------
Loss before income taxes......................... (23,063) (19,481) (12,951)
Provision for income taxes....................... (1,888) -- --
-------- -------- --------
Net loss......................................... $(24,951) $(19,481) $(12,951)
======== ======== ========
Net loss per share:
Basic and diluted.............................. $ ( 0.14) $ ( 0.19) $ (0.22)
======== ======== ========
Weighted average common shares outstanding..... 184,177 104,112 60,033
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Convertible
Preferred Accumulated
Stock Common Stock Additional Unearned Other
--------------- -------------- Paid-In Stock-based Comprehensive Accumulated
Shares Amount Shares Amount Capital Compensation Income (Loss) Deficit Total
------- ------ ------- ------ ---------- ------------ ------------- ----------- --------
Balance at November 30,
1997.................... 73,095 $ 73 62,004 $ 62 $ 26,462 $ (4,767) $ -- $ (4,663) $ 17,167
Net loss................ -- -- -- -- -- -- -- (12,951) (12,951)
Issuance of series C
preferred stock, net.... 8,583 9 -- -- 10,989 -- -- -- 10,998
Exercise of common stock
options, net............ -- -- 5,127 5 1,421 -- -- -- 1,426
Unearned stock-based
compensation, net....... -- -- -- -- 7,527 (2,463) -- -- 5,064
------- ----- ------- ---- -------- -------- ------ -------- --------
Balance at November 30,
1998.................... 81,678 82 67,131 67 46,399 (7,230) -- (17,614) 21,704
--------
Net loss................ -- -- -- -- -- -- -- (19,481) (19,481)
Translation
adjustments............. -- -- -- -- -- -- 178 -- 178
Unrealized loss on
investments............. -- -- -- -- -- -- (202) -- (202)
--------
Comprehensive income... (19,505)
--------
Issuance of common stock
in public offering, net
of issuance costs of
$13,925................. -- -- 27,486 27 123,470 -- -- -- 123,497
Conversion of
convertible preferred
stock in connection with
IPO..................... (81,678) (82) 81,678 82 -- -- -- -- --
Exercise of common stock
options, net............ -- -- 4,920 5 2,965 -- -- -- 2,970
Unearned stock-based
compensation, net....... -- -- -- -- 10,105 (853) -- -- 9,252
------- ----- ------- ---- -------- -------- ------ -------- --------
Balance at November 30,
1999.................... -- -- 181,215 181 182,939 (8,083) (24) (37,095) 137,918
--------
Net loss................ -- -- -- -- -- -- -- (24,951) (24,951)
Translation
adjustments............. -- -- -- -- -- -- (751) -- (751)
Unrealized gain on
investments............. -- -- -- -- -- -- 5,030 -- 5,030
--------
Comprehensive income... (20,672)
--------
Issuance of common stock
in follow-on offering,
net of issuance costs of
$1,147.................. -- -- 4,776 5 481,032 -- -- -- 481,037
Common stock issued in
connection with
acquisition of
Extensibility........... -- -- 829 1 64,983 -- -- -- 64,984
Deferred compensation
related to acquisition
of Extensibility........ -- -- -- -- 34,905 (34,905) -- -- --
Exercise of common stock
options, net............ -- -- 7,170 7 10,520 -- -- -- 10,527
ESPP common stock
issued.................. -- -- 892 1 4,332 -- -- -- 4,333
Unearned stock-based
compensation, net....... -- -- -- -- 38,366 13,042 -- -- 51,408
------- ----- ------- ---- -------- -------- ------ -------- --------
Balance at November 30,
2000.................... -- $ -- 194,882 $195 $817,077 $(29,946) $4,255 $(62,046) $729,535
------- ----- ------- ---- -------- -------- ------ -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TIBCO SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended November 30,
------------------------------
2000 1999 1998
--------- --------- --------
Cash flows from operating activities:
Net loss...................................... $ (24,951) $ (19,481) $(12,951)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization................ 4,687 2,110 1,073
Write-off of in-process research and
development................................. 2,260 2,800 --
Amortization of goodwill and other
intangibles................................. 10,479 521 --
Amortization of stock-based compensation..... 51,408 9,252 5,064
Realized loss in investments................. 1,812 -- --
Changes in assets and liabilities:
Accounts receivable......................... (51,287) (26,119) (5,996)
Due from related parties.................... 2,619 1,543 1,339
Other assets................................ (11,814) (3,005) (1,017)
Accounts payable............................ (913) 4,019 2,240
Accrued liabilities......................... 32,749 10,279 1,618
Deferred revenue............................ 20,544 8,406 (3,152)
--------- --------- --------
Net cash provided by (used for) operating
activities............................... 37,593 (9,675) (11,782)
--------- --------- --------
Cash flows from investing activities:
Deposits held by Reuters...................... -- 15,423 (5,164)
Purchases of short-term investments........... (459,558) (198,325) --
Cash used in acquisitions, net of cash
received..................................... (2,409) -- --
Sales of short term investments............... 136,661 121,997 --
Purchases of property and equipment, net...... (21,423) (8,931) (2,990)
Purchase of private equity investments........ (23,033) -- --
Acquisition of InConcert, Inc................. -- (34,000) --
Investment pledged as security for letter of
credit....................................... (5,000) -- --
--------- --------- --------
Net cash used for investing activities.... (374,762) (103,836) (8,154)
--------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock........ 481,037 123,497 --
Proceeds from exercise of stock options....... 10,527 2,970 1,426
Proceeds from employee stock purchase plan.... 4,333 -- --
Proceeds from issuance of preferred stock..... -- -- 10,998
--------- --------- --------
Net cash provided by financing
activities............................... 495,897 126,467 12,424
--------- --------- --------
Effect of exchange rate changes on cash........ (751) 178 --
--------- --------- --------
Net change in cash and cash equivalents........ 157,977 13,134 (7,512)
Cash and cash equivalents at beginning of
period........................................ 13,681 547 8,059
--------- --------- --------
Cash and cash equivalents at end of period..... $ 171,658 $ 13,681 $ 547
========= ========= ========
Non-cash investing and financing activities:
Deferred stock compensation.................... $ 73,271 $ 10,105 $ 7,527
========= ========= ========
Common stock and options issued in connection
with acquisition.............................. $ 64,894 $ -- $ --
========= ========= ========
Fair value of liabilities assumed in
acquisition................................... $ (591) $ -- $ --
========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2000
Note 1. The Company
TIBCO Software Inc. ("TIBCO Software" or the "Company") is the successor to
a portion of the business of Teknekron Software Systems, Inc. ("Teknekron").
Teknekron was founded in 1985 and pioneered the development of "publish and
subscribe" computing by creating the software infrastructure for the
integration and delivery of market data (e.g., stock quotes, news and other
financial information) in the trading rooms of large banks and financial
institutions. This publish and subscribe technology, know as The Information
Bus or "TIB," permitted the integration of disparate information from various
data sources and its distribution across a variety of networks and platforms
within these banks, financial institutions and stock exchanges.
Teknekron was acquired by a subsidiary of Reuters Group PLC ("Reuters"), the
global news and information group, in 1994, and the underlying technology
rights owned by Teknekron were assigned to Reuters. In November 1996, TIBCO
Software was incorporated in Delaware as a separate entity from Teknekron and
was formed to create and market software solutions for use in the integration
of business information, processes and applications in diverse industries
outside the financial services market. Through a license and distribution
agreement, Reuters is the preferred distributor of TIBCO Software products in
the financial services market, subject to limited exceptions.
