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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-25871
INFORMATICA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0333710
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3350 WEST BAYSHORE
PALO ALTO, CALIFORNIA 94303
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(650) 687-6200
(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, PAR VALUE $0.001 PER SHARE
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. [X]
As of February 28, 2001 there were approximately 76,859,204 shares of the
Registrant's Common Stock outstanding. The aggregate market value of the Common
Stock held by non-affiliates of the Registrant (based on the closing price for
the Common Stock on the Nasdaq National Market on February 28, 2001) was
approximately $1,097,390,739. Shares of the Registrant's Common Stock held by
each executive officer and director and by each entity that owns 5% or more of
the Registrant's 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
Portions of the Registrant's Proxy Statement for the Registrant's 2001
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K to the extent stated herein. The Proxy Statement will be filed
within 120 days of Registrant's fiscal year ended December 31, 2000.
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INFORMATICA CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Consolidated Financial Data........................ 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Factors That May Affect Future Results...................... 20
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 28
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 52
Item 11. Executive Compensation...................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement
Schedules and Reports on Form 8-K........................... 52
SIGNATURES............................................................ 54
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This Annual Report on Form 10-K includes "forward-looking statements"
within the meaning of the federal securities laws, particularly statements
referencing costs and operating expenses as a percentage of total revenues; the
sufficiency of our cash balances and cash flows for the next twelve months;
potential investments of cash or stock to acquire or invest in complementary
businesses, products or technologies; the impact of recent changes in accounting
standards; and assumptions underlying any of the foregoing. In some cases,
forward-looking statements can be identified by the use of terminology such as
"may," "will," "expects," "intends," "plans," "anticipates," "estimates,"
"potential," or "continue," or the negative thereof or other comparable
terminology. Although we believe that the expectations reflected in the
forward-looking statements contained herein are reasonable, these expectations
or any of the forward-looking statements could prove to be incorrect, and actual
results could differ materially from those projected or assumed in the
forward-looking statements. Our future financial condition and results of
operations, as well as any forward-looking statements, are subject to risks and
uncertainties, including but not limited to the factors set forth in "Factors
That May Affect Future Results" and elsewhere in this report. All
forward-looking statements and reasons why results may differ included in this
report are made as of the date hereof, and we assume no obligation to update any
such forward-looking statements or reasons why actual results may differ.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading provider of e-business infrastructure and analytic
software that enables our customers to automate the integration, analysis and
delivery of critical corporate information. Using our products, managers and
executives gain valuable business insight they can use to improve operational
performance and enhance competitive advantage.
Over the last two decades, companies have made significant investments in a
variety of applications that automate specific business functions. As a result,
companies have amassed large volumes of information stored in disparate
databases. More recently, the adoption of the Internet as a business tool and
the deployment of e-business applications have accelerated this trend by
exponentially increasing electronic transaction activity and the volume of
associated data. These developments have made it increasingly difficult for
managers and executives to access and analyze comprehensive information
regarding their customers, operations and suppliers in a timely manner.
We provide our customers with a comprehensive family of software products
that are designed to support more effective and timely business decision-making.
Our infrastructure products simplify the process of integrating and analyzing
data from multiple systems, while our complementary analytic application
products provide our customers with standardized reports and metrics that can be
extended to meet their unique business requirements. Using our products,
customers can evaluate the performance of their entire business value-chain,
including direct and indirect sales, marketing, customer service, operations,
human resources, procurement and finance. We plan to extend our products to
allow a broader range of corporate employees to access corporate information
through wireless devices, voice recognition technology and the Internet. We
believe our products provide our customers with the following primary benefits:
- integrated information across a wide range of business functions and
disparate data sources;
- timely delivery of personalized corporate information to key
decision-makers; and
- comprehensive business insight to enable enhanced business
decision-making.
We have over 1,100 customers, which include companies in a wide variety of
industries, ranging from high-technology to manufacturing, and from financial
services to telecommunications. We also maintain relationships with a variety of
strategic partners to jointly develop, market, sell and implement our solutions.
Our significant strategic partners include Accenture, Ariba, Business Objects,
Deloitte Consulting, KPMG Consulting, PeopleSoft, PricewaterhouseCoopers, SAP,
Siebel Systems and Sybase. We market and sell our
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software and services through our direct sales force in the United States,
Canada, Germany, Switzerland and the United Kingdom. We also have relationships
with distributors in various regions, including Asia-Pacific, Australia, Europe,
Japan and Latin America, who sublicense our products and provide service and
support within their territories. More than twenty independent software vendors,
including several of our strategic partners, have licensed our technology for
inclusion in their products.
Our principal executive offices are located at 3350 W. Bayshore Road, Palo
Alto, California 94303, and our telephone number at that location is (650)
687-6200. We can also be reached at our Web site at www.informatica.com. We were
incorporated in California in February 1993 and reincorporated in Delaware in
April 1999.
RECENT DEVELOPMENTS
Business Combinations
In February 2000, we acquired Delphi Solutions AG ("Delphi"), a distributor
of Informatica products in Switzerland. We purchased all of the outstanding
capital stock of Delphi, and the acquisition was accounted for as a purchase
transaction. In August 2000, we acquired Zimba, a leading provider of e-business
analytic solutions that enable mobile professionals with real-time access to
corporate and external information through wireless devices, voice recognition
technology and the Internet. We purchased all of the outstanding common stock of
Zimba and assumed all of Zimba's outstanding stock options. The acquisition was
accounted for as a purchase transaction. In January 2001, we acquired syn-T-sys
B.V. and syn-T-sys N.V., distributors of Informatica products in the Netherlands
and Belgium, respectively. The agreement was structured as a share purchase and
will be accounted for as a purchase transaction.
Asset Acquisitions
In April 2000, we announced a strategic alliance with
PricewaterhouseCoopers ("PwC") to jointly develop, market, sell and support
analytic application products. In connection with this alliance, we purchased
certain technology and acquired various employees and consultants from PwC. The
acquisition was accounted for as a purchase transaction. In November 2000, we
acquired intellectual property from certain individuals ("QRB Developers"). The
acquisition was accounted for as a purchase transaction.
Stock Splits
We effected two stock splits in 2000. A two-for-one stock split was
effected in the form of a stock dividend to each stockholder of record as of
February 18, 2000. An additional two-for-one stock split was effected in the
form of a stock dividend to each stockholder of record as of November 29, 2000.
OUR PRODUCTS
Our products enable our customers to build the necessary infrastructure for
deploying and managing data warehouse solutions and analytic applications across
their organizations. Our product line, which includes infrastructure products
and a suite of packaged analytic applications, enables enterprises to implement
a decision support architecture that can be as sophisticated -- or as
simple -- as required. Our infrastructure products include our flagship data
integration platform and a set of supporting products that simplify the
integration, transformation and analysis of data from disparate sources. In June
2000, we extended our product offerings to include an integrated suite of
analytic applications that leverage and complement our infrastructure products.
Using our products, customers can evaluate the performance of their entire
business value-chain, including direct and indirect sales, marketing, customer
service, operations, human resources, procurement and finance.
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The following information summarizes the key features and benefits of our
products and services.
Infrastructure Products
Our infrastructure products feature a high-performance, scalable
architecture designed to support the demanding requirements of global companies
and rapidly growing e-businesses. Our core offerings, PowerCenter and PowerMart,
are enterprise data integration platforms that integrate and unify the diverse
applications, and the various types of users, that populate today's enterprises.
Our infrastructure products extract data from operational sources, including
legacy data, relational data, customer relationship management, or CRM, data and
enterprise resource planning, or ERP, data, enrich it for decision support,
catalog it for use and reuse, and deliver it to business intelligence and
analytic applications. In addition, we offer a number of extension products that
provide technical capabilities to accelerate and simplify customer
implementation of our products, including PowerConnects, PowerPlugs and
PowerBridge.
PRODUCT DESCRIPTION BENEFIT
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INFORMATICA A scalable enterprise data Speeds integration and simplifies
POWERCENTER integration platform for deploying management of enterprise-wide
and managing distributed data information by integrating decision
warehouses and sophisticated support components, enforcing
analytic applications. This platform consistent data definitions and
manages the integration, synchronizing and integrating
transformation and analysis of data disparate data marts and data
from disparate sources and allows warehouses and analytic
centralized management of applications.
distributed resources.
INFORMATICA A data integration platform for Speeds integration and simplifies
POWERMART quickly building, deploying and management of departmental
managing line-of-business or information by integrating decision
departmental data marts and analytic support components and enforcing
applications. consistent data definitions.
INFORMATICA A set of extensions to provide Simplifies access to e-business,
POWERCONNECTS/ direct access to various enterprise ERP, CRM, messaging and legacy data
POWERPLUGS/ data sources and metadata, including and allows the reuse of metadata in
POWERBRIDGE SAP, PeopleSoft, DB2, IBM MQSeries order to reduce information
and Hyperion. technology cost and improve system
manageability.
Analytic Application Products
Our application products are comprised of a tightly integrated suite of
analytic applications that provide key business metrics and analytical reports
across a range of business functions. Because our analytic application products
span multiple business functions, we believe they uniquely offer managers and
executives an integrated cross value-chain view of their businesses that they
have not traditionally been able to achieve. These analytic applications are
designed to integrate data from a variety of operational systems, such as Ariba,
Oracle, PeopleSoft, SAP, Siebel Systems, legacy systems and Web commerce
servers, to provide unique business insight by enabling companies to analyze and
manipulate the aggregated and normalized information. Our packaged analytic
applications are designed to help companies leverage industry best practices and
minimize implementation time and cost for enterprise-wide analytics. Our
analytic applications are based on our infrastructure products and can therefore
be modified and extended to meet the unique requirements of
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each enterprise. Our analytic application family is comprised of three
integrated applications, summarized in the table below.
PRODUCT DESCRIPTION BENEFIT
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INFORMATICA An integrated suite for analyzing Helps companies to increase sales
ECRM/ESITE the effectiveness of and customer profitability by
customer-facing business attracting, retaining and
processes, including direct and servicing customers across all
indirect sales, marketing, sales and distribution channels.
customer service and Web-based
clickstream data.
INFORMATICA An integrated suite for analyzing Helps companies to reduce costs,
EBUSINESS OPERATIONS back-office business operations, improve responsiveness and better
including finance, human manage human resources and other
resources, manufacturing and corporate assets in order to
logistics. drive increased profitability
across the enterprise.
INFORMATICA An integrated suite for analyzing Helps companies reduce direct and
EPROCUREMENT procurement processes, including indirect procurement time and
the acquisition of raw materials, costs, improve product quality
components and other supplies, as and monitor supplier performance.
well as supplier relationships.
In October 2000, we announced our intention to add a fourth application to
the product family, Informatica eMarketplace, to support the unique analytic
requirements of digital marketplace operators and extended supply chain
participants. We expect to release this application in the first half of 2001.
Services
We offer a comprehensive set of professional services, including
product-related consulting services, training and customer support. Our
consulting services range from designing and deploying analytic applications to
data transformation and performance tuning. Our consulting strategy is to
provide specialized expertise regarding our products to enable our end user
customers and systems integrator partners to successfully implement our
products. Our systems integrator partners include Accenture, Cap Gemini Ernst &
Young, Computer Sciences Corporation, Deloitte Consulting, EDS, KPMG Consulting
and PricewaterhouseCoopers. We also offer a comprehensive curriculum of
product-related training to help our customers and strategic partners build
proficiency in using our products. Through our two technical support centers, we
offer high-quality technical support on a global basis to customers through the
phone, e-mail and the Internet.
OUR STRATEGIC PARTNERS AND CUSTOMERS
Our strategic partners include industry leaders in enterprise and
e-business software, business intelligence tools, computer hardware and systems
integration. We offer a comprehensive strategic partnership program for major
vendors in these areas so that they can provide sales and marketing leverage,
access to required technology and complementary products and services to our
joint customers. In addition to our systems integrator partners listed above,
our strategic partners include Ariba, Brio Technology, BroadVision, Business
Objects, Cognos, Compaq Computer, EMC, Hewlett-Packard, Hyperion Solutions, IBM,
Inktomi, InterWorld, Kana Communications, Microsoft, MicroStrategy, Mitsubishi
Electric, PeopleSoft, SAP, Siebel Systems, Sun Microsystems and Sybase.
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Our customers include leading companies in a wide range of industries as
well as major governmental and educational institutions. A representative
sampling of customers who have purchased at least $250,000 of our software and
related services since January 1996 includes:
BANKING/FINANCIAL
SERVICES INSURANCE MANUFACTURING/HIGH TECH
----------------- --------- -----------------------
- Abbey National - The Money Store - Allmerica Financial - 3Com
- Charles Schwab - GMAC - American United Life - Ericsson
- ADP - Imperial Bank - AXA - Advanced Micro Devices
- BancOne - International Finance - Blue Cross/Blue Shield - Autodesk
- Bank Julius Bar - JP Morgan - Canada Life Assurance - Avery-Dennison
- Bank of Tokyo Capital - Kinetic Group - CNA - Brocade Communications
Group - Lincoln Financial - Crum & Forster - Callidus Software
- Banque de France - - Merrill Lynch - Equitable Life - Conexant
Barclays - Morgan Stanley Dean - Great American Life - EMC
Bank Witter - Hartford - Freightliner
Capital - NatWest Bank - Insurance Corp. of B.C. - Gateway
Group - Oppenheimer - John Hancock - General Electric
- Citigroup - PNC Bank - Lincoln Financial Group - Hewlett-Packard
- Clariden Bank - Providian Financial - Met Life - Honeywell
- Consors Discount Broker - Putnam Investments - Mutual of Omaha - Inktomi
- Credit Suisse First - Salomon Smith Barney - Pacific Life - LSI Logic
Boston - Societe Generale - Principal Life - Lucent Technologies
- Deutsche Bank - UBS - Prudential - Macromedia
- Evesto - Union Bank - ReliaStar Life - Motorola
- Experian - XL Capital - Sun Life - Palm
- Fair Isaac - Swiss Re - Philips
- First American Real - USAA - Qualcomm
Estate - Winterthur - SGI
- First Union - Siemens
- Thomson Consumer
Electronics
- Toyota
BANKING/FINANCIAL
SERVICES COMMUNICATIONS
----------------- --------------
- Abbey National - Adelphia
- Charles Schwab - E-Plus Mobilfunk
- ADP - AirTouch
- BancOne - Alltel Information
- Bank Julius Bar Services
- Bank of Tokyo Capital - AT&T
Group - Bell Atlantic
- Banque de France - - Broadwing
Barclays Communication Services
Bank - Cable & Wireless
Capital - Cellway
Group - Deutsche Telekom CSM
- Citigroup - General Communications
- Clariden Bank - Intermedia
- Consors Discount Broker Communications
- Credit Suisse First - McLeod
Boston - Nextel
- Deutsche Bank - NTL
- Evesto - One2One
- Experian - One Connect
- Fair Isaac - PacBell
- First American Real - Scottish Telecom
Estate - Sonera
- First Union - Sprint
- Sunrise Communications
- Swisscom
- Telenor
- Verizon
- VIAG Interkom
RETAIL/CONSUMER
PHARMACEUTICALS/CHEMICALS PACKAGED GOODS UTILITIES/ENERGY OTHER
------------------------- --------------- ---------------- -----
- Abbott Laboratories - Best Buy - AERA Energy - ABB Infosystems
- Amgen - Cargill - American Electric Power - BBC Worldwide Limited
- Astra Zeneca - Cartier - Chevron - Beta Systems
- Corning - Circuit City - CMS - Cap Gemini Ernst &
- Equistar - Con Agra - EDF GDF Young
- Genentech - Dial - Enron - Capital One Services
- Glaxo Wellcome - HE Butt Groceries - Entergy Services - Carlson Wagonlit
- Hoechst - Musicland - Equilon Enterprises - Cendant
- Parke Davis - Polo Ralph Lauren - First Energy - Computer Sciences Corp
- Pharmacia & Upjohn - Staples - Florida Power & Light - Electronic Arts
- Quintiles - Super-Valu - KN Energy - Enterprise Rent-a-Car
- Koch Petroleum - Excel Management
- Northeast Utilities Services
- PP&L - Fleet Services
- Texas Utilities - Fox Entertainment Group
- Thames Water - Gelco Info Network
- TransCanada Pipelines - Information Services
- Ultramar Diamond Int'l
Shamrock
- Waste Management
PHARMACEUTICALS/CHEMICALS
-------------------------
- Abbott Laboratories - KPMG
- Amgen - Manpower
- Astra Zeneca - Pantellos Corporation
- Corning - Perot Systems
- Equistar - Primestar
- Genentech - Protection One
- Glaxo Wellcome - Purdue University
- Hoechst - Simon & Schuster
- Parke Davis - Stanford University
- Pharmacia & Upjohn - The NDP Group
- Quintiles - Thomson Publishing
- Tribune Company
- University of Alabama
- University of Maryland
- University of Wisconsin
- Vencor
- Warner Brothers
- West Group
Communications
E-BUSINESS/INTERNET GOVERNMENT TRANSPORTATION/DISTRIBUTION
------------------- ---------- ---------------------------
- Barnesandnoble.com - Deutsche Post - Air France
- Cisco - Government of Israel - American Airlines
- CNET - La Poste - BAX Global
- CyberCillium - Post Denmark - BC Rail
- CyberDialogue - State of Wisconsin - BOC Distribution
- eBay - US Air Force - Delta Airlines
- Media Metrix - US Department of - Deutsche Bahn
- Priceline.com Education - Die Post
- Storerunner.com - US Department of the - Fed Ex
- Submitorder.com Interior - Nextlink
- UUNET Technologies - US Department of Navy - NSB
- Ventro - US Postal Service - Schneider International
- WebMD - Washington State Courts - TNT Express
- Williams Information
Services
OUR MARKET POSITIONING
Analytic Solutions Spanning the Entire e-Business Value Chain. Both our
infrastructure and analytic application products afford our customers with a
complete, enterprise-wide analytic capability that can span the full range of
business functions, such as direct and indirect sales, marketing, customer
service, operations,
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human resources, procurement and finance. By leveraging this integrated and
cross value-chain view of their operations, our customers are better able to
manage their businesses and improve their competitive position.
Highly Scalable and Flexible Data Integration Architecture. Our products
are capable of supporting the needs of large global enterprises and demanding
e-businesses due to our highly scalable and extensible architecture. In
addition, our infrastructure products are developed to be compatible with major
software applications. Our platform and supporting infrastructure products are
both flexible and extensible, allowing customers to build sophisticated analytic
applications to meet their specific requirements. The open architecture design
of our products enables our customers to support and inter-operate with a wide
range of computing platforms, applications and data sources.
e-Business Support. We have extended our infrastructure products to support
leading e-business standards, such as XML and Web logs. In addition, we have
built product extensions to simplify integration with leading e-business
applications and Web commerce servers, including those offered by Ariba,
BroadVision, Kana Communications and Siebel Systems. Especially when combined
with our eCRM application suite, our products allow companies to easily
integrate their Internet and back office applications and to perform valuable
analysis of their combined operations.
Significant Installed Customer Base. We have an installed customer base
that spans a wide range of industries. Our products have been licensed by over
1,100 customers around the world. As of December 31, 2000, our customers
included over half of the Fortune 100 companies. Our success in these
deployments serves to strengthen our brand awareness while providing an
opportunity to license additional products to these existing customers.
Strong Base of Leading Strategic Partners. We have alliances and strategic
partnerships with leading enterprise and e-business software providers, systems
integrators and hardware vendors. These alliances provide sales and marketing
leverage and access to required technology while also providing complementary
products and services to our joint customers. Currently, more than 150 companies
market and resell our solutions around the world, which we believe has helped
accelerate market adoption of our products.
RESEARCH AND DEVELOPMENT
As of December 31, 2000, we employed 185 people in our research and
development organization. This team is responsible for the design, development
and release of our products. The group is organized into four disciplines:
development, quality assurance, documentation and program management. Members
from each discipline, along with a product marketing manager from our marketing
department, form separate product teams that work closely with sales, marketing,
services, customers and prospects to better understand market needs and user
requirements. These product teams utilize a well-defined software development
methodology that we believe enables us to deliver products that satisfy real
business needs for the global market while also meeting commercial quality
expectations.
When appropriate, we also utilize third parties to expand the capacity and
technical expertise of our internal research and development team. On occasion,
we have licensed third-party technology. We believe this approach shortens
time-to-market without compromising competitive position or product quality, and
we plan to continue to draw on third-party resources as needed in the future.
Our research and development expenditures were $26.5 million in 2000, $11.8
million in 1999 and $8.4 million in 1998.
SALES, MARKETING AND DISTRIBUTION
We market and sell software and services through a direct sales force in
the United States, Canada, Germany, Switzerland and the United Kingdom, as well
as through distributors in various regions around the world. As of December 31,
2000, we employed 277 people worldwide in our sales and marketing organization.
Marketing programs are focused on creating awareness as well as lead
generation and customer references for our products. These programs are targeted
at key executives such as chief executive officers, chief information officers,
other information technology managers and vice presidents of specific functional
areas, such as engineering, research and development, sales, service and
marketing. Our marketing personnel
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engage in a variety of activities, including positioning our software products
and services, conducting public relations programs, establishing and maintaining
relationships with industry analysts and generating qualified sales leads, among
others.
Our sales process consists of several phases: lead generation, initial
contact, lead qualification, needs assessment, enterprise overview, product
demonstration, proposal generation and contract negotiation. Although the
typical sales cycle has been up to 120 days, certain sales cycles in the past
have lasted substantially longer. In a number of instances, our relationships
with systems integrators and other strategic partners have reduced sales cycles
by generating qualified sales leads, making initial customer contacts and
assessing needs prior to our introduction to the customer. Also, partners have
assisted in the creation of presentations and demonstrations, which we believe
enhances our competitive position.
We distribute our products through system integrators and resellers in the
United States and through system integrators and distributors in Europe. Systems
integrators typically have expertise in vertical markets. They resell our
products, bundling them in some cases with system-wide solutions. In other
cases, they influence direct sales of our products. Distributors sublicense our
products and provide service and support within their territories.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. As part of our confidentiality procedures, we generally
enter into non-disclosure agreements with our employees, distributors and
corporate partners and into license agreements with respect to our software,
documentation and other proprietary information. In addition, we have six patent
applications pending and five patents granted in the United States.
COMPETITION
The market for our products is highly competitive, quickly evolving and
subject to rapidly changing technology. We compete principally against providers
of decision support, data warehousing and analytic application software. Such
competitors include Acta Technology, Inc., Informix Corporation, Broadbase
Information Systems, Inc., E.piphany, Inc., Informix Corporation, MicroStrategy,
Inc., Cognos Inc., Business Objects S.A., Brio Technology, Inc., and Sagent
Technology, Inc. In addition, we compete or may compete against database vendors
and business intelligence vendors that currently offer, or may develop, products
with functionalities that compete with our solutions. Such potential competitors
include IBM Corporation, Microsoft Corporation and Oracle Corporation.
Many of our competitors or potential competitors have longer operating
histories, substantially greater financial, technical, marketing or other
resources, or greater name recognition than we do. Our competitors may be able
to respond more quickly than we can to new or emerging technologies and changes
in customer requirements. Competition could seriously impede our ability to sell
additional products and services on terms favorable to us. Our current and
potential competitors may develop and market new technologies that render our
existing or future products obsolete, unmarketable or less competitive. We
currently compete more on the basis of our products' functionality than on the
basis of price. If our competitors develop similar or superior functionality, we
may have difficulty competing more substantially on the basis of price. Our
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with other solution providers,
thereby increasing the ability of their products to address the needs of our
prospective customers. Our current and potential competitors may establish or
strengthen cooperative relationships with our current or future channel or
strategic partners, thereby limiting our ability to sell products through these
channels. Competitive pressures could reduce our market share or require us to
reduce our prices, either of which could materially and adversely affect our
business, results of operations or financial condition.
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We compete on the basis of certain factors, including:
- product performance;
- product features;
- user scalability;
- open architecture;
- ease of use;
- product reliability;
- analytical capabilities;
- time-to-market;
- customer support; and
- product pricing.
EMPLOYEES
As of December 31, 2000, we had a total of 763 employees, including 185
people in research and development, 277 people in sales and marketing, 204
people in consulting, customer support and training and 97 people in general and
administrative services. None of our employees is represented by a labor union.
We have not experienced any work stoppages, and we consider employee relations
to be good.
ITEM 2. PROPERTIES
Our headquarters are located in Palo Alto, California and consist of
approximately 60,000 square feet of office space leased through August 2001. We
occupy an additional 30,000 square feet of office space in a building near our
headquarters in Palo Alto leased through June 2007. In February 2001, we also
leased 14,000 square feet of office space in Palo Alto through April 2002. To
help meet our future expansion needs, we signed leases in early 2000 for two
buildings currently under construction in Redwood City, California. This
location will become our new corporate headquarters in August 2001. These
buildings are leased through 2013 and consist of approximately 286,000 square
feet of office space.
We lease approximately 19,000 square feet of office space in San Francisco,
California primarily for sales, marketing and professional services activities.
This facility is leased through November 2006. We also lease 6,500 square feet
of office space for sales activities in New York, New York through April 2010
and 25,000 square feet of office space for sales, professional services and
product development activities in Carrollton, Texas through June 2006.
We occupy approximately 10,000 square feet of office space in Maidenhead,
United Kingdom for our European headquarters leased through May 2010.
We also lease other office space in the United States and other various
countries under operating leases.
ITEM 3. LEGAL PROCEEDINGS
We are subject to various legal proceedings and claims, either asserted or
unasserted, which arise in the ordinary course of business. While the outcome of
these claims cannot be predicted with certainty, we do not believe that the
outcome of any of these legal matters will have a material adverse effect on our
business, operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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EXECUTIVE OFFICERS
The following table sets forth certain information concerning our executive
officers as of March 31, 2001:
NAME AGE POSITION(S)
---- --- -----------
Gaurav S. Dhillon.................... 35 Chief Executive Officer, Secretary and Director
Diaz H. Nesamoney.................... 36 President, Chief Operating Officer and Director
Clive A. Harrison.................... 43 Executive Vice President, Worldwide Field Operations
Earl E. Fry.......................... 42 Chief Financial Officer and Senior Vice President
Barton S. Foster..................... 36 Senior Vice President, Worldwide Marketing
Our executive officers are appointed by, and serve at the discretion of,
the Board of Directors. Each executive officer is a full-time employee. There is
no family relationship between any of our executive officers or directors.
Mr. Dhillon is one of our co-founders and has been our Chief Executive
Officer, Secretary and a member of our Board of Directors since our inception.
Prior to co-founding Informatica in February 1993, Mr. Dhillon was employed by
Sterling Software, a software company, from December 1991 to November 1992,
where his last position was Project Manager. Prior to that, he was a Systems
Architect with Unisys Corporation. Mr. Dhillon holds a B.S.E.E. from Punjab
University, India.
Mr. Nesamoney is one of our co-founders and has been a member of our Board
of Directors and an officer since our inception. He is currently our President
and Chief Operating Officer. Prior to co-founding Informatica in February 1993,
Mr. Nesamoney was employed by Unisys Corporation from May 1988 to February 1993,
where his last position was Development Manager. Mr. Nesamoney holds an M.S.C.S.
degree from Birla Institute of Technology and Science, India.
Mr. Harrison joined us in January 1996 as Senior Vice President, Sales and
became Executive Vice President, Worldwide Field Operations in January 1999. Mr.
Harrison held sales management responsibility at Oracle Corporation from June
1995 to January 1996. From September 1989 to June 1995, he was Regional Vice
President of Sales at Information Resources, an enterprise decision support
software company. Mr. Harrison holds a B.S. degree in operational research and
economics from Aston University in England.
Mr. Fry has been Chief Financial Officer and Senior Vice President since
December 1999. From November 1995 to December 1999, Mr. Fry was Vice President
and Chief Financial Officer at Omnicell Technologies, Inc. From July 1994 to
November 1995, he was Vice President and Chief Financial Officer at C*ATS
Software, Inc. Mr. Fry holds a B.B.A. degree in Accounting from the University
of Hawaii and an M.B.A. degree in Finance and Marketing from Stanford
University.
Mr. Foster has served as Senior Vice President, Worldwide Marketing since
June 2000. Prior to joining us, Mr. Foster held various management positions at
CrossWorlds Software, including Senior Vice President, Marketing and Business
Development from June 1998 to June 2000. Prior to CrossWorlds, Mr. Foster served
as Executive Vice President, Sales and Marketing at Connect, Inc. from March
1996 to June 1998. From November 1993 to March 1996, Mr. Foster held various
management positions at Oracle Corporation, including Vice President
Applications and Industry Marketing. Mr. Foster holds a B.A. degree from
Stanford University and an M.B.A. degree from the Harvard University Graduate
School of Business Administration.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the Nasdaq National Market under the symbol
"INFA." The following table sets forth, for the periods indicated, the high and
low sales prices per share of our common stock as reported by the Nasdaq
National Market since our initial public offering of common stock at $4.00 per
share on April 29, 1999. This information has been restated to reflect
two-for-one stocks splits that were effected in the form of stock dividends to
each stockholder of record as of February 18, 2000 and November 29, 2000.