Effective as of January 1, 1997, the Company's capital structure was
established, and the transfer to TIBCO Software of certain assets, liabilities
and customer contracts previously owned by Reuters was substantially completed.
Prior to January 1, 1997, operations were conducted by Reuters and its
subsidiaries.
In July 1999, the Company completed its initial public offering ("IPO"), of
approximately 27,485,001 shares of common stock (including 3,285,000 shares
purchased by the underwriters over-allotment option, 1,500,000 shares sold
directly to Sun Microsystems, and 800,001 shares sold directly to Yahoo! Inc.)
at $5.00 per share. Net proceeds aggregated approximately $123.5 million. At
the closing of the offering, all issued and outstanding shares of the Company's
preferred stock were converted into an aggregate of 81,678,945 shares of common
stock. At November 30, 2000, Reuters still owned a majority of the Company's
common stock.
In March 2000, the Company sold 4,775,750 shares of our common stock in a
follow-on offering. Net proceeds to the Company aggregated approximately $481
million (net of issuance costs of $1.2 million).
Note 2. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Stock Splits
In January 2000, the Company's Board of Director's approved a three-for-one
stock split payable in the form of a dividend of two additional shares of the
Company's common stock for every share owned by shareholders which became
effective on February 18, 2000. In June 1999, the Company's Board of Directors
approved a one-for-two reverse stock split of Company's outstanding shares that
became effective on July 13, 1999. All share and per share information included
in these financial statements have been retroactively adjusted to reflect these
splits.
F-7
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company's wholly-owned foreign subsidiaries
are the local currencies. Assets and liabilities of these subsidiaries are
translated into U.S. dollars at exchange rates at the balance sheet date.
Income and expense items are translated at average exchange rates for the
period. Accumulated translation adjustments are recorded as a component of
accumulated other comprehensive loss in stockholders' equity. Foreign exchange
transaction gains and losses were not material in all periods presented.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of marketable securities at the time
of purchase and evaluates such designation as of each balance sheet date. To
date, all marketable securities have been classified as available-for-sale and
are carried at fair value with unrealized gains and losses, if any, included in
stockholders' equity. All investments are presented as current assets even
though some have scheduled maturities of greater than one year. Interest,
dividends and realized gains and losses are included in interest income.
Realized gains and losses are recognized based on the specific identification
method.
Investments consist of the following (in thousands):
November 30,
------------------
2000 1999
--------- -------
U.S. government debt securities......................... $ 119,359 $40,866
Corporate debt securities............................... 65,731 15,668
Marketable equity securities............................ 9,321 --
Notes and other......................................... 362,873 27,283
--------- -------
Total available-for-sale securities................... 557,284 83,817
Less: Amounts classified as cash equivalents............ (141,042) (7,691)
Investment pledged for security of letter of credit... (5,000) --
--------- -------
Total investments....................................... 411,242 76,126
Less: Marketable equity securities...................... (9,321) --
--------- -------
Total fixed income securities......................... $ 401,921 $76,126
========= =======
As of November 30, 2000 and 1999, short-term investments with contractual
maturities of one year or less and one year through five years were $73.5
million and $328.4 million, and $26.0 million and $50.1 million, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, and accounts
receivable. Cash, cash equivalents and investments are deposited with financial
F-8
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
institutions that management believes are creditworthy. The Company's accounts
receivable are derived from revenue earned from customers located primarily in
the United States and Europe. The Company performs ongoing credit evaluations
of its customers' financial conditions and, generally, requires no collateral
from its customers. The Company maintains an allowance for doubtful accounts
receivable based upon the expected collectibility of accounts receivable.
Capitalized Software Development Costs
Costs related to research and development are generally charged to expense
as incurred. Capitalization of material software development costs begins when
a product's technological feasibility has been established in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed". To date, the period between achieving technological feasibility,
which the Company has defined as the establishment of a working model which
typically occurs when beta testing commences, and the general availability of
such software has been short, and as such, software development costs
qualifying for capitalization have been insignificant.
In 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires the
capitalization of certain costs relating to software acquired, developed or
modified solely to meet the company's internal requirements and for which there
are no substantive plans to market the software. Costs incurred after the
preliminary planning stage of the project and after management has authorized
and committed funds to the project are required to be capitalized.
Capitalizable costs related to software developed to meet internal requirements
were not material in fiscal 1999 and fiscal 2000, respectively. Accordingly,
all internal software development costs have been expensed.
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally
computed using the straight-line method over the estimated useful lives of the
assets as follows:
Equipment............... 2-3 years
Furniture and fixtures.. 5 years
Leasehold improvements.. Shorter of the lease term or the estimated useful life
Goodwill and Other Intangible Assets
Goodwill and other intangible assets acquired in purchase transactions are
amortized on a straight-line method over the estimated useful lives of the
assets of between 2 and 5 years. Other intangible assets acquired in purchase
transactions consist of purchased technology, trademarks, non-compete
agreements, assembled workforces and customer bases.
Impairment Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." When events or changes in
circumstances indicate the carrying amount of long-lived assets may not be
recoverable the Company recognizes such an impairment in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. No impairment losses were incurred in the periods presented.
F-9
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Effective in fiscal 1999, the Company adopted Statement of Position ("SOP")
97-2, "Software Revenue Recognition" and its related amendments. SOP 97-2
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supercedes the previous
guidance provided by SOP 91-1. The adoption of SOP 97-2 did not have a material
impact on the Company's consolidated financial position or results of
operations.
License revenue consists principally of revenue earned under software
license agreements. License revenue is generally recognized when a signed
contract or other persuasive evidence of an arrangement exists, the software
has been shipped or electronically delivered, the license fee is fixed or
determinable, and collection of the resulting receivable is probable. When
contracts contain multiple elements wherein vendor specific objective evidence
exists for all undelivered elements, the Company accounts for the delivered
elements in accordance with the "Residual Method" prescribed by SOP 98-9. Any
maintenance revenue included in these arrangements is recognized ratably over
the term of the arrangement. Revenue from subscription license agreements,
which include software, rights to future products and maintenance, is
recognized ratably over the term of the subscription period. Revenue on
shipments to resellers, which is generally subject to certain rights of return
and price protection, is recognized when the products are sold by the resellers
to the end-user customer.
Service revenue consists primarily of revenue received for performing
product development, implementation of system solutions, on-site support,
consulting and training. Service revenue is generally recognized as the
services are performed or on the percentage-of-completion method of accounting,
depending on the nature of the project. Under the percentage-of-completion
method, revenue recognized is that portion of the total contract price equal to
the ratio of costs expended to date to the anticipated final total costs, based
on current estimates of the costs to complete the project. To the extent that
these arrangements include license fees, such fees are recorded as license
revenue based on the percentage-of-completion ratio. If the total estimated
costs to complete a project exceed the total contract amount, indicating a
loss, the entire anticipated loss would be recognized currently.
Maintenance revenue consists of fees for providing software updates and
technical support for software products (post-contract support or "PCS").
Maintenance revenue is recognized ratably over the term of the agreement.