HIGH LOW
------ ------
1999:
Second Quarter (from April 29, 1999)..................... $ 9.00 $ 4.75
Third Quarter............................................ $16.25 $ 8.04
Fourth Quarter........................................... $27.35 $12.63
2000:
First Quarter............................................ $50.32 $21.00
Second Quarter........................................... $40.97 $17.19
Third Quarter............................................ $52.10 $35.53
Fourth Quarter........................................... $57.44 $34.94
As of December 31, 2000, there were approximately 205 stockholders of
record of our common stock. Because many of our shares of common stock are held
by brokers and other institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these record holders.
We have never declared or paid cash dividends on our common stock. Since we
currently intend to retain all future earnings to finance future growth, we do
not anticipate paying any cash dividends in the near future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA(1):
Revenues:
License....................................... $101,649 $41,184 $21,582 $10,242 $ 1,843
Service....................................... 52,409 21,195 8,764 2,499 217
-------- ------- ------- ------- -------
Total revenues........................... 154,058 62,379 30,346 12,741 2,060
Cost of revenues:
License....................................... 2,034 686 376 190 34
Service....................................... 28,465 10,310 5,013 2,392 124
-------- ------- ------- ------- -------
Total cost of revenues................... 30,499 10,996 5,389 2,582 158
-------- ------- ------- ------- -------
Gross profit.................................... 123,559 51,383 24,957 10,159 1,902
Operating expenses:
Research and development...................... 26,493 11,843 8,385 4,747 2,141
Sales and marketing........................... 75,034 33,613 22,733 11,219 3,676
General and administrative.................... 11,726 5,012 3,132 2,408 702
Merger-related costs.......................... -- 2,082 -- -- --
Amortization of stock-based compensation...... 1,514 742 98 2 --
Amortization of goodwill and other intangible
assets...................................... 14,163 -- -- -- --
Purchased in-process research and
development................................. 8,648 -- -- -- --
-------- ------- ------- ------- -------
Total operating expenses................. 137,578 53,292 34,348 18,376 6,519
-------- ------- ------- ------- -------
Loss from operations............................ (14,019) (1,909) (9,391) (8,217) (4,617)
Interest income and other, net.................. 4,306 1,557 297 329 104
Interest expense................................ (458) (319) (191) (130) (96)
-------- ------- ------- ------- -------
Loss before income taxes........................ (10,171) (671) (9,285) (8,018) (4,609)
Income tax provision............................ 3,345 824 -- -- --
-------- ------- ------- ------- -------
Net loss........................................ $(13,516) $(1,495) $(9,285) $(8,018) $(4,609)
Basic and diluted net loss per share(2)......... $ (0.19) $ (0.03) $ (0.61) $ (0.59) $ (0.42)
======== ======= ======= ======= =======
Shares used in calculation of basic and diluted
net loss per share(2)......................... 69,758 47,565 15,305 13,554 10,856
======== ======= ======= ======= =======
DECEMBER 31,
--------------------------------------------------
2000 1999 1998 1997 1996
-------- ------- -------- -------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA(1):
Cash and cash equivalents............................. $217,713 $57,521 $ 7,167 $ 8,888 $ 3,023
Restricted cash....................................... 20,282 -- -- -- --
Working capital (deficit)............................. 190,179 39,951 (3,242) 5,376 3,206
Total assets.......................................... 350,983 68,523 12,165 13,356 5,059
Long-term obligations, less current portion........... -- 1,438 1,480 1,428 270
Redeemable convertible preferred stock................ -- -- 17,586 17,586 8,593
Total stockholders' equity (deficit).................. 290,497 40,124 (21,580) (12,587) (5,022)
---------------
See Note 1 of Notes to Consolidated Financial Statements for an explanation of
the determination of the number of shares used to compute basic and diluted net
loss per share.
(1) Amounts and per share data for periods prior to December 31, 1999 have been
retroactively restated to reflect the merger of Influence in a
pooling-of-interests transaction effective December 15, 1999. See Note 11 of
Notes to Consolidated Financial Statements.
(2) Amounts have been restated to reflect two-for-one stock splits, effected in
the form of stock dividends, to each stockholder of record as of February
18, 2000 and November 29, 2000.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto appearing elsewhere in this
report.
OVERVIEW
We are a leading provider of e-business infrastructure and analytic
application software that enables our customers to automate the integration,
analysis and delivery of critical corporate information. Using our products,
managers and executives gain valuable business insight they can use to improve
operational performance and enhance competitive advantage.
We sell our products through direct sales forces in the United States,
Canada, Germany, Switzerland and the United Kingdom, and also through resellers
throughout Europe. Total international revenues from both our direct sales force
and foreign indirect strategic partners accounted for 21%, 18% and 12% of our
total consolidated revenues for 2000, 1999 and 1998, respectively. Substantially
all of our international sales have been in Europe. Sales outside of North
America and Europe to date have been less than 1% of total consolidated revenues
during the last three fiscal years, although we anticipate expanding outside of
these two regions in the future.
BUSINESS COMBINATIONS AND STRATEGIC ALLIANCE
Purchase Acquisitions
In February 2000, we acquired Delphi, a distributor of Informatica products
in Switzerland. The agreement was structured as a share purchase and accounted
for as a purchase transaction. The estimated purchase price of $9.2 million
included payments associated with 1999 revenues and projections for 2000
revenues. The first payment of approximately $3.6 million was paid in February
2000, and the second payment of approximately $4.3 million was paid in January
2001. The final payment is expected to be paid in July 2001. The purchase price
of the transaction was allocated to the acquired assets and liabilities based on
the estimated fair values as of the date of the acquisition. Amounts allocated
to goodwill of $9.0 million are being amortized on a straight-line basis over a
two-year period. As part of this agreement, we are required to hold a
certificate of deposit for $8.1 million which is classified as restricted cash
on our balance sheet until July 2001. The results of operations of Delphi have
been included in our results of operations since the acquisition date.
In August 2000, we acquired Zimba in a transaction accounted for as a
purchase. Zimba is a leading provider of e-business analytic solutions that
enable mobile professionals with real-time access to corporate and external
information through wireless devices, voice recognition technology and the
Internet. Under the terms of the agreement, we issued 507,544 shares of common
stock in exchange for the outstanding shares of common stock of Zimba. In
addition, all the outstanding options to purchase Zimba common stock were
automatically converted into options to purchase our common stock based on the
conversion ratio in the agreement with a corresponding adjustment to their
respective exercise prices. The total purchase price, including assumed
liabilities and related expenses, was $26.0 million, of which $2.1 million was
allocated to identifiable intangible assets, including core technology of $1.4
million, acquired workforce of $0.4 million and patents of $0.3 million, $0.6
million was allocated to assumed liabilities and related expenses, and the
balance of $18.2 million was allocated to goodwill. Goodwill and other
intangible assets are being amortized on a straight-line basis over two years
for the acquired workforce and over three years for the core technology, patents
and goodwill. Purchased in-process research and development of $5.1 million was
expensed in the third quarter of 2000 because the in-process technology had not
reached technological feasibility and had no alternative uses. The value of the
purchased in-process research and development was computed using a discounted
cash flow analysis based on management's estimates of future revenues, cost of
revenues and operating expenses related to the products and technologies
acquired from Zimba. All assumed options of Zimba were valued at fair value and
included in the purchase price, net of the intrinsic value of any unvested
options, which were included in deferred stock-based compensation as a component
of stockholders' equity and are being amortized over the remaining vesting
period. The results of operations of Zimba have been included in our results of
operations since the acquisition date.
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Asset Acquisitions
In April 2000, we announced a strategic alliance with PwC to jointly
develop, market, sell and support analytic application products. In connection
with the agreement relating to the strategic alliance, PwC received 818,276
shares of our common stock. The total purchase price, including related
expenses, was approximately $31.8 million, which was allocated to goodwill and
various identifiable intangible assets, including goodwill of $22.9 million,
core technology of $1.7 million and acquired workforce and consultants of $5.0
million. Goodwill and other identifiable intangible assets are being amortized
on a straight-line basis over two years for the acquired workforce and
consultants and over three years for the core technology and goodwill. Purchased
in-process research and development of $2.2 million was expensed in 2000 because
the in-process technology had not reached technological feasibility and had no
alternative uses. The value of the purchased in-process research and development
was computed using a discounted cash flow analysis based on management's
estimates of future revenues, cost of revenues and operating expenses related to
the products and technologies acquired from PwC.
In November 2000, we completed an intellectual property transfer agreement
with QRB Developers. The acquisition was accounted for as a purchase
transaction. The total purchase price, including related expenses, was
approximately $4.1 million, of which $0.1 million was allocated to the acquired
workforce and $2.7 million was allocated to goodwill. Goodwill and other
identifiable intangible assets are being amortized on a straight-line basis over
three years for goodwill and over two years for the acquired workforce.
Purchased in-process research and development of $1.3 million was expensed in
2000, because the in-process technology had not reached technological
feasibility and had no alternative uses. The value of the purchased in-process
research and development was computed using a discounted cash flow analysis
based on management's estimates of future revenues, cost of revenues and
operating expenses related to the technologies acquired from QRB Developers.
SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
We generate revenues from sales of software licenses and services. Our
license revenues are derived from our infrastructure products and our analytic
application products. We receive software license revenues from licensing our
products directly to end users and indirectly through resellers, distributors
and original equipment manufacturers ("OEMs"). We receive service revenues from
maintenance contracts and training and consulting services that we perform for
customers that license our products either directly from us or indirectly
through resellers, distributors and OEMs.
We recognize license revenues when a noncancelable license agreement has
been signed, the product has been shipped, the fees are fixed and determinable,
collectibility is probable and vendor-specific objective evidence of fair value
exists to allocate the total fee to elements of the arrangement. Vendor-specific
objective evidence is based on the price charged when an element is sold
separately. In the case of an element not yet sold separately, the price is
established by authorized management. For our analytic application software
products, we recognize the bundled license and support revenue ratably over the
support period, generally one year. Support for the analytic application
software products for the first year is never sold separately and in
consideration of the complexities of the implementation, the customer is
entitled to receive support services that are different than the standard annual
support services. If an acceptance period is required, we recognize revenue upon
customer acceptance or the expiration of the acceptance period. We also enter
into reseller arrangements that typically provide for sublicense fees based on a
percentage of list price. For sales to end users, we recognize revenue upon
shipment and when collectibility is probable. For sales to OEMs, specific
resellers, distributors, international customers and specific customers based on
their credit history, we recognize revenue at the time payment is received for
our products, rather than at the time of sale. Our license agreements do not
contain product return rights.
We recognize revenues from services contracts, which consist of fees for
ongoing support and product updates, ratably over the term of the contract,
typically one year. Consulting revenues are primarily related to implementation
services and product enhancements performed on a time-and-materials basis or a
fixed fee arrangement under separate service arrangements related to the
installation of our software products. Training
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revenues are generated from classes offered at our headquarters, sales offices
and customer locations. Revenues from consulting and training services are
recognized as the services are performed. When a contract includes both license
and service elements, the license fee is recognized on delivery of the software,
provided services do not include significant customization or modification of
the base product, and are not otherwise essential to the functionality of the
software and the payment terms for licenses are not dependent on additional
acceptance criteria.
Deferred revenue includes deferred license and maintenance revenue and
prepaid training and consulting fees. Deferred license revenue amounts do not
include items which are both deferred and unbilled. Our practice is to net
unpaid deferred items against the related receivables balances from OEMs,
specific resellers, distributors, international customers and specific
customers.
The following table presents certain financial data as a percentage of
total revenues:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License................................................ 66% 66% 71%
Service................................................ 34 34 29
--- --- ---
Total revenues.................................... 100 100 100
Cost of revenues:
License................................................ 1 1 1
Service................................................ 19 17 17
--- --- ---
Total cost of revenues............................ 20 18 18
--- --- ---
Gross profit.............................................. 80 82 82
Operating expenses:
Research and development............................... 17 19 28
Sales and marketing.................................... 49 54 75
General and administrative............................. 8 8 10
Merger-related costs................................... -- 3 --
Amortization of stock-based compensation............... 1 1 --
Amortization of goodwill and other intangible assets... 9 -- --
Purchased in-process research and development.......... 5 -- --
--- --- ---
Total operating expenses.......................... 89 85 113
--- --- ---
Loss from operations...................................... (9) (3) (31)
Interest income and other, net............................ 3 3 1
Interest expense.......................................... (1) (1) (1)
--- --- ---
Loss before income taxes.................................. (7) (1) (31)
Income tax provision...................................... 2 1 --
--- --- ---
Net loss.................................................. (9)% (2)% (31)%
=== === ===
Cost of license revenues, as a percentage of license
revenues.................................................. 2% 2% 2%
Cost of service revenues, as a percentage of service
revenues.................................................. 54% 49% 57%
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
REVENUES
Our total revenues increased to $154.1 million in 2000, from $62.4 million
in 1999 and $30.3 million in 1998, representing growth of 147% from 1999 to 2000
and 106% from 1998 to 1999. Our license revenues increased to $101.6 million in
2000 from $41.2 million in 1999 and $21.6 million in 1998, representing growth
of 147% from 1999 to 2000 and 91% from 1998 to 1999. These increases were due
primarily to increases in the
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number of licenses sold and the average transaction size, reflecting increased
acceptance of our infrastructure products and our analytic application products
as well as expansion of our direct sales organization and reseller channels.
Service revenues increased to $52.4 million in 2000 from $21.2 million in 1999
and $8.8 million in 1998, representing growth of 147% from 1999 to 2000 and 142%
from 1998 to 1999. These increases were due primarily to an increase in
consulting, training and maintenance fees associated with both the increased
number of licenses sold and the increased average transaction size, along with a
larger installed license base in each successive year.
Our international revenues increased to $31.7 million in 2000, from $11.2
million in 1999 and $3.6 million in 1998, representing growth of 183% from 1999
to 2000 and 208% from 1998 to 1999. The increase in 2000 was due primarily to
expansion throughout Europe with increased sales being generated by direct
sales, increased volume through existing distributors and new distributors added
during the year. Growth in 1999 was primarily driven by increased sales
activities in the United Kingdom and Germany. See Note 10 of Notes to
Consolidated Financial Statements for additional information about revenues in
geographic areas.