Payments received in advance of services performed are recorded as deferred
revenue. Allowances for estimated future returns and discounts are provided for
upon recognition of revenue.
Advertising Expense
Advertising costs are expensed as incurred and totaled approximately $1.1
million, $0.7 million, and $1.6 million for the years ended November 30, 2000,
1999, and 1998, respectively.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Stock-based compensation expense is amortized, using the
multiple option method prescribed by FASB Interpretation No. 28, over the
option's vesting period.
F-10
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Beginning on July 1, 2000, the Company accounted for stock options assumed
and restricted stock issued in acquisitions in accordance with the provisions
of FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation-an interpretation of APB Opinion No. 25." Under
Fin 44, assumed options are valued on the date of acquisition at their fair
value calculated using the Black-Scholes method. The fair value of vested
options is included as part of the purchase price. A portion of the intrinsic
value of unvested options and restricted stock is recorded as deferred
compensation and amortized over the remaining vesting period of the options
with the remainder of the fair value included as part of the purchase price.
Comprehensive Income
Comprehensive income includes net earnings and other comprehensive income.
Other comprehensive income consists of unrealized gains and losses on
available-for-sale securities and accumulated translation adjustments. Total
comprehensive income and the components of accumulated other comprehensive
income are presented in the accompanying Consolidated Statement of
Stockholders' Equity. Total accumulated other comprehensive income is displayed
as a separate component of stockholder's equity in the accompanying
Consolidated Balance Sheet.
Net Loss per Share
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weight average number of common and potential common shares outstanding during
the period if their effect is dilutive. Potential common shares are comprised
of common stock subject to repurchase and incremental shares of common stock
issuable upon the exercise of stock options and upon the conversion of
convertible preferred stock.
The following table sets forth the computation of basic and diluted net loss
per share for the periods indicated (in thousands, except per share amounts):
Year Ended November 30,
----------------------------
2000 1999 1998
-------- -------- --------
Net loss..................................... $(24,951) $(19,481) $(12,951)
======== ======== ========
Basic and diluted:
Weighted average common shares
outstanding............................... 188,853 110,313 65,175
Weighted average common shares subject to
repurchase................................ (4,676) (6,201) (5,142)
-------- -------- --------
Weighted average common shares used to
compute basic and diluted net loss per
share....................................... 184,177 104,112 60,033
======== ======== ========
Net loss per share--basic and diluted........ $ (0.14) $ (0.19) $ (0.22)
======== ======== ========
F-11
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential common shares that are not included
in the diluted net loss per share calculation above because to do so would be
anti-dilutive as of the periods indicated (in thousands):
November 30,
---------------------
2000 1999 1998
------ ------ -------
Preferred stock...................................... -- -- 81,678
Common stock subject to repurchase................... 3,638 5,965 5,475
Stock options........................................ 41,830 31,440 27,258
------ ------ -------
45,468 37,405 114,411
====== ====== =======
Derivative Financial Instruments
The Company enters into foreign currency forward exchange contracts
("forward contracts") to manage exposure related to accounts receivable
denominated in foreign currencies. The Company does not enter into derivative
financial instruments for trading purposes. The Company had outstanding forward
contracts with notional amounts totaling approximately $6.2 million, $0.5
million and $1.6 million at November 30, 2000, 1999 and 1998, respectively. The
open contracts at November 30, 2000 mature at various dates through June 2001
and are hedges of certain foreign currency transaction exposures in the
Australian dollar, British pound, Singapore dollar, Euro, Japanese Yen, German
Mark and Danish Krone. The unrealized gains and losses on these forward
contracts at November 30, 2000 were negligible.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. Derivatives that are not hedges must be adjusted to
fair value through earnings. If the derivative is a hedge, depending on the
nature of the hedge, changes in fair value will be either offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The Company adopted the standard on December 1,
2000 and the adoption did not materially impact its consolidated financial
statements.
Reclassifications
$3.6 million due from related parties at November 30, 1999 was included with
accounts receivable in the prior period consolidated financial statements and
has been reclassified to accounts receivable from related parties, net to
conform to current year presentation.
Recent Accounting Pronouncements
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in
Financial Statements." This bulletin summarizes certain SEC's views in applying
accounting principles generally accepted in the U.S. to revenue recognition in
financial statements. Based on the SEC's timeline for implementing SAB 101, the
Company would be required to comply with the guidelines in the fourth quarter
of fiscal year 2001. The Company is currently evaluating SAB 101 and does not
expect its implementation will have a material effect on its financial
position, results of operations, or cash flows.
F-12
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Balance Sheet Components
November 30,
----------------
2000 1999
-------- -------
(in thousands)
Accounts receivable...................................... $ 88,636 $35,519
Unbilled fees and services............................... 5,599 5,313
-------- -------
94,235 40,832
Less: Allowances for doubtful accounts, returns and
discounts............................................... (4,257) (2,233)
-------- -------
$ 89,978 $38,599
======== =======
Property and equipment, net:
Equipment.............................................. $ 19,566 $ 8,141
Furniture and fixtures................................. 2,206 515
Leasehold improvements................................. 12,973 4,420
-------- -------
34,745 13,076
Less: Accumulated depreciation and amortization.......... (7,152) (2,653)
-------- -------
$ 27,593 $10,423
======== =======
Accrued liabilities:
Compensation and employee related...................... $ 36,937 $13,201
Expenses............................................... 17,968 7,927
-------- -------
$ 54,905 $21,128
======== =======
Note 4. Allowances for Doubtful Accounts, Returns and Discounts
Balance at Charged Balance
Beginning against Charged to at End of
of Period Revenue Expenses Deduction Period
---------- ------- ---------- --------- ---------
(in thousands)
Year Ended November 30,
1998................... $2,668 $1,133 $ 194 $(2,301) $1,694
Year Ended November 30,
1999................... 1,694 230 1,321 (1,012) 2,233
Year Ended November 30,
2000.................... 2,233 2,197 1,246 (1,419) 4,257
F-13
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Related Party Transactions
Reuters
The Company has significant transactions with Reuters, including licensing
arrangements, development contracts and shared functions and services. The
following is a summary of the transactions for the periods indicated (in
thousands):
Year Ended November
30,
----------------------
2000 1999 1998
------- ------- ------
License fees......................................... $18,326 $15,289 $2,984
Service and maintenance revenue:
Subscription agreement............................. -- -- 354
Maintenance agreement.............................. 1,509 1,168 750
Services contracts................................. 927 843 485
Shared personnel................................... -- 307 2,202
Development reimbursement.......................... -- 365 894
------- ------- ------
Total service and maintenance.................... 2,436 2,683 4,685
------- ------- ------
$20,762 $17,972 $7,669
======= ======= ======
Reuters is the preferred distributor of the Company's TIBCO ActiveEnterprise
products to customers in the financial services market segment. As such, the
Company receives a product fee from Reuters, which is computed as a percentage
of sales of product licenses and maintenance, which has been recorded as
license revenue in the accompanying Financial Statements. For the years ending
December 31, 2000 and 2001, and for the nine months ending December 31, 1999,
Reuters has guaranteed minimum product fees of $20.0 million, $18.0 million and
$16.0 million, respectively. These amounts will be recognized ratably over the
corresponding period. In any period where actual product fees earned exceed the
minimum guaranteed product fees, the difference between the actual product fees
and cumulative minimum product fees recognized to date will be recognized as
revenue currently.
Reuters has also paid the Company subscription revenues for developing
middleware infrastructure software and products, maintenance revenues and
service and other revenues from miscellaneous projects. The Company recognized
approximately $2.5 million, $2.4 million, and $2.5 million during the years
ended November 30, 2000, 1999, and 1998, respectively. Beginning in 1999,
maintenance fees are included in the minimum guarantee.
Reuters and TIBCO Software have agreed to certain intercompany rates for the
sharing of employees on various customer projects. For the services provided by
TIBCO Software personnel to Reuters, TIBCO Software recognized service revenue
of approximately $0.3 million, and $2.2 million, for the years ended 1999 and
1998, respectively. For the services received by TIBCO Software from Reuters
personnel, TIBCO Software recorded, in cost of service revenue, expenses of
approximately $0.3 million, $2.3 million, and $5.8 million for the years ended
November 30, 2000, 1999 and 1998, respectively.
The Company incurred royalty and commission fees to Reuters of approximately
$3.0 million in fiscal 2000.
In 1998, TIBCO Software was reimbursed for approximately $0.9 million for
the development of certain enhancements for Reuters.
F-14
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intercompany Services
Through mid 1999, Reuters provided TIBCO Software with shared functions and
services such as cash management, accounting, legal and insurance. The cost of
these functions and services has been directly charged and/or allocated to the
Company using methods that the Company management believes are reasonable. Such
charges and allocations are not necessarily indicative of the costs that would
have been incurred if the Company had been a separate entity. Neither party has
a financial obligation to the other in relation to any shared costs except as
may be agreed in writing in advance.
Administrative Services. Through mid 1999, Reuters provided limited
administrative services to the Company, including certain facilities, human
resources, information technology and finance functions. The expenses related
to these functions have been charged to the Company based on actual costs
incurred. Management believes that such costs are reasonable. Such charges for
these services amounted to approximately $0.6 million in the year ended
November 30, 1999 and $2.7 million in the year ended November 30, 1998 and have
been allocated to operating costs and expenses based on respective salaries.
Operating Leases and Furniture & Fixtures Rental. The Company shared its
corporate headquarters in Palo Alto, California through June 1999, and certain
foreign offices with Reuters. In June 1999, the Company assumed the lease for
the headquarters building from Reuters. In addition, the Company rented certain
furniture and fixtures and computer equipment from Reuters, primarily related
to its corporate headquarters. The Company incurred rent expense of $1.0
million in the year ended November 30, 1999 and $1.6 million in the year ended
November 30, 1998. In August 1999, the Company purchased $4.6 million in fixed
assets from Reuters in connection with the assumption of the lease for the
corporate headquarters facility. This amount was comprised of $4.2 million in
leasehold improvements and $0.4 million of furniture and fixtures.
Insurance and Legal. The Company participated in an insurance purchasing
agreement with Reuters through April 1999. Under the terms of this arrangement,
Reuters purchased insurance on behalf of the Company and charged the Company
for this insurance on an annual basis. Additionally, a portion of the Company's
legal services were provided by Reuters to the Company until March 1998.
Amounts incurred for legal and insurance expenses were approximately $0.2
million for the period from December 1, 1998 to November 30, 1999.
Employee Benefit Programs. The Company participated in various employee
benefit programs with Reuters. These programs included medical, dental, life
insurance and pension plans. Until August 1999, the Company also reimbursed
Reuters for its proportionate cost of certain other benefits provided to TIBCO
Software employees based on its historical experience and relative headcount.
The Company recorded expenses related to the reimbursement of these costs of
approximately $0.2 million for the period from December 1, 1998 to November 30,
1999.
Intercompany Deposits. Prior to July 1999, the Company participated in
Reuters cash management program, investing surplus funds with Reuters Group
Treasury Department. These deposits earned interest at one-month dollar London
inter bank offered rate ("LIBOR"). The Company recorded interest income on
these deposits of approximately $0.3 million and $1.1 million for the years
ended November 30, 1999 and 1998. Effective with the Company's IPO, the Company
began to manage its own cash and investments.
Cisco Systems, Inc.
As of November 30, 2000 and 1999, Cisco Systems, Inc. ("Cisco") owned
approximately 7% and 7% of the outstanding common stock, respectively and had 2
representatives on the Company's Board of Directors. The Company recorded
license revenue from Cisco of $2.6 million and $1.9 million and service and
maintenance revenue of $0.9 million and $0.2 million for the years ended
November 30, 2000 and 1999, respectively.
F-15
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Income Taxes
The company paid income taxes of $0.3 million, $0.0 million and $0.0 million
for the years ended November 30, 2000, 1999 and 1998, respectively. Significant
components of the provision for income taxes are as follows (in thousands):
Year Ended
November 30,
------------------
2000 1999 1998
------ ----- -----
Federal:
Current................................................. $ 688 $ -- $ --
Deferred................................................ -- -- --
------ ----- -----
688 -- --
State:
Current................................................. 400 -- --
Deferred................................................ -- -- --
------ ----- -----
400 -- --
Foreign:
Current................................................. 800 -- --
Deferred................................................ -- -- --
------ ----- -----
800 -- --
------ ----- -----
Income tax provision.................................... $1,888 $ -- $ --
====== ===== =====
The provision for income taxes was at rates other than the U.S. Federal
statutory tax rate for the following reasons:
Year Ended
November 30,
---------------------
2000 1999 1998
----- ----- -----
U.S. Federal statutory
rate................... (34.0)% (34.0)% (34.0)%
State taxes............. (5.2) (5.7) (5.4)
Minimum taxes........... 5.3 -- --
R & D credits........... (10.0) (9.8) (3.9)
In-process research and
development............ 3.9 -- --
Goodwill................ 5.5 (3.4) (5.1)
Stock option
compensation........... 30.3 5.7 7.3
Foreign losses not
benefited.............. 4.0 -- --
Change in valuation
allowance.............. 3.7 45.6 41.9
Other................... 4.8 1.6 (0.8)
----- ----- -----
Income tax provision.... 8.3% 0.0% 0.0%
===== ===== =====
F-16
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred tax assets/liabilities are as
follows (in thousands):
Year Ended November 30,
---------------------------
2000 1999 1998
-------- -------- -------
Deferred tax liabilities:
Intangible assets............................ $ (2,284) $ -- $ --
Deferred tax assets:
Net operating loss carryforward.............. 815 4,364 3,430
Stock option compensation.................... -- 3,871 2,752
Reserves and accruals........................ 7,732 3,237 1,445
Credit carryforwards......................... 5,633 2,608 759
Depreciation and amortization................ 3,432 1,523 694
Unrealized gains on marketable securities.... (1,863)
Capital loss carryforward.................... 785 -- --
Other........................................ 32 83 (9)
-------- -------- -------
Total deferred tax assets...................... 16,566 15,686 9,071
Valuation allowance............................ (16,566) (15,686) (9,071)
-------- -------- -------
Net deferred tax liabilities................... $ (2,284) $ -- $ --
======== ======== =======
Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized; and accordingly, a
full valuation allowance has been recorded. The net deferred tax liability
relates to the intangible assets resulting from the Company's acquisition of
Extensibility, Inc.