Total revenues have been reduced by sales and return allowances of $2.5
million in 2000, $0 in 1999 and $0.9 million in 1998, respectively. The sales
and return allowances recorded in each of these years were due primarily to
increases in revenues, the number of customers in our customer base and an
increase in our average transaction size. While our policy is not to accept
sales returns, circumstances can arise in which we accept returns to preserve
customer relationships.
COST OF REVENUES
Cost of License Revenues
Our cost of license revenues consists primarily of product packaging,
documentation, production costs and software royalties. Cost of license revenues
was $2.0 million in 2000, $0.7 million in 1999 and $0.4 million in 1998 and was
approximately 1% of total revenues in each of these years. The increase in
absolute dollar amount was due primarily to increases in license revenues and
increases in royalty expense. We expect cost of license revenues as a percentage
of total revenues in 2001 to remain at or slightly above the 2000 level.
Cost of Service Revenues
Our cost of service revenues is a combination of costs of maintenance,
training and consulting revenues. Our cost of maintenance revenues consists
primarily of costs associated with software upgrades, telephone support services
and on-site visits. Cost of training revenues consists primarily of the costs of
providing training classes and materials at our headquarters, sales offices and
customer locations. Cost of consulting revenues consists primarily of personnel
costs and expenses incurred in providing consulting services at customers'
facilities. Because we believe that providing a high level of support to
customers is a strategic advantage, we have invested significantly in personnel
and infrastructure. Cost of service revenues was $28.5 million in 2000, $10.3
million in 1999 and $5.0 million in 1998, representing 54%, 49% and 57% of
service revenues. Cost of service revenues as a percentage of service revenues
increased in 2000 due to an increase in personnel associated with our consulting
business. Cost of service revenues as a percentage of service revenues decreased
in 1999 compared to 1998 due primarily to economies of scale achieved as our
revenues and operations grew. For 2001, we expect our cost of service revenues
as a percentage of service revenues to remain at or increase slightly above our
2000 level as we expand our consulting business.
OPERATING EXPENSES
Research and Development
Our research and development expenses consist primarily of salaries and
other personnel-related expenses associated with the development of new
products, the enhancement and localization of existing products, quality
assurance and development of documentation for our products. Research and
development expenses increased to $26.5 million in 2000 from $11.8 million in
1999 and $8.4 million in 1998. The increase in each of these periods was due
primarily to an increase in personnel costs in each such period for development
of future products and enhancement of existing products. As a percentage of
total revenues, research and development
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expenses were 17% in 2000, 19% in 1999 and 28% in 1998. The sequential decrease
as a percentage of total revenues was due primarily to growth in our total
revenues. To date, all software and development costs have been expensed in the
period incurred because costs incurred subsequent to the establishment of
technological feasibility have not been significant. We believe that continued
investment in research and development is critical to attaining our strategic
objectives, and, as a result, we expect research and development expenses to
increase in absolute dollars in future periods. For 2001, we expect research and
development expense as a percentage of total revenues will remain at or slightly
above the 2000 level.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel costs,
including commissions, as well as costs of public relations, seminars, marketing
programs, lead generation, travel and trade shows. Sales and marketing expenses
increased to $75.0 million in 2000 from $33.6 million in 1999 and $22.7 million
in 1998. The sequential increases reflect the hiring of additional sales and
marketing personnel in connection with building our direct, reseller,
distributor and OEM channels, higher sales commissions associated with increased
sales volume, and increased spending associated with trade shows, user
conference and other marketing programs. As a percentage of total revenues,
sales and marketing expenses were 49% in 2000, 54% in 1999 and 75% in 1998. The
sequential decrease as a percentage of total revenues was due primarily to
growth in total revenues. For 2001, we expect sales and marketing expense as a
percentage of total revenues to be slightly below the 2000 level.
General and Administrative
Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, legal and general management, as well as
professional services expense associated with recruiting, legal and accounting.
General and administrative expenses increased to $11.7 million in 2000 from $5.0
million in 1999 and $3.1 million in 1998, representing 8% of our total revenues
in 2000 and 1999 and 10% of our total revenues in 1998. Expenses increased in
each period due primarily to increased staffing in finance, human resources,
legal, information technology and administration to manage and support our
growth as well as increased costs paid to outside professional service providers
and increased facilities costs. The decrease as a percentage of our total
revenues was due primarily to the growth in our total revenues. We expect that
for 2001, our general and administrative expenses as a percentage of total
revenues will remain consistent with our level for 2000.
Bad debt expense charged to operations was $0.2 million in each of 2000 and
1999 and $0.3 million in 1998, representing less than 1% of total revenues in
each of these years.
Merger-Related Costs
In 1999, we recorded estimated merger-related costs of $2.1 million related
to the December 1999 acquisition of Influence Software, Inc. ("Influence"),
which was accounted for as a pooling-of-interests. These costs consisted
primarily of investment banking and professional fees and other direct costs
associated with the merger. As of December 31, 1999, there was a balance of $1.8
million remaining in accrued liabilities which was used for final settlement
expenditures in January 2000.
Amortization of Stock-Based Compensation
In connection with the grant of certain stock options to employees, we
recorded deferred stock-based compensation of $0.8 million in 1999 prior to our
initial public offering and $2.8 million in 2000, representing the difference
between the deemed fair value of our common stock and the option exercise price
at the date of grant. This deferred stock-based compensation is being amortized
to operations over a four-year vesting period using the graded vesting method.
We also recorded deferred stock-based compensation of $0.3 million in 2000
related to the issuance of options to consultants. This amount was computed
using the Black-Scholes option valuation model and the related amortization is
being charged to operations over the related term of these consulting
agreements. In addition, we recorded $1.9 million of deferred stock-based
compensation in
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conjunction with the assumption of certain stock options in the acquisition of
Influence and Zimba which are being amortized over four years. Deferred
stock-based compensation is presented as a reduction of stockholders' equity.
Amortization of stock-based compensation amounted to $1.5 million, $0.7 million
and $0.1 million in 2000, 1999 and 1998, respectively.
Amortization of Goodwill and Other Intangible Assets
Goodwill represents the excess of the aggregate purchase price over the
fair value of the tangible and identifiable intangible assets we have acquired.
Intangible assets include core technology, acquired workforce and patents. In
February 2000, we acquired Delphi, a distributor of Informatica products in
Switzerland. The agreement was structured as a share purchase and accounted for
as a purchase transaction. Amounts allocated to intangible assets are being
amortized on a straight-line basis over a two-year period. Amortization expense
associated with this acquisition was $3.8 million in 2000.
In April 2000, we announced a strategic alliance with PwC to jointly
develop, sell and support end-to-end analytic solutions for the
business-to-business e-commerce market worldwide. In connection with the
agreement, PwC received 818,276 shares of our common stock. We recorded goodwill
and other intangible assets totaling $31.8 million, which are being amortized on
a straight-line basis over two to three years. Amortization expense associated
with this acquisition was $8.0 million in 2000.
In August 2000, we completed the acquisition of Zimba, a leading provider
of e-business analytic solutions that enable mobile professionals with real-time
access to corporate and external information via wireless devised, voice
recognition and the Web. The agreement was structured as a share purchase and
accounted for as a purchase transaction. Amounts allocated to intangible assets
are being amortized on a straight-line basis over two to three years.
Amortization expense associated with this acquisition was $2.3 million in 2000.
In November 2000, we completed an intellectual property transfer agreement
with certain individuals, QRB Developers. The acquisition was accounted for as a
purchase transaction. Amounts allocated to intangible assets are being amortized
on a straight-line basis over two to three years. Amortization expense
associated with this acquisition was $0.1 million in 2000.
We anticipate that future amortization of goodwill and other intangibles
associated with our business combinations and strategic alliance will continue
to be amortized on a straight-line basis over their expected useful lives
ranging from two years to three years, and will amount to approximately $23.0
million in 2001, $17.3 million in 2002, and $7.2 million in 2003. It is likely
we may continue to expand our business through acquisitions and internal
development. Any additional acquisitions or impairment of goodwill and other
purchased intangibles could result in additional merger and acquisition related
costs.
Purchased In-Process Research and Development
In connection with the strategic alliance with PwC and the acquisitions of
Zimba and QRB Developers, we recorded charges to operations of $2.2 million,
$5.1 million and $1.3 million, respectively, for purchased in-process research
and development in 2000. The in-process technologies had not reached
technological feasibility and had no alternative uses. The value of the
purchased in-process research and development in each transaction was computed
using a discounted cash flow analysis based on management's estimates of future
revenues, cost of revenues and operating expenses related to the products and
technologies acquired.
INTEREST INCOME AND OTHER, NET/INTEREST EXPENSE
Interest income and other, net represents primarily interest income earned
on our cash, cash equivalents and restricted cash. Interest income and other,
net increased to $4.3 million in 2000, from $1.6 million in 1999 and $0.3
million in 1998. The increase in 2000 was primarily due to an increased average
cash balance as a result of the completion of our secondary public offering of
our common stock with net proceeds of $191.0 million in October 2000. The 1999
increase was primarily due to an increased average cash balance as a result of
the completion of our initial public offering of our common stock in April 1999,
which raised net
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proceeds of approximately $43.5 million. Interest expense was $0.5 million, $0.3
million and $0.2 million in 2000, 1999 and 1998, respectively, and represents
interest expense on capital equipment leases and stockholder loans.
PROVISION FOR INCOME TAXES
We recorded an income tax provision of $3.3 million in 2000 and $0.8
million in 1999, due primarily to federal alternative minimum taxes and foreign
income taxes. We incurred net operating losses in 1998 and consequently paid no
federal, state and foreign income taxes in that year.
As of December 31, 2000, we had federal and state net operating loss
carryforwards of approximately $43.6 million and $14.6 million, respectively. We
also had federal and state research and development tax credit carryforwards of
approximately $2.1 million and $1.4 million, respectively. Our net operating
loss and tax credit carryforwards will expire at various dates beginning in
2001, if not utilized.
As of December 31, 2000 and 1999, we had deferred tax assets of
approximately $38.4 million and $12.5 million, respectively. Our deferred tax
assets have been fully offset by a valuation allowance.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 1999, the Financial Accounting Standards Board ("FASB") announced
the delay of the effective date of Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities" to the first quarter of 2001. SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. We are
required to adopt SFAS 133 effective January 1, 2001. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, the adoption of SFAS 133 will not have an impact on our financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance with respect to the recognition,
presentation and disclosure of revenue in financial statements of all public
registrants. Our adoption of SAB 101 did not have a material impact on our
revenue recognition policies, financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB Opinion 25." This interpretation clarifies the application
of APB 25 for certain issues including: (a) the definition of employee for
purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 was effective July 1, 2000 but certain conclusions in this
interpretation cover specific events that occurred after either December 15,
1998 or January 12, 2000. The adoption of FIN 44 did not have a significant
effect on our financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through cash flows from operations
and public offerings of our common stock. In the past, we also funded our
operations through private sales of preferred equity securities and capital
equipment leases. As of December 31, 2000, we had $238.0 million in cash, cash
equivalents and restricted cash.
Net cash provided by operating activities was $15.6 million for 2000 and
$7.2 million for 1999. Our operating activities resulted in net cash outflows of
$2.4 million in 1998. Uses of cash in operating activities in each period were
primarily due to net operating losses and increases in accounts receivable,
prepaid expenses and other assets. The sources of cash in operating activities
in each period were primarily increases in deferred revenue, increases in
accounts payable and accrued liabilities, increases in accrued compensation and
related expenses and increases in income taxes payable. Also, our cash position
in 2000, 1999 and 1998 was not
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affected by the non-cash charges recorded for depreciation and amortization,
sales returns and allowances and amortization of stock-based compensation. In
2000, non-cash charges also included $14.2 million of amortization of goodwill
and other intangible assets and $8.6 million of purchased in-process research
and development.
Net cash used in investing activities was $57.5 million in 2000, $1.4
million in 1999 and $1.0 million in 1998, due primarily to the purchase of
property and equipment in all periods. In addition, in 2000, net cash used in
investing activities included cash used in acquisitions of $6.3 million and a
transfer to restricted cash of $20.3 million.
Net cash provided by financing activities was $201.7 million for 2000,
primarily from the net proceeds of our secondary offering of $191.0 million as
well as proceeds from the issuance of common stock. Net cash provided by
financing activities for 1999 was $44.7 million, primarily from the net proceeds
of our initial public offering of $43.5 million as well as proceeds from the
issuance of common stock. Net cash provided by financing activities for 1998 was
$1.6 million, primarily from the proceeds of notes payable associated with
financing Influence, which was an S corporation prior to the acquisition in
December 1999.
As of December 31, 2000, our principal commitments consisted of obligations
under operating and capital leases. As of December 31, 2000, we had $0.1 million
in outstanding borrowings under capital lease agreements which are payable
through 2001. In 1997 and 1998, we issued promissory notes to three stockholders
in exchange for cash advances and payment for services. These notes accrued
interest at the bank's prime rate (8.5% at December 31, 1999) plus 2% per annum,
with a maximum rate of 10% per annum. Principal and accrued interest on these
notes at December 31, 1999 and 1998 were $3.4 million and $3.1 million,
respectively. The principal and accrued interest on these notes were repaid in
February 2000.
In February 2000, we entered into two lease agreements for new corporate
headquarters in Redwood City, California. The facility is under construction and
is expected to be completed in July 2001. The lease expires twelve years after
occupancy. We paid for tenant improvements, primarily related to the exercise of
build-to-suit options under the facility lease agreement, of approximately $24.7
million as of December 31, 2000. The total estimated cost of leasehold
improvements for this facility is approximately $27.3 million, subject to
change. We also expect expenditures of approximately $13.5 million for
furniture, fixtures and equipment. As part of these leases, we have agreed to
provide letters of credit totaling $12.2 million as a security deposit for the
first year's lease payments until certain financial covenants are met.
We believe that our current cash balances and the cash flows generated by
operations will be sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next twelve months.
Thereafter, we may require additional funds to support our working capital
requirements, or for other purposes, and may seek to raise such additional funds
through public or private equity financings or from other sources. We may not be
able to obtain adequate or favorable financing at that time. Any financing we
obtain may dilute your ownership interests.
A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
From time to time, in the ordinary course of business, we evaluate potential
acquisitions of such businesses, products or technologies.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information contained in this Form 10-K, we have
identified the following risks and uncertainties that may have a material
adverse affect on our business, financial condition or results of operation.
This section should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in this Form 10-K.