At November 30, 2000, the Company has net operating loss carryforwards of
$2.4 million and $0.8 million excluding stock compensation deductions, and $429
million and $209 million including stock compensation deductions, for federal
and California, respectively, which expire through 2020 and 2005, respectively.
The Company also has available tax credit carryforwards of $4.5 million and
$1.5 million for federal and California, respectively, which expire through
2020. In the event of a change in ownership, as defined under federal and state
tax laws, the utilization of these carryforwards could be subject to certain
limitations in future years.
Note 7. Commitments
The Company leases office space and equipment under non-cancelable operating
leases with various expiration dates through December 2010. Rental expense was
approximately $8.4 million, $4.1 million and $2.2 million for the years ended
November 30, 2000, 1999 and 1998, respectively.
Future minimum lease payments under non-cancelable operating leases,
including lease commitments entered into subsequent to November 30, 2000, are
as follows (in thousands):
Year Ending November 30,
------------------------
2001........................................................... $ 9,808
2002........................................................... 9,244
2003........................................................... 9,012
2004........................................................... 9,052
2005........................................................... 9,303
Thereafter..................................................... 37,052
-------
$83,471
=======
F-17
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Stockholders' Equity
Preferred Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 25.0 million shares of $0.001 par value preferred stock.
In December 1997, the Company issued approximately 8.7 million shares of
series C convertible preferred stock at $1.29 per share for net proceeds of
approximately $11.0 million. At the closing of the offering, all issued and
outstanding shares of the Company's preferred stock were converted into an
aggregate of 81,678,945 shares of common stock.
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 300.0 million shares of $0.001 par value common stock. A
portion of the shares issued are subject to a right of repurchase by the
Company subject to vesting, which is generally over a five year period from the
grant date or employee hire date, as applicable, until vesting is complete.
Unvested shares are subject to repurchase at the original exercise price. As of
November 30, 2000 and 1999, shares of common stock subject to a repurchase
option held by the Company totaled 3.4 million shares and 5.9 million shares at
weighted average prices of $0.53 and $0.49 per share, respectively.
Benefit Plans
1996 Stock Option Plan. In 1996, the Company adopted the 1996 Stock Option
Plan (the "1996 Plan"). The 1996 Plan provides for the granting of stock
options to employees and consultants of the Company. Options granted under the
1996 Plan may be either incentive stock options or nonqualified stock options.
Incentive stock options may be granted only to employees (including officers
and directors who are employees). Nonqualified stock options may be granted to
Company employees and consultants. Options under the 1996 Plan may be granted
for terms not to exceed ten years. Options granted before the IPO are
exercisable immediately upon grant and generally vest over five years. Options
granted after the IPO generally vest over four years. Shares of common stock
issued upon the exercise of options granted prior to the IPO are subject to
repurchase until vested. The 1996 Plan provides for an automatic increase to
the number of shares of common stock reserved for issuance (to be added on the
first day of each fiscal year beginning in 2000) equal to the lesser of (i) 60
million shares, (ii) 5% of the outstanding shares of the Company's common
stock, or (iii) a lesser amount determined by the Board of Directors.
1998 Advisory Council Option Plan. In October 1998, the Company adopted the
1998 Advisory Council Option Plan (the "Advisory Plan") as a sub-plan to the
1996 Plan for the purpose of attracting and retaining personnel for service on
an information technology advisory council. The Advisory Plan provides for an
initial grant of 15,000 shares to each advisory council member (30,000 shares
to the chairman). Options are granted at an exercise price not less than fair
market value of the Common Stock on the date of grant, have a term not to
exceed ten years and become exercisable over a two-year period with half of the
shares vesting annually.
Employee Stock Purchase Plan. In June 1999, the Company adopted the Employee
Stock Purchase Plan (the "ESP Plan") as a sub-plan to the 1996 Plan. Employees
are generally eligible to participate in the ESP Plan if they are customarily
employed by the Company for more than 20 hours per week and more than 5 months
in a calendar year and are not (and would not become as a result of being
granted an option under the ESP Plan) 5% stockholders of the Company. Under the
ESP Plan, eligible employees may select a rate of payroll deduction up to 10%
of their eligible compensation subject to certain maximum purchase limitations.
F-18
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Each offering period has a maximum duration of two years (the "Offering
Period") and consists of four six-month Purchase Periods (each, a "Purchase
Period"), with the exception of the first Offering Period, which began on July
13, 1999 and will end on or before June 30, 2001. Offering Periods and
Purchase Periods thereafter will begin on January 1 and July 1 of each year.
The price at which the common stock is purchased under the ESP Plan is 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the applicable Offering Period or on the last day of that Purchase
Period. The ESP Plan will terminate after a period of ten years unless
terminated earlier as permitted by the ESP Plan.
Under this Plan, approximately 892,000 shares were issued during fiscal
2000 representing approximately $4,333,000 in employee contributions. As of
November 30, 2000, 5.1 million shares were available for issuance under the
ESP Plan.
1998 Director Option Plan. In February 1998, the Company adopted the 1998
Director Option Plan (the "Director Plan"). The Director Plan provides for an
automatic initial grant of 150,000 shares to members of the Board who are not
employees of the Company or Reuters ("External Directors"). Any External
Director with over one-year of consecutive service prior to the effective date
of the Director Plan received an initial grant of 450,000 shares. At any
subsequent annual re-election, each External Director shall be granted an
option to purchase 60,000 additional shares. Options are granted at an
exercise price not less than the fair market value of the stock on the date of
grant, have a term not to exceed ten years and become exercisable over a three
year period with a third of the shares vesting annually.
The activity under all stock option plans is summarized as follows (in
thousands, except per share data):
Year Ended November 30,
-----------------------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at beginning
of period.............. 31,440 $ 1.12 27,258 $0.39 20,676 $0.20
Granted............... 18,797 60.51 10,614 2.77 13,122 0.64
Exercised............. (7,170) 1.47 (5,235) 0.59 (5,499) 0.27
Forfeited............. (1,237) 22.95 (1,197) 1.34 (1,041) 0.27
------ ------ ------
Outstanding at end of
period................. 41,830 27.09 31,440 1.12 27,258 0.39
====== ====== ======
Options exercisable at
period end............. 24,664 4.02 29,601 0.81 27,258 0.39
====== ====== ======
The following table summarizes information about stock options outstanding
at November 30, 2000 (in thousands, except per share data):
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted
Number of Average Weighted Number of Weighted
Shares Remaining Average Shares Average
Range of Exercise Underlying Contractual Exercise Underlying Exercise
Price Options Life Price Options Price
----------------- ---------- ----------- -------- ---------- --------
$0.20 to $0.33 12,729 6.3 years $ 0.22 12,679 $ 0.22
$0.86 to $2.89 10,011 8.1 years 1.53 9,714 1.52
$3.00 to $40.33 2,240 8.9 years 16.99 878 10.70
$46.85 to $69.94 9,792 9.3 years 52.65 1,254 49.30
$71.81 to $127.00 7,058 9.7 years 79.55 139 74.28
------ ------
$0.20 to $127.00 41,830 8.1 Years 27.09 24,664 4.02
====== ======
F-19
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At November 30, 2000, the Company had reserved 763,491 and 675,000 shares of
authorized but unissued common stock for future issuance under the 1996 Plan
and the Director Plan, respectively.