THE EXPECTED FLUCTUATION OF OUR QUARTERLY RESULTS COULD CAUSE OUR STOCK PRICE TO
EXPERIENCE SIGNIFICANT FLUCTUATIONS OR DECLINES.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to also
significantly fluctuate or experience declines. Some of the factors which could
cause our operating results to fluctuate include:
- the size and timing of customer orders, which can be affected by customer
order deferrals in anticipation of future new product introductions or
product enhancements and customer budgeting and purchasing cycles;
- market acceptance of our products;
- the length and variability of our sales cycle for our products;
- introduction or enhancement of our products or our competitors' products
and changes in our or our competitors' pricing policies;
- our ability to develop, introduce and market new products on a timely
basis;
- the mix of our products and services sold and the mix of distribution
channels utilized;
- our success in expanding our sales and marketing programs;
- technological changes in computer systems and environments; and
- general economic conditions, which may affect our customers' capital
investment levels.
Our product revenues are not predictable with any significant degree of
certainty. Historically, we have recognized a substantial portion of our
revenues in the last month of the quarter. If customers cancel or delay orders,
it can have a material adverse impact on our revenues and results of operations
for the quarter. To the extent any such cancellations or delays are for large
orders, this impact will be greater. To the extent that the average size of our
orders increases, customers' cancellations or delays of orders will more likely
harm our revenues and results of operations.
Our quarterly product license revenues are difficult to forecast because we
historically have not had a substantial backlog of orders, and therefore
revenues in each quarter are substantially dependent on orders booked and
shipped in that quarter and cash collections from international customers and
specific resellers. Our product license revenues are also difficult to forecast
because the market for our products is rapidly evolving, and our sales cycles,
which may last many months, vary substantially from customer to customer and
vary in general due to a number of factors over which we have little or no
control. Nonetheless, our short-term expense levels are relatively fixed and
based, in part, on our expectations of future revenues.
The difficulty we have in predicting our quarterly revenue means revenues
shortfalls are likely to occur at some time, and our inability to adequately
reduce short-term expenses means such shortfalls will affect not only our
revenue, but also our overall business, results of operations and financial
condition. Due to the uncertainty surrounding our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. While we achieved significant
quarter-to-quarter revenue growth in the past, you should not take these recent
quarterly results to be indicative of our future performance. We do not expect
to sustain this same rate of sequential quarterly revenue growth in future
periods. Moreover our future operating results may fall below the expectations
of stock analysts and investors. If this happens, the price of our common stock
may fall.
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THE MARKET IN WHICH WE SELL OUR PRODUCTS IS HIGHLY COMPETITIVE.
The market for our products is highly competitive, quickly evolving and
subject to rapidly changing technology. Many of our competitors or potential
competitors have longer operating histories, substantially greater financial,
technical, marketing or other resources, or greater name recognition than we do.
Our competitors may be able to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. Competition could
seriously impede our ability to sell additional products and services on terms
favorable to us. Our current and potential competitors may develop and market
new technologies that render our existing or future products obsolete,
unmarketable or less competitive. We believe we currently compete more on the
basis of our products' functionality than on the basis of price. If our
competitors develop products with similar or superior functionality, we may have
difficulty competing on the basis of price.
Our current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with other solution
providers, thereby increasing the ability of their products to address the needs
of our prospective customers. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
strategic partners, thereby limiting our ability to sell products through these
channels. Competitive pressures could reduce our market share or require us to
reduce our prices, either of which could harm our business, results of
operations or financial condition. We compete principally against providers of
decision support, data warehousing and analytic application software. Such
competitors include Acta Technology, Broadbase Software, E.piphany, Informix
Corporation, MicroStrategy, Inc., Cognos Inc., Business Objects S.A., Brio
Technology, Inc. and Sagent Technology.
In addition, we compete against database vendors and business intelligence
vendors that currently offer, or may develop, products with functionalities that
compete with our solutions. These products typically operate specifically with
these competitors' proprietary databases. Such potential competitors include
IBM, Microsoft and Oracle. See "Business -- Competition."
GENERAL ECONOMIC CONDITIONS MAY REDUCE OUR REVENUES AND HARM OUR BUSINESS.
As our business has grown, we have become increasingly subject to the risks
arising from adverse changes in domestic and global economic conditions. Because
of the recent economic slowdown in the United States, many industries are
delaying or reducing technology purchases. The impact of this slowdown on us is
difficult to predict, but it may result in reductions in capital expenditures by
our end-user customers, longer sales cycles, deferral or delay of purchase
commitments for our products and increased price competition. As a result, if
the current economic slowdown continues or worsens, we may fall short of our
revenue expectations for any given quarter in 2001 or for the entire year. These
conditions would negatively affect our business and results of operations. In
addition, weakness in the end-user market could negatively affect the cash flow
of our reseller customers who could, in turn, delay paying their obligations to
us. This would increase our credit risk exposure which could harm our
profitability and financial condition.
ANY SIGNIFICANT DEFECT IN OUR PRODUCTS COULD CAUSE US TO LOSE REVENUE AND EXPOSE
US TO PRODUCT LIABILITY CLAIMS.
The software products we offer are inherently complex and, despite
extensive testing and quality control, have in the past and may in the future
contain errors or defects, especially when first introduced. These defects and
errors could cause damage to our reputation, loss of revenue, product returns,
order cancellations or lack of market acceptance of our products, and as a
result, harm our business, results of operations or financial condition. We have
in the past and may in the future need to issue corrective releases of our
software products to fix these defects or errors. For example, we issued
corrective releases to fix problems with the version of our PowerMart released
in the first quarter of 1998. As a result, we had to allocate significant
customer support resources to address these problems. Our license agreements
with our customers typically contain provisions designed to limit our exposure
to potential product liability claims. The limitation of liability provisions
contained in our license agreements, however, may not be effective as a result
of existing or future national, federal, state or local laws or ordinances or
unfavorable judicial decisions. Although we have not experienced any product
liability claims to date, the sale and support of our products entails the risk
of such claims, which
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could be substantial in light of the use of our products in enterprise-wide
applications. If a claimant successfully brings a product liability claim
against us, it would likely significantly harm our business, results of
operations or financial condition.
BECAUSE WE SELL A LIMITED NUMBER OF PRODUCTS, IF THESE PRODUCTS DO NOT ACHIEVE
BROAD MARKET ACCEPTANCE, OUR REVENUES WILL BE ADVERSELY AFFECTED.
To date, substantially all of our revenues were derived from our
PowerCenter, PowerCenter.e, PowerConnects, PowerMart, our analytic application
software products and related services. We expect revenues derived from these
products and related services to comprise substantially all of our revenues for
the foreseeable future. Even if the emerging software market in which these
products are sold grows substantially, if any of these products do not achieve
market acceptance, our revenues will be adversely affected. In particular, we
recently released our analytic application products and the degree of market
acceptance for these products is unknown. Market acceptance of our products
could be affected if, among other things, applications suppliers integrate their
products to such a degree that the utility of the data integration functionality
that our products provide is minimized or rendered unnecessary.
IF THE MARKET IN WHICH WE SELL OUR PRODUCTS AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, IT WILL ADVERSELY AFFECT OUR REVENUES.
The market for software solutions, including analytic applications, that
enable more effective business decision making by helping companies aggregate
and utilize data stored throughout an organization is relatively new and still
emerging. Substantially all of our revenues are attributable to the sale of
products and services in this market. If this market does not grow at the rate
we anticipate, our business, results of operations and financial condition will
be adversely affected. One of the reasons this market might not grow as we
anticipate is that many companies are not yet fully aware of the benefits of
using these software solutions to help make business decisions or the benefits
of our specific product solutions. As a result, we believe large companies to
date have deployed these software solutions to make business decisions on a
relatively limited basis. Although we have devoted and intend to continue to
devote significant resources promoting market awareness of the benefits of these
solutions, our efforts may be unsuccessful or insufficient.
TECHNOLOGICAL ADVANCES AND EVOLVING INDUSTRY STANDARDS COULD ADVERSELY IMPACT
OUR FUTURE PRODUCT SALES.
The market for our products is characterized by continuing technological
development, evolving industry standards and changing customer requirements. The
introduction of products by our direct competitors or others embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render our existing products obsolete, unmarketable or less
competitive. In particular, an industry-wide adoption of uniform open standards
across heterogeneous analytic applications could minimize the importance of the
integration functionality of our products and materially adversely affect the
competitiveness and market acceptance of our products. Our success depends upon
our ability to enhance existing products, to respond to changing customer
requirements and to develop and introduce in a timely manner new products that
keep pace with technological and competitive developments and emerging industry
standards. We have in the past experienced delays in releasing new products and
product enhancements and may experience similar delays in the future. As a
result, some of our customers deferred purchasing the PowerMart product until
this upgrade was released. Future delays or problems in the installation or
implementation of our new releases may cause customers to forego purchases of
our products and purchase those of our competitors instead. Failure to develop
and introduce new products, or enhancements to existing products, in a timely
manner in response to changing market conditions or customer requirements, will
materially and adversely affect our business, results of operations and
financial condition.
IF WE DO NOT MAINTAIN AND STRENGTHEN OUR RELATIONSHIPS WITH OUR STRATEGIC
PARTNERS, OUR ABILITY TO GENERATE REVENUE AND CONTROL IMPLEMENTATION COSTS WILL
BE ADVERSELY AFFECTED.
We believe that our ability to increase the sales of our products and our
future success will depend in part upon maintaining and strengthening successful
relationships with our current or future strategic partners. In
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addition to our direct sales force, we rely on established relationships with a
variety of strategic partners, such as systems integrators, resellers and
distributors, for marketing, licensing, implementing and supporting our products
in the United States and internationally. We also rely on relationships with
strategic technology partners, such as enterprise resource planning providers,
for the promotion and implementation of our solutions. In particular, our
ability to market our products depends substantially on our relationships with
significant strategic partners, including Accenture, Ariba, BroadVision,
Business Objects, Deloitte Consulting, KPMG Consulting, PeopleSoft,
PricewaterhouseCoopers, SAP, Siebel Systems and Sybase. In addition, our
strategic partners may offer products of several different companies, including,
in some cases, products that compete with our products. We have limited control,
if any, as to whether these strategic partners devote adequate resources to
promoting, selling and implementing our products.
We may not be able to maintain our strategic partnerships or attract
sufficient additional strategic partners who are able to market our products
effectively, who are qualified to provide timely and cost-effective customer
support and service or who have the technical expertise and personnel resources
necessary to implement our products for our customers. In particular, if our
strategic partners do not devote adequate resources for implementation of our
products, we will incur substantial additional costs associated with hiring and
training additional qualified technical personnel to timely implement solutions
for our customers. Furthermore, our relationships with our strategic partners
may not generate enough revenue to offset the significant resources used to
develop these relationships.
WE RELY ON THIRD-PARTY TECHNOLOGIES AND IF WE ARE UNABLE TO USE OR INTEGRATE
THESE TECHNOLOGIES, OUR PRODUCT AND SERVICE DEVELOPMENT MAY BE DELAYED.
We intend to continue to license technologies from third parties, including
applications used in our research and development activities and technologies,
which are integrated into our products and services. If we cannot obtain,
integrate or continue to license any of these technologies, we may experience a
delay in product and service development until equivalent technology can be
identified, licensed and integrated. These technologies may not continue to be
available to us on commercially reasonable terms or at all. We may not be able
to successfully integrate any licensed technology into our products or services,
which would harm our business and operating results. Third-party licenses also
expose us to increased risks that include:
- risks of product malfunction after new technology is integrated;
- the diversion of resources from the development of our own proprietary
technology; and
- our inability to generate revenue from new technology sufficient to
offset associated acquisition and maintenance costs.
THE LENGTHY SALES CYCLE AND IMPLEMENTATION PROCESS OF OUR PRODUCTS MAKES OUR
REVENUES SUSCEPTIBLE TO FLUCTUATIONS.
Our sales cycle can be lengthy because the expense, complexity, broad
functionality and company-wide deployment of our products typically requires
executive-level approval for investment in our products. In addition, to
successfully sell our products, we frequently must educate our potential
customers about the full benefits of our products, which also can require
significant time. Due to these factors, the sales cycle associated with the
purchase of our products is subject to a number of significant risks over which
we have little or no control, including:
- customers' budgetary constraints and internal acceptance review
procedures;
- the timing of budget cycles;
- concerns about the introduction of our products or competitors' new
products; or
- potential downturns in general economic conditions.
Further, our sales cycle may lengthen as we continue to focus our sales
efforts on large corporations. The implementation of our products, and
particularly our analytic application products, is also a complex and time-
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consuming process, the length and cost of which is difficult to predict. If our
sales cycle and implementation process lengthens unexpectedly, it could
adversely affect the timing of our revenues or increase costs, either of which
may independently cause fluctuations in our revenue.
WE EXPECT SEASONAL TRENDS TO CAUSE OUR QUARTERLY REVENUES TO FLUCTUATE.
In recent years, there has been a relatively greater demand for our
products in the fourth quarter than in each of the first three quarters of the
year, particularly the first quarter. As a result, we historically have
experienced relatively higher bookings in the fourth quarter and relatively
lighter bookings in the first quarter. While some of this effect can be
attributed to the rapid growth of revenues in recent years, we believe that
these fluctuations are caused by customer buying patterns (often influenced by
year-end budgetary pressures) and the efforts of our direct sales force to meet
or exceed year-end sales quotas. In addition, European sales may tend to be
relatively lower during the summer months than during other periods. We expect
that seasonal trends will continue for the foreseeable future. This seasonal
impact may increase as we continue to focus our sales efforts on large
corporations.
WE RECOGNIZE REVENUE FROM SPECIFIC CUSTOMERS AT THE TIME WE RECEIVE PAYMENT FOR
OUR PRODUCTS, AND IF THESE CUSTOMERS DO NOT MAKE TIMELY PAYMENT, OUR REVENUES
COULD DECREASE.
We recognize revenue from sales to OEMs, specific resellers, distributors,
international customers and specific customers based on their credit history, at
the time we receive payment for our products, rather than at the time of sale.
If these customers do not make timely payment for our products, our revenues
could decrease. Further, if our revenues from sales to these customers increase
as a percentage of total revenues, our revenues could decrease. If our revenues
decrease, the price of our common stock may fall.
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES, AND WE MAY NOT BE
ABLE TO ACHIEVE PROFITABLE OPERATIONS.
We were incorporated in 1993 and began selling our products in 1996; and
therefore, we have a limited operating history upon which investors can evaluate
our operations, products and prospects. We have incurred significant net losses
since our inception, and we may not achieve profitability. We intend to increase
our operating expenses significantly in the next twelve months; therefore, our
operating results will be harmed if revenues do not increase significantly.
OUR BUSINESS COULD SUFFER AS A RESULT OF OUR STRATEGIC ACQUISITIONS AND
INVESTMENTS.
In December 1999, we acquired Influence, a developer of analytic
applications for e-business. In February 2000, we acquired Delphi, a distributor
of our products in Switzerland. In August 2000, we acquired Zimba, a provider of
applications that enable mobile professionals to have real-time access to
enterprise and external information through wireless devices, voice recognition
technologies and the Internet. In April 2000, we acquired certain
PricewaterhouseCoopers intellectual property rights and personnel in exchange
for shares of our common stock. In November 2000, we acquired certain
intellectual property from QRB Developers. In January 2001, we acquired
syn-T-sys, a distributor of our products in the Netherlands and Belgium. We may
not be able to effectively integrate these companies, intellectual property, or
personnel, and our attempts to do so will place an additional burden on our
management and infrastructure. These acquisitions will subject us to a number of
risks, including:
- the loss of key personnel, customers and business relationships;
- difficulties associated with assimilating and integrating the new
personnel and operations of the acquired company;
- the potential disruption of our ongoing business;
- the expense associated with maintenance of uniform standards, controls,
procedures, employees and clients;
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- the risk of product malfunction after new technology is integrated;
- the diversion of resources from the development of our own proprietary
technology; and
- our inability to generate revenue from new technology sufficient to
offset associated acquisition and maintenance costs.
There can be no assurance that we will be successful in overcoming these
risks or any other problems encountered in connection with our acquisitions.
WE MAY ENGAGE IN FUTURE ACQUISITIONS OR INVESTMENTS THAT COULD DILUTE OUR
EXISTING STOCKHOLDERS, OR CAUSE US TO INCUR CONTINGENT LIABILITIES, DEBT OR
SIGNIFICANT EXPENSE.
From time to time, in the ordinary course of business, we may evaluate
potential acquisitions of, or investments in, related businesses, products or
technologies. Future acquisitions could result in the issuance of dilutive
equity securities, the incurrence of debt or contingent liabilities.
Furthermore, there can be no assurance that any strategic acquisition or
investment will succeed. Any future acquisition or investment could harm our
business, financial condition and results of operation.
The Financial Accounting Standards Board, or FASB, is considering the
elimination of pooling-of-interests accounting for acquisitions and the ability
to write-off in-process research and development has been limited by recent
pronouncements. The effect of these changes would be to increase the portion of
the purchase price for any future acquisitions that must be charged to our cost
of revenues and operating expenses in the periods following any such
acquisitions. As a consequence, our results of operations could be harmed.
Although these changes would not directly affect the purchase price for any of
these acquisitions, they would have the effect of increasing the reported
expenses associated with any of these acquisitions. To that extent, these
changes may make it more difficult for us to acquire other companies, product
lines or technologies.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO GREATER INTELLECTUAL PROPERTY,
COLLECTIONS, EXCHANGE RATE FLUCTUATIONS, REGULATORY AND OTHER RISKS, WHICH COULD
LIMIT OUR FUTURE GROWTH.
We intend to expand our international operations, and as a result, we may
face significant additional risks. Our failure to manage our international
operations and the associated risks effectively could limit the future growth of
our business. The expansion of our existing international operations and entry
into additional international markets will require significant management
attention and financial resources.
Our international operations face numerous risks. Our products must be
localized -- customized to meet local user needs -- in order to be sold in
particular foreign countries. Developing local versions of our products for
foreign markets is difficult and can take longer than we anticipate. We
currently have limited experience in localizing products and in testing whether
these localized products will be accepted in the targeted countries. We cannot
assure you that our localization efforts will be successful. In addition, we
have only a limited history of marketing, selling and supporting our products
and services internationally. As a result, we must hire and train experienced
personnel to staff and manage our foreign operations. However, we may experience
difficulties in recruiting and training an international staff. We must also be
able to enter into strategic relationships with companies in international
markets. If we are not able to maintain successful strategic relationships
internationally or recruit additional companies to enter into strategic
relationships, our future growth could be limited.
Our international business is subject to a number of risks, including the
following:
- greater difficulty in protecting intellectual property;
- greater difficulty in staffing and managing foreign operations;
- greater risk of uncollectible accounts;
- longer collection cycles;
- potential unexpected changes in regulatory practices and tariffs;
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- potential unexpected changes in tax laws and treaties;
- sales seasonality;
- the impact of fluctuating exchange rates between the U.S. dollar and
foreign currencies in markets where we do business; and
- general economic and political conditions in these foreign markets.
We may encounter difficulties predicting the extent of the future impact of
these conditions. These factors and other factors could harm our ability to gain
future international revenues and consequently on our business, results of
operations and financial condition.
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD HARM OUR RESULTS OF
OPERATIONS.
We have experienced a period of rapid and substantial growth that has
placed and, if such growth continues, will continue to place a strain on our
administrative and operational infrastructure. If we are unable to manage this
growth effectively, our business, results of operations or financial condition
may be significantly harmed. Our ability to manage our operations and growth
effectively requires us to continue to improve our operational, financial and
management controls, reporting systems and procedures and hiring programs. We
may not be able to successfully implement improvements to our management
information and control systems in an efficient or timely manner, and we may
discover deficiencies in existing systems and controls.
IF WE ARE NOT ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS
COULD BE HARMED.
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. Our pending patent applications may not be allowed or
our competitors may successfully challenge the validity or scope of any of our
four U.S. and one European issued patents or any future issued patents. Our
patents alone may not provide us with any significant competitive advantage.
Third parties could copy or otherwise obtain and use our products or technology
without authorization, or develop similar technology independently. We cannot
easily monitor any unauthorized use of our products, and, although we are unable
to determine the extent to which piracy of our software products exists,
software piracy is a prevalent problem in our industry in general.
Furthermore, effective protection of intellectual property rights is
unavailable or limited in various foreign countries. The protection of our
proprietary rights may be inadequate and our competitors could independently
develop similar technology, duplicate our products or design around any patents
or other intellectual property rights we hold.
WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT COULD BE COSTLY TO
DEFEND AND RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS.
As is common in the software industry, we have received and may continue
from time to time receive notices from third parties claiming infringement by
our products of third-party patent and other proprietary rights. Third parties
could claim that our current or future products infringe their patent or other
proprietary rights. Any claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements, any of which could adversely effect
our business, financial condition and operating results. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all. Legal action claiming patent infringement could be commenced
against us, and we may not prevail in such litigation given the complex
technical issues and inherent uncertainties in patent litigation. Moreover, the
cost of defending patent litigation could be substantial, regardless of the
outcome. In the event a patent claim against us was successful and we could not
obtain a license on acceptable terms, license a substitute technology or
redesign to avoid infringement, our business, financial condition and operating
results would be significantly harmed. See "Business -- Intellectual Property
and Other Proprietary Rights."
26
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OUR STOCK PRICE FLUCTUATES AS A RESULT OF OUR BUSINESS AND STOCK MARKET
FLUCTUATIONS.
The market price for our common stock has experienced significant
fluctuations and may continue to fluctuate significantly. The market price for
our common stock may be affected by a number of factors, including the
following:
- the announcement of new products or product enhancements by us or our
competitors;
- quarterly variations in our or our competitors' results of operations;
- changes in earnings estimates or recommendations by securities analysts;
- developments in our industry; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. After periods of volatility in
the market price of a particular company's securities, securities class action
litigation has often been brought against that company. We may become involved
in this type of litigation in the future, which is often expensive and diverts
management's attention and resources, which could harm our ability to execute
our business plan. Such factors and fluctuations, as well as general economic,
political and market conditions, may cause the market price of our common stock
to decline, which may impact our operations.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, PARTICULARLY IN THE SILICON VALLEY AREA, WHERE WE ARE HEADQUARTERED,
COULD HARM OUR RESULTS OF OPERATIONS.
We believe our success depends upon our ability to attract and retain
highly skilled personnel, including Gaurav S. Dhillon, our Chief Executive
Officer, Diaz H. Nesamoney, our President and Chief Operating Officer, and other
key members of our management team. We currently do not have any key-man life
insurance relating to our key personnel, and their employment is at-will and not
subject to employment contracts.
We may not be successful in attracting, assimilating and retaining key
personnel in the future. As we seek to expand our operations, the hiring of
qualified sales and technical personnel will be difficult due to the limited
number of qualified professionals. Competition for these types of employees,
particularly in the Silicon Valley area, where we are headquartered, is intense.
We have in the past experienced difficulty in recruiting qualified sales and
technical personnel. Failure to attract, assimilate and retain key personnel,
particularly sales and technical personnel, would harm our business, results of
operations and financial condition.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE
AVAILABLE ON REASONABLE TERMS TO US, IF AT ALL.
We may not generate sufficient revenue from operations to offset our
operating or other expenses. As a result, in the future, we may need to raise
additional funds through public or private debt or equity financings. We may not
be able to borrow money or sell more of our equity securities to meet our cash
needs. Even if we are able to do so, it may not be on terms that are favorable
or reasonable to us. If we are not able to raise additional capital when we need
it in the future, our business could be seriously harmed.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER.
Our basic corporate documents and Delaware law contain provisions that
might enable our management to resist a takeover. These provisions might
discourage, delay or prevent a change in the control of Informatica or a change
in our management. Our amended and restated certificate of incorporation filed
in connection with this offering provides that when we are eligible, we will
have a classified Board of Directors, with each class of directors subject to
re-election every three years. This classified board when implemented will have
the effect
27
30
of making it more difficult for third parties to insert their representatives on
our Board of Directors and gain control of Informatica. These provisions could
also discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and take other corporate actions. The existence
of these provisions could limit the price that investors might be willing to pay
in the future for shares of the common stock.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our operations are vulnerable to interruption by fire, earthquake, power
loss, telecommunications failure and other events beyond our control. We do not
have a detailed disaster recovery plan. Our facilities in the State of
California are currently subject to electrical blackouts as a consequence of a
shortage of available electrical power. In the event these blackouts continue or
increase in severity, they could disrupt the operations of our affected
facilities. In connection with the shortage of available power, prices for
electricity have risen dramatically, and will likely continue to increase for
the foreseeable future. Such price changes will increase our operating costs,
which could in turn hurt our profitability. In addition, we do not carry
sufficient business interruption insurance to compensate us for losses that may
occur, and any losses or damages incurred by us could have a material adverse
effect on our business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors including those
set forth in "Factors That May Affect Future Results."
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. The primary objective of our investment activities is
to preserve principal while maximizing yields without significantly increasing
risk. Our investments consist primarily of commercial paper and certificates of
deposits. Due to the nature of our investments, we believe that there is no
material risk exposure. All investments are carried at market value, which
approximates cost.
FOREIGN CURRENCY RISK
We develop products in the United States and market our products in North
and South America, Europe and the Asia-Pacific region. 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. As our
sales are primarily in U.S. dollars, a strengthening of the dollar could make
our products less competitive in foreign markets.
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31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements, and the related notes
thereto, of Informatica and the Report of Independent Auditors are filed as a
part of this Form 10-K.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... 30
Consolidated Balance Sheets................................. 31
Consolidated Statements of Operations....................... 32
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit).................. 33
Consolidated Statements of Cash Flows....................... 34
Notes to Consolidated Financial Statements.................. 35
29
32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Informatica Corporation
We have audited the accompanying consolidated balance sheets of Informatica
Corporation as of December 31, 2000 and 1999, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Informatica
Corporation at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 22, 2001
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INFORMATICA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
--------------------
2000 1999
-------- --------
Current assets:
Cash and cash equivalents................................. $217,713 $ 57,521
Restricted cash........................................... 8,116 --
Accounts receivable, net of allowances of $3,858 and
$1,977 in 2000 and 1999, respectively.................. 30,100 8,119
Prepaid expenses and other current assets................. 2,852 1,272
-------- --------
Total current assets.............................. 258,781 66,912
Restricted cash, less current portion....................... 12,166 --
Property and equipment, net................................. 31,131 1,482
Goodwill and other intangible assets, net................... 47,491 --
Other assets................................................ 1,414 129
-------- --------
Total assets...................................... $350,983 $ 68,523
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 21,505 $ 7,999
Accrued compensation and related expenses................. 11,648 6,264
Income taxes payable...................................... 3,910 813
Current portion of capital lease obligations.............. 83 150
Current portion of notes payable to stockholders.......... -- 2,075
Deferred revenue.......................................... 23,340 9,660
-------- --------
Total current liabilities......................... 60,486 26,961
Capital lease obligations, less current portion............. -- 66
Notes payable to stockholders, less current portion......... -- 1,372
Commitments
Redeemable convertible preferred stock, no par value,
issuable in series:
2,000,000 shares authorized; no shares outstanding at
December 31, 2000 and 1999, respectively............... -- --
Stockholders' equity:
Common stock, $0.001 par value; 200,000,000 shares
authorized; 75,588,185 and 63,997,236 shares issued and
outstanding at December 31, 2000 and 1999,
respectively........................................... 331,042 67,020
Notes receivable from stockholders........................ -- (40)
Deferred stock-based compensation......................... (3,447) (2,888)
Accumulated deficit....................................... (37,400) (23,884)
Accumulated other comprehensive income (loss)............. 302 (84)
-------- --------
Total stockholders' equity........................ 290,497 40,124
-------- --------
Total liabilities and stockholders' equity........ $350,983 $ 68,523
======== ========
See accompanying notes to consolidated financial statements.
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INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
Revenues:
License................................................... $101,649 $41,184 $21,582
Service................................................... 52,409 21,195 8,764
-------- ------- -------
Total revenues.................................... 154,058 62,379 30,346
Cost of revenues:
License................................................... 2,034 686 376
Service................................................... 28,465 10,310 5,013
-------- ------- -------
Total cost of revenues............................ 30,499 10,996 5,389
-------- ------- -------
Gross profit................................................ 123,559 51,383 24,957
Operating expenses:
Research and development.................................. 26,493 11,843 8,385
Sales and marketing....................................... 75,034 33,613 22,733
General and administrative................................ 11,726 5,012 3,132
Merger-related costs...................................... -- 2,082 --
Amortization of stock-based compensation.................. 1,514 742 98
Amortization of goodwill and other intangible assets...... 14,163 -- --
Purchased in-process research and development............. 8,648 -- --
-------- ------- -------
Total operating expenses.......................... 137,578 53,292 34,348
-------- ------- -------
Loss from operations........................................ (14,019) (1,909) (9,391)
Interest income and other, net.............................. 4,306 1,557 297
Interest expense............................................ (458) (319) (191)
-------- ------- -------
Loss before income taxes.................................... (10,171) (671) (9,285)
Income tax provision........................................ 3,345 824 --
-------- ------- -------
Net loss.................................................... $(13,516) $(1,495) $(9,285)
======== ======= =======
Net loss per share:
Basic and diluted......................................... $ (0.19) $ (0.03) $ (0.61)
======== ======= =======
Shares used in calculation of net loss per share:
Basic and diluted......................................... 69,758 47,565 15,305
======== ======= =======
See accompanying notes to consolidated financial statements.