Stock-based compensation
Year Ended November
30,
---------------------
2000 1999 1998
------- ------ ------
Stock-based compensation related to:
Cost of sales......................................... $ 3,025 $1,113 $ 490
Research and development.............................. 18,525 2,707 971
Sales and marketing................................... 33,637 4,281 2,304
General and administrative............................ 1,729 1,151 1,299
------- ------ ------
Total............................................... $56,916 $9,252 $5,064
======= ====== ======
In connection with certain stock option grants to employees and external
directors, the Company recorded approximately $3.6 million, $6.6 million and
$7.2 million of unearned stock compensation for the excess of the deemed fair
market value over the exercise price at the date of grant for the years ended
November 30, 2000, 1999 and 1998, respectively. Stock-based compensation
expense is being recognized, using the multiple option method as prescribed by
FASB Interpretation No.28, over the option vesting period of generally five
years. As a result, amortization of stock-based compensation for employees and
external directors was $5.5 million, $5.7 million, and $4.8 million for the
years ended November 30, 2000, 1999 and 1998, respectively and is expected to
be $3.3 million in 2001, $1.9 million in 2002, $0.8 million in 2003 and $0.1
million in 2004.
Stock-based compensation expense related to stock options granted to
consultants is recognized as earned, using the multiple option method as
prescribed by FASB Interpretation No. 28. At each reporting date, the Company
re-values the stock-based compensation using the Black-Scholes option pricing
model. As a result, the stock-based compensation expense will fluctuate as the
fair market value of the Company's common stock fluctuates. In connection with
the grant of stock options to consultants prior to the Company's initial public
offering, the Company recognized stock-based compensation expense of $34.8
million, $3.5 million and $0.3 million for the years ended November 30, 2000,
1999 and 1998, respectively. As of November 30, 2000, the Company expects to
amortize stock-based compensation expense for consultants of $6.6 million in
2001, assuming no change in the underlying value of the Company's common stock.
The Company recorded aggregate unearned compensation of $34.9 million in
connection with the acquisition of Extensibility Inc. related to unvested
options that were assumed as well as stock that was issued as part of the
consideration for the acquisition, which is being held in an escrow account.
This amount is amortized over the vesting period of the options and the stock.
The Company expects to amortize $18.8 million, $4.3 million, $0.5 million and
$0.1 million of unearned stock compensation in connection with the
Extensibility acquisition in fiscal 2001, 2002, 2003 and 2004, respectively.
Stock based compensation expense related to the unvested portion of options
assumed and restricted stock granted in connection with the acquisition of
Extensibility Inc. was $11.2 million in fiscal 2000.
In fiscal 2000, the Company recognized $5.4 million as stock compensation
expense related to the employer portion of payroll taxes due as a result of
employee exercises of non qualified stock options.
F-20
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value Disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have increased
to the pro forma amounts indicated below (in thousands):
Year Ended November 30,
----------------------------
2000 1999 1998
-------- -------- --------
Net loss:
As reported................................. $(24,951) $(19,481) $(12,951)
Pro forma................................... (295,974) (22,023) (13,344)
Net loss per share--basic and diluted:
As reported................................. $ (0.14) $ (0.19) $ (0.22)
Pro forma................................... (1.61) (0.21) (0.22)
The Company calculated the value of each option grant on the date of the
grant using a Black-Scholes option pricing model with the following
assumptions:
Stock Option
Plans ESP Plan
------------------- ----------
2000 1999 1998 2000 1999
---- ------- ---- ---- ----
Risk free interest rates.................... 6.3% 4.6% 4.7% 6.3% 4.6%
Expected lives (in years)................... 3.0 3.0 3.0 .5 .5
Dividend yield.............................. 0.0 0.0 0.0 0.0 0.0
Expected volatility 122% 0 or 92% 0.0 122% 92%
These pro forma amounts may not be representative of the effects on reported
net loss for future years as options vest over several years and additional
awards are generally made each year. The weighted average fair value of a share
of common stock underlying options granted in the years ended November 30,
2000, 1999 and 1998 was $53.51, $1.44, and $0.63, respectively.
401(k) Plan. The Company's employee savings and retirement plan is qualified
under Section 401 of the Internal Revenue Code. Employees may elect to reduce
their current compensation by up to the statutory prescribed annual limit and
have the amount of such reduction contributed to the 401(k) Plan. The Company
provides matches to employee contributions up to 4% of an employee's base pay
and an additional 50% match on employee contributions of the next 2% of base
pay.
Note 9. Segment Information
The Company operates primarily in one industry segment: the development and
marketing of a suite of software products that enables businesses to link
internal operations, business partners and customer channels through the real-
time distribution of information. Revenue by geographic area is as follows (in
thousands):
Year Ended November 30,
------------------------
2000 1999 1998
-------- ------- -------
North America and Latin America.................... $172,079 $47,706 $25,049
Europe............................................. 67,444 40,850 21,534
Pacific Rim........................................ 12,274 7,884 6,174
-------- ------- -------
Total Revenue.................................... $251,797 $96,440 $52,757
======== ======= =======
F-21
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue from Reuters accounted for 8%, 19% and 15% of total revenue for the
years ended November 30, 2000, 1999 and 1998, respectively. Revenue from Cedel
Global Services accounted for 17% of total revenue in fiscal 1998. Customers
with balances in excess of 10% of net accounts receivable at November 30, 2000
included Concert Global Networks USA LLC which represented 15% and at
November 30, 1999, Reuters and Procter and Gamble, which represented 13% and
15%, respectively. Long- lived assets outside the United States at November 30,
2000, 1999 and 1998 were not material.
Note 10. Business Combination
In August 2000, the Company entered into an Agreement and Plan of
Reorganization to acquire Extensibility Inc., a provider of enabling
technologies for XML-based application infrastructures. As a result of the
acquisition, Extensibility Inc. became a wholly owned subsidiary of TIBCO. In
connection with the acquisition, TIBCO issued common stock in exchange for all
of the outstanding capital stock and options of Extensibility Inc. The
acquisition was consummated on September 5, 2000 and was intended to be treated
as a tax-free reorganization under Section 368 of the Internal Revenue Code of
1986, as amended, and accounted for under the purchase method of accounting.
The results of operations of Extensibility Inc. and the estimated fair value of
the assets acquired and liabilities assumed are included in the Company's
financial statements from the date of acquisition.
The total fair market value of the consideration is approximately $102.4
million which consists of the allocated purchase price of $67.5 million as well
as $34.9 million in stock compensation related to unvested stock options that
were assumed as well as stock that was issued as part of the consideration for
the acquisition, which is being held in an escrow account. The purchase price
of $67.5 million includes the value of securities issued in the amount of $59.9
million, the assumption of Extensibility Inc. options totaling $5.1 million,
acquisition related expenses, consisting of financial advisory, accounting and
legal fees, of approximately $2.5 million. The Company assumed liabilities with
the fair value of $0.6 million and recorded $2.2 million for deferred tax
liabilities related to the acquired intangibles. The allocation of the purchase
price to intangibles was based upon an independent, third-party appraisal and
management's estimates and was as follows (in thousands):
In-process research and development............................. $ 2,260
Existing technology............................................. 2,830
Customer base................................................... 2,060
Workforce....................................................... 1,140
Trademarks...................................................... 250
Non compete agreement........................................... 80
Goodwill........................................................ 61,649
-------
Total goodwill and acquired intangibles....................... $70,269
=======
The goodwill and acquired intangibles have estimated useful lives of between
2 and 5 years and had related amortization expense of $4.3 million for the year
ended November 30, 2000.