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INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------
REDEEMABLE
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE DEFERRED
---------------------- --------------------- FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDERS COMPENSATION
----------- -------- ---------- -------- ------------ ------------
BALANCES AT DECEMBER 31, 1997......... 31,760,000 $ 17,586 14,005,336 $ 651 $(40) $ (83)
Components of comprehensive loss:
Net loss........................... -- -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- --
Comprehensive loss...................
Repurchase of common stock........... -- -- (12,388) (3) -- --
Common stock options exercised....... -- -- 2,327,748 167 -- --
Deferred stock-based compensation.... -- -- -- 398 -- (398)
Amortization of stock-based
compensation....................... -- -- -- -- -- 98
----------- -------- ---------- -------- ---- -------
BALANCES AT DECEMBER 31, 1998......... 31,760,000 17,586 16,320,696 1,213 (40) (383)
Components of comprehensive loss:
Net loss........................... -- -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- --
Comprehensive loss...................
Issuance of common stock in
connection with initial public
offering, net of offering costs.... -- -- 12,000,000 43,514 -- --
Conversion of redeemable convertible
preferred stock into common
stock.............................. (31,760,000) (17,586) 31,760,000 17,586 -- --
Repurchase of common stock........... -- -- (17,344) (3) -- --
Common stock options exercised....... -- -- 3,138,792 1,251 -- --
Exercise of warrants................. -- -- 795,092 212 -- --
Deferred stock-based compensation.... -- -- -- 3,247 -- (3,247)
Amortization of stock-based
compensation....................... -- -- -- -- -- 742
----------- -------- ---------- -------- ---- -------
BALANCES AT DECEMBER 31, 1999......... -- -- 63,997,236 67,020 (40) (2,888)
Components of comprehensive loss:
Net loss........................... -- -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- --
Comprehensive loss...................
Issuance of common stock in
connection with secondary public
offering, net of offering costs.... -- -- 4,750,000 190,961 -- --
Issuance of common stock in
connection with acquisitions....... -- -- 1,325,820 56,508 -- --
Repurchase of common stock........... -- -- (1,600) (3) -- --
Common stock options exercised....... -- -- 4,549,257 10,575 -- --
Common stock issued under employee
stock purchase plan................ -- -- 967,472 3,908 -- --
Repayment of notes receivable from
stockholders....................... -- -- -- -- 40 --
Deferred stock-based compensation.... -- -- -- 2,073 -- (2,073)
Amortization of stock-based
compensation....................... -- -- -- -- 1,514
----------- -------- ---------- -------- ---- -------
BALANCES AT DECEMBER 31, 2000......... -- $ -- 75,588,185 $331,042 $ -- $(3,447)
=========== ======== ========== ======== ==== =======
STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
ACCUMULATED INCOME EQUITY
DEFICIT (LOSS) (DEFICIT)
----------- ------------- -------------
BALANCES AT DECEMBER 31, 1997......... $(13,104) $ (11) $(12,587)
Components of comprehensive loss:
Net loss........................... (9,285) -- (9,285)
Foreign currency translation
adjustment....................... -- 30 30
--------
Comprehensive loss................... (9,255)
Repurchase of common stock........... -- -- (3)
Common stock options exercised....... -- -- 167
Deferred stock-based compensation.... -- -- --
Amortization of stock-based
compensation....................... -- -- 98
-------- ----- --------
BALANCES AT DECEMBER 31, 1998......... (22,389) 19 (21,580)
Components of comprehensive loss:
Net loss........................... (1,495) -- (1,495)
Foreign currency translation
adjustment....................... -- (103) (103)
--------
Comprehensive loss................... (1,598)
Issuance of common stock in
connection with initial public
offering, net of offering costs.... -- -- 43,514
Conversion of redeemable convertible
preferred stock into common
stock.............................. -- -- 17,586
Repurchase of common stock........... -- -- (3)
Common stock options exercised....... -- -- 1,251
Exercise of warrants................. -- -- 212
Deferred stock-based compensation.... -- -- --
Amortization of stock-based
compensation....................... -- -- 742
-------- ----- --------
BALANCES AT DECEMBER 31, 1999......... (23,884) (84) 40,124
Components of comprehensive loss:
Net loss........................... (13,516) -- (13,516)
Foreign currency translation
adjustment....................... -- 386 386
--------
Comprehensive loss................... (13,130)
Issuance of common stock in
connection with secondary public
offering, net of offering costs.... -- -- 190,961
Issuance of common stock in
connection with acquisitions....... -- -- 56,508
Repurchase of common stock........... -- -- (3)
Common stock options exercised....... -- -- 10,575
Common stock issued under employee
stock purchase plan................ -- -- 3,908
Repayment of notes receivable from
stockholders....................... -- -- 40
Deferred stock-based compensation.... -- -- --
Amortization of stock-based
compensation....................... -- -- 1,514
-------- ----- --------
BALANCES AT DECEMBER 31, 2000......... $(37,400) $ 302 $290,497
======== ===== ========
See accompanying notes to consolidated financial statements.
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INFORMATICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
OPERATING ACTIVITIES
Net loss.................................................... $(13,516) $(1,495) $(9,285)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,660 550 1,716
Sales and returns allowances.............................. 2,506 -- 886
Other receivable allowances............................... 242 246 320
Amortization of stock-based compensation.................. 1,514 742 98
Amortization of goodwill and other intangible assets...... 14,163 -- --
Purchased in-process research and development............. 8,648 -- --
Interest expense related to notes payable................. 125 289 167
Changes in operating assets and liabilities:
Accounts receivable..................................... (24,739) (4,658) (1,756)
Prepaid expenses and other current assets............... (1,545) (709) (303)
Other assets............................................ (1,236) 7 (2)
Accounts payable and accrued liabilities................ 6,177 3,645 1,838
Accrued compensation and related expenses............... 5,093 2,675 2,017
Income taxes payable.................................... 2,919 813 --
Deferred revenue........................................ 13,561 5,087 1,887
-------- ------- -------
Net cash provided by (used in) operating
activities....................................... 15,572 7,192 (2,417)
-------- ------- -------
INVESTING ACTIVITIES
Purchase of property and equipment, net..................... (30,854) (1,440) (954)
Acquisitions, net of cash acquired.......................... (6,318) -- --
Transfer to restricted cash................................. (20,282) -- --
-------- ------- -------
Net cash used in investing activities.............. (57,454) (1,440) (954)
-------- ------- -------
FINANCING ACTIVITIES
Proceeds from secondary public offering of common stock,
net....................................................... 190,961 -- --
Proceeds from initial public offering of common stock,
net....................................................... -- 43,514 --
Proceeds from issuance of common stock, net of payments for
repurchases............................................... 14,480 1,248 164
Proceeds from exercise of warrants.......................... -- 212 --
Proceeds from notes payable to stockholders................. -- 1,286 1,691
Payments on notes payable to stockholders................... (3,572) (1,312) --
Payments on capital lease obligations....................... (221) (243) (235)
Repayment of notes receivable from stockholders............. 40 -- --
-------- ------- -------
Net cash provided by financing activities.......... 201,688 44,705 1,620
-------- ------- -------
Effect of foreign currency translation on cash and cash
equivalents............................................... 386 (103) 30
-------- ------- -------
Increase (decrease) in cash and cash equivalents............ 160,192 50,354 (1,721)
Cash and cash equivalents at beginning of year.............. 57,521 7,167 8,888
-------- ------- -------
Cash and cash equivalents at end of year.................... $217,713 $57,521 $ 7,167
======== ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................. $ 253 $ 29 $ 48
======== ======= =======
Income taxes paid......................................... $ 163 10 --
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred........................ $ -- $ -- $ 437
======== ======= =======
Conversion of redeemable convertible preferred stock into
common stock............................................ $ -- $17,586 $ --
======== ======= =======
Deferred stock-based compensation related to options
granted................................................. $ 2,073 $ 3,247 $ 398
======== ======= =======
Common stock issued for acquisitions...................... $ 56,508 $ -- $ --
======== ======= =======
See accompanying notes to consolidated financial statements.
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INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING
POLICIES
Description of the Company
Informatica Corporation (the "Company") was incorporated in California in
February 1993 and reincorporated in Delaware in March 1999. We are a leading
provider of e-business infrastructure and analytic application software that
enables our customers to automate the integration, analysis and delivery of
critical corporate information. Using our products, managers and executives gain
valuable business insight they can use to improve operational performance and
enhance competitive advantage.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
The functional currency of the Company's foreign subsidiaries is the local
currency. The Company translates all assets and liabilities of foreign
subsidiaries to U.S. dollars at the current exchange rates as of the applicable
balance sheet date. Revenue and expenses are translated at the average exchange
rate prevailing during the period. Gains and losses resulting from the
translation for the foreign subsidiaries' financial statements are reported as a
separate component of stockholders' equity. Net gains and losses resulting from
foreign exchange transactions were not significant during any of the periods
presented.
Acquisitions
The Company accounts for business combinations under the
pooling-of-interests and purchase methods of accounting. For business
combinations accounted for using the pooling-of-interest transactions, the
Company's historical financial results for all dates and periods prior to the
pooling-of-interest transaction are restated to reflect the results of the
pooling-of-interest transaction. Merger-related costs incurred by the Company in
a pooling-of-interests transaction are expensed in the consolidated statements
of operations.
For business combinations accounted for under the purchase method of
accounting, the Company includes the results of operations of the acquired
business from the acquisition date. Net assets of the companies acquired are
recorded at their fair value at the acquisition date. The excess of the purchase
price over the fair value of the net tangible assets and the identifiable
intangible assets is allocated to goodwill in the accompanying consolidated
balance sheets. Amounts allocated to purchased in-process research and
development are expensed in the period in which the acquisition is consummated
in the consolidated statements of operations.
See Note 11 of Notes to Consolidated Financial Statements for information
about the Company's business combinations.
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 amounts reported in the financial statements and
accompanying notes. Actual amounts could differ from the estimates.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
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INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents, which consist of cash and highly liquid
short-term government securities with insignificant interest rate risk and
original maturities of three months or less at date of purchase, are stated at
cost, which approximates fair value. Restricted cash consists of amounts held in
deposits that are required as collateral under lease and acquisition agreements.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated useful
lives of the related assets, generally three years or less. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful life of the related asset.
Software Development Costs
The Company accounts for software development costs in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," under
which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. Through December 31, 2000, costs
incurred subsequent to the establishment of technological feasibility have not
been significant and all software development costs have been charged to
research and development expense in the accompanying consolidated statements of
operations.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price paid over the fair
value of tangible and identifiable intangible net assets acquired in business
combinations. Identifiable intangible assets primarily include intellectual
property, assembled workforce and developed technology. Under the Company's
accounting policies, goodwill and other intangible assets are amortized on a
straight-line basis over their expected useful lives ranging from two to three
years. Amounts allocated to purchased in-process research and development are
expensed in the period in which the acquisition is consummated.
Goodwill and other intangible assets are evaluated quarterly for
impairment. The Company records impairment losses on goodwill and other
intangible assets when events and circumstances indicate that such assets might
be impaired and the estimated fair value of the asset is less than its recorded
amount. Conditions that would trigger an impairment assessment include material
adverse changes in operations or the Company's decision to abandon acquired
products, services or technologies. Measurement of fair value would be based on
discounted cash flows at the Company's incremental borrowing rate and would
include a factor for the probability that the impaired product, service or
technology would be successful. To date, no such impairment has occurred.
Concentrations of Credit Risk and Credit Evaluations
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains its cash and cash equivalents with high
quality financial institutions. The Company performs ongoing credit evaluations
of its customers, which are primarily located in the U.S., Europe and Canada,
and generally does not require collateral. Allowances for credit risks and for
estimated future returns are provided upon shipment. Returns to date have not
been material. Actual credit losses and returns may differ from the Company's
estimates and such differences could be material to the financial statements.
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INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
The Company generates revenues from sales of software licenses and
services. The Company's license revenues are derived from its infrastructure and
analytic application software products. The Company receives software license
revenues from licensing its products directly to end users and indirectly
through resellers, distributors and original equipment manufacturers ("OEMs").
Service revenues are derived from maintenance contracts and training and
consulting services performed for customers that license the Company's products
either directly from the Company or indirectly through resellers, distributors
and OEMs.
License revenues are recognized when a noncancelable license agreement has
been signed, the product has been shipped, the fees are fixed and determinable,
collectibility is probable and vendor-specific objective evidence exists to
allocate the total fee to elements of the arrangement. Vendor-specific objective
evidence of fair value is based on the price charged when an element is sold
separately. In the case of an element not yet sold separately, the price is
established by authorized management. For the analytic application software
products, the Company recognizes the bundled license and support revenue ratably
over the support period, generally one year. Support for the analytic
application software products for the first year is never sold separately and in
consideration of the complexities of the implementation, the customer is
entitled to receive support services that are different than the standard annual
support services. If an acceptance period is required, revenue is recognized
upon customer acceptance or the expiration of the acceptance period. The Company
also enters into reseller arrangements that typically provide for sublicense
fees based on a percentage of list price. For sales to end users, revenue is
recognized upon shipment and when collectibility is probable. For sales to OEMs,
specific resellers, distributors, international customers and specific customers
based on their credit history, revenue is recognized at the time payment is
received for the Company's products, rather than at the time of sale. The
Company's agreements do not contain product return rights.
Revenues from services, which consist of fees for ongoing support and
product updates, are recognized ratably over the term of the contract, typically
one year. Consulting revenues are primarily related to implementation services
and product enhancements performed on a time-and-materials basis or a fixed fee
arrangement under separate service arrangements related to the installation of
the Company's software products. Training revenues are generated from classes
offered at the Company's headquarters, sales offices and customer locations.
Revenues from consulting and training services are recognized as the services
are performed. When a contract includes both license and service elements, the
license fee is recognized on delivery of the software, provided services do not
include significant customization or modification of the base product, and are
not otherwise essential to the functionality of the software and the payment
terms for licenses are not dependent on additional acceptance criteria.