Management estimates that $2.3 million of the purchase price represents
acquired in-process research and development that has not yet reached
technological feasibility and has no alternative future use. Accordingly, this
amount was immediately charged to expense upon consummation of the acquisition.
A portion of the purchase price has been allocated to developed technology,
which is shown as "Existing technology" in the table above, and in-process
research and development (IPRD). Developed technology and IPRD were identified
and valued through extensive interviews, analysis of data provided by
Extensibility Inc. concerning development projects, their stage of development,
the time and resources needed to complete them, if
F-22
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
applicable, their expected income generating ability and associated risks. The
income approach, which includes an analysis of the cash flows, and risks
associated with achieving such cash flows, was the primary technique utilized
in valuing the developed technology and IPRD.
Where development projects had reached technological feasibility, they were
classified as developed technology and the value assigned to developed
technology was capitalized. The developed technology is being amortized on a
straight-line basis over its estimated useful life of five years.
Where the development projects had not reached technological feasibility
and had no future alternative uses, they were classified as IPRD, which will
be expensed upon the consummation of the acquisition. The value was determined
by estimating the expected cash flows from the projects once commercially
viable, discounting the net cash flows back to their present value and then
applying a percentage of completion to the calculated value as defined below.
--Net cash flows. The net cash flows from the identified projects are based
on estimates of revenue, cost of sales, research and development costs,
selling, general and administrative costs and income taxes from those
projects. These estimates are based on the assumptions mentioned below. The
research and development costs included in the model reflect costs to
sustain projects, but exclude costs to bring in-process projects to
technological feasibility.
The estimated revenue is based on projections of Extensibility Inc. for
each in-process project. These projections are based on its estimates of
market size and growth, expected trends in technology and the nature and
expected timing of new product introductions by Extensibility Inc. and its
competitors.
Projected gross margins and operating expenses approximate Extensibility
Inc.'s recent historical levels.
--Discount rate. Discounting the net cash flows back to their present value
is based on the industry weighted average cost of capital ("WACC"). The
industry WACC is approximately 28%. The discount rate used in discounting
the net cash flows from IPR&D is 40%. This discount rate is higher than the
industry WACC due to inherent uncertainties surrounding the successful
development of the IPR&D, market acceptance of the technology, the useful
life of such technology and the uncertainty of technological advances which
could potentially impact the estimates described above.
--Percentage of completion. The percentage of completion for each project
was determined using costs incurred to date on each project as compared to
the remaining research and development to be completed to bring each
project to technological feasibility. The percentage of completion varied
by individual project from 10% to 80%.
If the projects discussed above are not successfully developed, the sales
and profitability of the combined company may be adversely affected in future
periods.
A customer base represents established relationships with businesses that
repeatedly order from a company. The income approach was used to estimate the
value of Extensibility Inc.'s customer base by determining the present value
of future cash flows generated by existing customers. Key assumptions used in
the calculation included 80% of revenue for existing products coming from
existing customers for the remainder of 2000, 50% in 2001, 40% in 2002 and 25%
in 2003, 40% of revenue for new products coming from existing customers for
the remainder of 2000, 70% in 2001 and 20% in 2002, a discount rate of 35% and
estimates of revenue growth, cost of sales, operating expenses and tax rate
provided by management of Extensibility Inc. The customer base is being
amortized on a straight-line basis over its estimated useful life of four
years.
F-23
TIBCO SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs for each
category of employee. The value of the assembled workforce is being amortized
on a straight-line basis over its estimated useful life of two years.
The trademark was valued by applying a trademark royalty rate of 0.5% to
forecasted revenue, and then the net cash flow expected from these amounts was
discounted at a rate of 35% to arrive at an estimated fair market value. The
trademark is being amortized on a straight-line basis over its estimated useful
life of four years.
The following unaudited pro forma information combines the results of
operations as if the acquisitions of InConcert Inc. and Extensibility Inc. had
been consummated as of the beginning of the periods presented (in thousands,
except for per share data):
Year Ended
November 30,
------------------
2000 1999
-------- --------
Revenue............................................... $252,197 $104,794
Net loss.............................................. (55,405) (74,371)
Basic and diluted net loss per share.................. $ (0.30) $ (0.71)
The pro forma net loss includes the impact of adjustments related to
amortization of purchased intangibles and goodwill, amortization of deferred
compensation and the reduction of interest income. The pro forma information
does not purport to be indicative of the results that would have occurred had
the acquisition actually been in effect for these periods, or of results that
may occur in the future.
F-24
PRO FORMA QUARTERLY RESULTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Fiscal 2000 Three Months Ended Fiscal 1999
-------------------------------------- --------------------------------------
Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May. 31, Feb. 28,
2000 2000 2000 2000 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(unaudited)
Revenue:
License revenue........ $ 68,046 $48,512 $ 36,678 $ 28,365 $21,702 $13,156 $12,340 $ 9,719
Service and maintenance
revenue................ 20,528 18,701 17,376 13,591 11,630 10,880 8,710 8,303
-------- ------- -------- -------- ------- ------- ------- -------
Total revenue........ 88,574 67,213 54,054 41,956 33,332 24,036 21,050 18,022
Cost of revenue.........
Stock-based
compensation........... 830 682 732 781 297 316 272 228
Other cost of revenue.. 17,793 16,585 14,656 12,459 10,633 9,738 8,727 7,513
-------- ------- -------- -------- ------- ------- ------- -------
Gross profit............ 69,951 49,946 38,666 28,716 22,402 13,982 12,051 10,281
-------- ------- -------- -------- ------- ------- ------- -------
Operating expenses:
Research and
development............
Stock-based
compensation........... 7,875 3,612 3,395 3,643 1,309 611 413 374
Other research and
development............ 19,021 14,879 13,187 10,774 8,536 7,032 6,265 5,646
Sales and marketing....
Stock-based
compensation........... 20,198 3,305 5,852 4,281 1,969 799 845 668
Other sales and
marketing.............. 30,679 25,437 20,586 15,527 12,107 8,093 7,513 5,416
General and
administrative.........
Stock-based
compensation........... 469 381 425 454 248 295 291 317
Other general and
administrative......... 7,141 4,557 3,748 3,043 2,938 1,756 2,004 1,532
Acquired in-process
research and
development............ 2,260 -- -- -- 2,800 -- -- --
Amortization of
goodwill and acquired
intangibles............ 5,751 1,562 1,562 1,604 521 -- -- --
-------- ------- -------- -------- ------- ------- ------- -------
Total operating
expenses............. 93,394 53,733 48,755 39,326 30,428 18,586 17,331 13,953
-------- ------- -------- -------- ------- ------- ------- -------
Loss from operations.... (23,443) (3,787) (10,089) (10,610) (8,026) (4,604) (5,280) (3,672)
Other income (expense),
net..................... 10,169 8,816 6,594 1,099 1,434 675 267 (274)
Realized gain (loss) on
equity investments...... (3,644) 1,832 -- -- -- -- -- --
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss) before
income taxes............ (16,918) 6,861 (3,495) (9,511) (6,592) (3,929) (5,013) (3,946)
Provision for income
taxes................... (1,888) --
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss)....... $(18,806) $ 6,861 $ (3,495) $ (9,511) $(6,592) $(3,929) $(5,013) $(3,946)
======== ======= ======== ======== ======= ======= ======= =======
Net loss per share:
Basic.................. $ ( 0.10) $ 0.04 $ ( 0.02) $ ( 0.05) $( 0.04) $( 0.03) $( 0.08) $( 0.06)
======== ======= ======== ======== ======= ======= ======= =======
Weighted average common
shares outstanding..... 190,556 187,088 182,859 176,461 174,813 113,365 63,059 61,951
======== ======= ======== ======== ======= ======= ======= =======
Net loss per share:
Diluted................ $ ( 0.10) $ 0.03 $ ( 0.02) $ ( 0.05) $( 0.04) $( 0.03) $( 0.08) $( 0.06)
======== ======= ======== ======== ======= ======= ======= =======
Weighted average common
shares outstanding..... 190,556 222,558 182,859 176,461 174,813 113,365 63,059 61,951
======== ======= ======== ======== ======= ======= ======= =======
F-25
PRO FORMA QUARTERLY RESULTS OF OPERATIONS--(Continued)
(as a percentage of total revenue)
Three Months Ended Fiscal 2000 Three Months Ended Fiscal 1999
---------------------------------- -----------------------------------
Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May. 31, Feb. 28,
2000 2000 2000 2000 1999 1999 1999 1999
-------- -------- ------- -------- -------- -------- -------- --------
Revenue:
License revenue........ 77% 72% 68% 68% 65% 55% 59% 54%
Service and maintenance
revenue............... 23 28 32 32 35 45 41 46
--- --- --- --- --- --- --- ---
Total revenue........ 100 100 100 100 100 100 100 100
Cost of revenue.........
Stock-based
compensation.......... 1 1 1 2 1 1 1 1
Other cost of revenue.. 20 25 27 30 32 41 41 42
--- --- --- --- --- --- --- ---
Gross profit............ 79 74 72 68 67 58 58 57
--- --- --- --- --- --- --- ---
Operating expenses:
Research and
development...........
Stock-based
compensation......... 9 5 6 9 4 3 2 2
Other research and
development.......... 21 22 24 26 26 29 30 31
Sales and marketing....
Stock-based
compensation......... 22 5 11 10 5 3 4 3
Other sales and
marketing............ 35 38 38 37 36 34 36 30
General and
administrative........
Stock-based
compensation......... 1 1 1 1 1 1 1 2
Other general and
administrative....... 8 7 7 7 9 7 10 9
Acquired in-process
research and
development........... 3 -- -- -- 8 -- -- --
Amortization of
goodwill and acquired
intangibles........... 6 2 3 4 2 -- -- --
--- --- --- --- --- --- --- ---
Total operating
expenses............ 105 80 90 94 91 77 83 77
--- --- --- --- --- --- --- ---
Loss from operations.... (26) (6) (18) (26) (24) (19) (25) (20)
Other income (expense),
net.................... 11 13 12 3 4 3 1 (2)
Realized gain (loss) on
equity investments..... (4) 3 -- --
--- --- --- --- --- --- --- ---
Net gain (loss) before
income taxes........... (19) 10 (6) (23) (20) (16) (24) (22)
Provision for income
taxes.................. (2) --
--- --- --- --- --- --- --- ---
Net gain (loss)......... (21)% 10% (6)% (23)% (20)% (16)% (24)% (22)%
=== === === === === === === ===
F-26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on this
26th day of February, 2001.
TIBCO Software Inc.
/s/ Paul G. Hansen
By: ________________________________
Paul G. Hansen
Executive Vice President, Finance
and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Vivek Y. Ranadive and Paul G. Hansen and
each of them, jointly and severally, his or her attorneys-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign
any and all amendments to this Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Vivek Y. Ranadive President, Chief February 26th, 2001
____________________________________ Executive Officer,
Vivek Y. Ranadive Chairman of the Board
and Director (Principal
Executive Officer)
/s/ Paul G. Hansen Executive Vice February 26th, 2001
____________________________________ President, Finance and
Paul G. Hansen Chief Financial Officer
(Principal Financial
Officer)
/s/ Ginger M. Kelly Corporate Controller and February 26th, 2001
____________________________________ Chief Accounting
Ginger M. Kelly Officer (Principal
Accounting Officer)
Director February , 2001
____________________________________
Peter Job
Director February , 2001
____________________________________
Edward R. Kozel
/s/ Donald J. Listwin Director February 26th, 2001
____________________________________
Donald J. Listwin
II-1
Signature Title Date
--------- ----- ----
/s/ Larry W. Sonsini Director February 26th, 2001
____________________________________
Larry W. Sonsini
Director February , 2001
____________________________________
Matthew Szulik
/s/ David Ure Director February 26th, 2001
____________________________________
David Ure
Director February , 2001
____________________________________
Michelangelo Volpi
/s/ Philip K. Wood Director February 26th, 2001
____________________________________
Philip K. Wood
/s/ Yogen K. Dalal Director February 26th, 2001
____________________________________
Yogen K. Dalal
II-2
EXHIBIT INDEX
Exhibit
No. Exhibits
------- --------
*3.1 Certificate of Incorporation of Registrant.
**3.2 Bylaws of Registrant.
**4.1 Form of Registrant's Common Stock certificate.
**10.1 Form of Indemnification Agreement.
**10.2 First Amended and Restated License, Maintenance and Distribution
Agreement dated May 28, 1999, among Reuters Limited, TIBCO Finance
Technology, Inc. and Registrant.
+10.3 Third Amended and Restated Stockholders Agreement, among Reuters
Nederland B.V., Reuters Limited, Cisco Systems, Inc., Mayfield IX,
Mayfield Associated Fund III, Vivek Ranadive and Registrant.
+10.4 1996 Stock Plan, as amended.
++10.5 1998 Director Option Plan, as amended.
+10.6 Assignment and Assumption of Lease Agreement between TIBCO Finance
Technology, Inc. and Registrant.
+10.7 Employment Agreement between Registrant and Vivek Y. Ranadive.
+10.8 Employment Agreement between Registrant and Robert B. Stefanski.
+10.9 Employment Agreement between Registrant and Paul G. Hansen.
+10.10 Employment Agreement between Registrant and Richard M. Tavan.
**10.11 Software License and Development Agreement dated May 11, 1999 between
Cedel Global Services, societe anonyme, and Registrant.
**10.12 Industrial Lease Agreement dated December 14, 1995 between Porter
Drive Associated LLC and TIBCO Finance Technology, Inc. (formerly
known as Teknekron Software Systems (Delaware), Inc.).
++10.13 Lease Agreement dated September 24, 1999 between The Board of Trustees
of the Leland Stanford Junior University and the Registrant.
++10.14 Lease Agreement dated January 21, 2000 between Spier Properties, L.P.
and the Registrant.
21.1 List of subsidiaries.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on signature page).
- --------
* These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-83491.
** These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement File No. 333-78195.
+ These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Registration Statement No. 333-31358.
++ These exhibits are incorporated by reference to exhibits similarly numbered
in the Registrant's Quarterly Report on Form 10-Q filed with the Commission
on April 17, 2000.