Deferred revenue includes deferred license and maintenance revenue and
prepaid training and consulting fees. Deferred license revenue amounts do not
include items which are both deferred and unbilled. The Company's practice is to
net unpaid deferred items against the related receivables balances from OEMs,
specific resellers, distributors, international customers and specific
customers. As of December 31, 2000 and 1999, there were $37.3 million and $9.2
million of deferred revenue netted against the related receivables balances,
respectively.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was $1.5
million for the year ended December 31, 2000 and $0 for the years ended December
31, 1999 and 1998.
Stock-Based Compensation
The Company accounts for stock issued to employees in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees" and complies with the disclosure
37
40
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
provisions of FASB Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." Under APB 25, compensation expense of fixed stock options is
based on the difference, if any, on the date of the grant between the fair value
of the Company's stock and the exercise price of the option. The Company
accounts for stock issued to non-employees in accordance with the provisions of
SFAS 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
Net Loss Per Share
Under the provisions of FASB Statement No. 128, "Earnings per Share," basic
net loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted earnings per share reflects the
potential dilution of securities by adding other common stock equivalents,
including stock options, warrants and convertible preferred stock, to the
weighted- average number of common shares outstanding during the period, if
dilutive. Potentially dilutive securities have been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive.
The calculation of basic and diluted net loss per share is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss............................................. $(13,516) $(1,495) $(9,285)
======== ======= =======
Weighted-average shares of common stock outstanding
used in calculation of basic and diluted net loss
per share.......................................... 69,758 47,565 15,305
======== ======= =======
Basic and diluted net loss per share................. $ (0.19) $ (0.03) $ (0.61)
======== ======= =======
If the Company had reported net income, the calculation of diluted earnings
per share would have included the shares used in the computation of basic net
loss per share as well as an additional 10,654,000, 12,289,000 and 8,960,000
common equivalent shares related to outstanding stock options and warrants not
included in the calculations above (determined using the treasury stock method)
for 2000, 1999 and 1998, respectively.
Comprehensive Income (Loss)
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is foreign
currency translation adjustments, which are included in accumulated other
comprehensive income (loss) in the consolidated statements of redeemable
convertible preferred stock and stockholders' equity (deficit). Tax effects of
comprehensive income (loss) are not considered material.
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109 ("SFAS 109"), "Accounting for Income Taxes," which requires the use of the
liability method in accounting for income taxes. Under this method, deferred tax
assets and liabilities are measured using enacted tax rates and laws that will
be in effect when the differences are expected to reverse. Valuation allowances
are established, when necessary, to reduce the deferred tax assets to the
amounts expected to be realized.
38
41
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Segment Information
The Company has adopted FASB Statement No. 131 ("SFAS 131"), "Disclosure
About Segments of an Enterprise and Related Information." The Company operates
solely in one segment, the development and marketing of e-business
infrastructure and analytic application software, and the adoption of SFAS 131
has no impact to the Company's consolidated financial statements.
Recent Accounting Pronouncements
In July 1999, the FASB announced the delay of the effective date of
Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities" to the first quarter of 2001. SFAS 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. The Company is required to adopt SFAS 133 effective January 1, 2001.
Because the Company does not currently hold any derivative instruments and does
not engage in hedging activities, the adoption of SFAS 133 will not have an
impact on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance with respect to the recognition,
presentation and disclosure of revenue in financial statements of all public
registrants. The Company's adoption of SAB 101 did not have a material impact on
the Company's revenue recognition policies, financial position or results of
operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB Opinion 25." This interpretation clarifies the application
of APB 25 for certain issues including: (a) the definition of employee for
purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 was effective July 1, 2000 but certain conclusions in this
interpretation cover specific events that occurred after either December 15,
1998 or January 12, 2000. The adoption of FIN 44 did not have a significant
effect on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN THOUSANDS)
Computer and office equipment............................ $ 7,208 $ 2,540
Furniture and fixtures................................... 549 125
Leasehold improvements................................... 26,335 --
------- -------
34,092 2,665
Less accumulated depreciation and amortization........... (2,961) (1,183)
------- -------
$31,131 $ 1,482
======= =======
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $0.9 million as of December
31, 2000 and 1999. Accumulated amortization of these assets was $0.8 million and
$0.3 million at December 31, 2000 and 1999, respectively. The related
amortization is included with depreciation expense.
39
42
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company had approximately $24.7 million of unamortized leasehold
improvements as of December 31, 2000 associated with the new corporate
headquarters in Redwood City, California. The facility is under construction and
expected to be completed in July 2001, at which time the leasehold improvements
will be amortized over the shorter of the lease term or the estimated useful
life of the related assets.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consists of the following as of
December 31, 2000 (in thousands):
Goodwill.................................................... $ 52,735
Other intangible assets..................................... 8,919
--------
61,654
Less accumulated amortization............................... (14,163)
--------
$ 47,491
========
4. LEASE OBLIGATIONS
The Company had an equipment financing agreement which provided up to $0.6
million for the purchase of property and equipment and expired in January 1998.
In February 1998, the Company entered into another equipment financing agreement
with the same lender that increased the line to $1.5 million for the purchase of
property and equipment. Borrowings under these agreements bear interest at a
rate of 3.07% and 3.19%, respectively, for thirty-six months. The Company is
also required to either pay a supplemental additional interest portion of 20% of
the original purchase price due and payable at the end of the agreement term or
to extend the agreement term for an additional year at a monthly interest rate
of 2.05% of the original purchase amount. Total borrowings under these
agreements amounted to $0.9 million. The outstanding balance of $83,000 as of
December 31, 2000 was repaid in January 2001.
In February 2000, the Company entered into two lease agreements for new
corporate headquarters in Redwood City, California. The facility is under
construction and expected to be completed in July 2001. The lease expires twelve
years after occupancy. The Company paid for tenant improvements, primarily
related to the exercise of build-to-suit options under the facility lease
agreement, of approximately $24.7 million, as of December 31, 2000. The total
estimated cost of leasehold improvements for this facility is approximately
$27.3 million, subject to change. As part of these agreements, the Company
purchased certificates of deposit totaling $12.2 million as a security deposit
for the first year's lease payments until certain financial covenants are met.
These certificates of deposit are classified as long-term restricted cash on the
Company's consolidated balance sheet. The Company leases certain office
facilities under noncancelable operating leases, including those described
above, that expire at various dates through 2013 and require the Company to pay
operating costs, including property taxes, insurance and maintenance. Rent
expense was $4.8 million, $2.0 million and $1.7 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
40
43
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating and capital
leases having original terms in excess of one year are summarized as follows:
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
Years ending December 31:
2001................................................... $ 13,305 $85
2002................................................... 15,913 --
2003................................................... 16,400 --
2004................................................... 16,907 --
2005................................................... 17,428 --
Thereafter............................................... 125,136 --
-------- ---
Total minimum lease payments............................. $205,089 85
========
Less amount representing interest........................ (2)
---
Present value of minimum lease payments.................. $83
===
5. STOCKHOLDERS' EQUITY
BRIDGE FINANCING AND WARRANTS
In connection with the issuance of short-term promissory notes in May 1996,
the Company granted warrants to the lenders to purchase up to 820,000 shares of
Series C preferred stock at $0.625 per share. The warrants expire May 1, 2001.
The Company deemed the fair value of the warrants to be $55,000, which was
recorded as a discount on the notes. The fair value was determined using a
Black-Scholes option pricing model with the following assumptions: a risk-free
interest rate of 6.0%, no dividend yield or volatility factor, and an expected
life of the warrant of five years. This discount was amortized to interest
expense over the term of the notes during 1996. Upon the Company's initial
public offering the warrants were converted into warrants to purchase 820,000
shares of common stock. In 1999, the Company issued a net of 795,092 shares of
common stock upon the exercise of warrants, a portion of which were exercised
pursuant to net exercise provisions, for a total of $0.2 million.
COMMON STOCK
As of December 31, 2000, the Company has reserved the following shares of
its common stock for future issuance:
Outstanding stock options................................... 15,818,798
Reserved for future stock option grants..................... 3,345,931
----------
19,164,729
==========
On April 29, 1999, the Company completed an initial public offering in
which it sold 12,000,000 shares of common stock, including 1,000,000 shares in
connection with the exercise of the underwriters' over-allotment option, at
$4.00 per share. The Company received $43.5 million in cash, net of underwriting
discounts, commissions and other offering costs.
On October 3, 2000, the Company completed a secondary public offering in
which it sold 4,750,000 shares of common stock, including 750,000 shares in
connection with the exercise of the underwriters' over-allotment option, at
$42.50 per share. The Company received $191.0 million in cash, net of
underwriting discounts, commissions and other offering costs.
41
44
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK SPLITS
On January 26, 2000, the Board of Directors approved a two-for-one split of
its common stock to be effected in the form of a stock dividend. The stock split
was effected by distribution of one share of the Company's common stock for each
share of common stock held by each stockholder of record as of February 18,
2000.
On November 14, 2000, the Board of Directors approved a two-for-one split
of its common stock to be effected in the form of a stock dividend. The stock
split was effected by distribution of one share of the Company's common stock
for each share of common stock held by each stockholder of record as of November
29, 2000.
All references in the financial statements to number of shares and per
share amounts of the Company's common stock have been restated for the effect of
the stock splits.
STOCK OPTION PLANS
1993 and 1996 Flexible Stock Incentive Plans
The Company's 1993 and 1996 Flexible Stock Incentive Plans (the "Stock
Plans"), in effect through our initial public offering, authorized the granting
of 16,909,000 incentive and non-qualified common stock options to employees,
directors, and consultants at exercise prices no less than 100% and 85%,
respectively, of the fair market value of the common stock on the grant date, as
determined by the Board of Directors. Options granted are exercisable over a
maximum term of ten years and generally vest over a period of up to four years.
In the event option holders cease to be employed by the Company, all unvested
options are forfeited and all vested options may be exercised within a 90 day
period after termination; under the restricted portion of the plans, the Company
also has the right to repurchase at the original purchase price any unvested
shares if the holder is no longer employed by the Company. As of December 31,
1999, no outstanding common shares are subject to such repurchase rights.
Options that are canceled under the 1996 Stock Plan are available for future
grants under the 1999 Stock Incentive Plan. There were no shares available for
option grants under the 1996 Stock Plan at December 31, 2000.
1999 Stock Incentive Plan
The Company's stockholders approved the 1999 Stock Incentive Plan (the
"1999 Incentive Plan") in April 1999 under which 2,600,000 shares have been
reserved for issuance. In addition, any shares not issued under the 1996 Stock
Plan are also available for grant. The number of shares reserved under the
Incentive Plan automatically increase annually beginning on January 1, 2000 by
the lesser of 16,000,000 shares or 5% of the total amount of fully diluted
shares of common stock outstanding as of such date. Under the 1999 Incentive
Plan, eligible employees may purchase stock options, stock appreciation rights,
restricted shares and stock units. The exercise price for incentive stock
options and non-qualified options may not be less than 100% and 85%,
respectively, of the fair value of common stock at the option grant date.
Options granted are exercisable over a maximum term of ten years from the date
of the grant and generally vest over a period of four years. As of December 31,
2000, the Company has 1,822,907 options available for grant under the 1999
Incentive Plan.
1999 Non-Employee Director Stock Incentive Plan
The Company's stockholders adopted the 1999 Non-Employee Director Stock
Option Incentive Plan (the "Directors Plan") in April 1999 under which 1,000,000
shares have been reserved for issuance. Each non-employee joining the Board of
Directors following the completion of the initial public offering will
automatically receive options to purchase 100,000 shares of common stock at an
exercise price per share equal to the fair market value of the common stock.
These options are exercisable over a maximum term of five years and will vest in
four equal annual installments on each yearly anniversary from the date of the
grant. In
42
45
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
addition, each non-employee director, who has been a member of the Board for at
least six months prior to each annual stockholders meeting, will automatically
receive options to purchase 20,000 shares of common stock at each such meeting.
Each option will have an exercise price equal to the fair value of the common
stock on the automatic grant date, a maximum term of five years and will vest on
the first anniversary of the grant date. As of December 31, 2000, the Company
has 940,000 options available for future issuance under the Directors Plan.
2000 Employee Stock Incentive Plan
In January 2000, the Board of Directors approved the 2000 Employee Stock
Incentive Plan (the "2000 Incentive Plan") under which 1,600,000 shares have
been reserved for issuance. Under the 2000 Incentive Plan, eligible employees
and consultants may purchase stock options, stock appreciation rights,
restricted shares and stock units. The exercise price for non-qualified options
may not be less than 85% of the fair value of common stock at the option grant
date. Options granted are exercisable over a maximum term of ten years from the
date of the grant and generally vest over a period of four years from the date
of the grant. As of December 31, 2000, the Company has 583,024 options available
for grant under the 2000 Incentive Plan.
Influence 1996 Incentive Stock Option Plan
In connection with the acquisition of Influence in 1999, as discussed in
Note 11, the Company converted options to purchase shares of Influence common
stock into options to purchase 574,104 shares of the Company's common stock. The
number of shares of the Company's common stock issuable under each option and
the exercise price for each grant were adjusted by an exchange ratio. The
Company assumed the Influence Stock Incentive Plan ("Influence Plan") under
which the options had been originally granted, however, no further options will
be granted under the Influence Plan. The converted options continue to be
subject to the terms of the Influence Plan. The Influence Plan provided for the
granting of incentive stock options and non-qualified stock options. The
exercise price of all options granted prior to the acquisition were determined
by the Influence Board of Directors and were not less than the fair market value
on the date of the grant. The options generally expire seven years from the date
of the grant and vest over a period of four years from the date of the grant.
Zimba 1999 Stock Option Plan
In connection with the acquisition of Zimba, as discussed in Note 11, the
Company converted options to purchase shares of Zimba common stock into options
to purchase 91,176 shares of the Company's common stock. The number of shares of
the Company's common stock issuable under each option and the exercise price for
each grant were adjusted by an exchange ratio. The Company assumed the Zimba
1999 Stock Option Plan ("Zimba Plan") under which the options had been
originally granted, however, no further options will be granted under the Zimba
Plan. The converted options continue to be subject to the terms of the Zimba
Plan. The Zimba Plan provided for the granting of incentive stock options and
non-qualified stock options. The exercise price of all options granted prior to
the acquisition were determined by the Zimba Board of Directors and were not
less than the fair market value on the date of the grant. Generally, options
granted were immediately exercisable and such resulting shares issued under the
Zimba Plan were subject to certain repurchase rights, also assumed by the
Company. As of December 31, 2000, there were 7,106 shares of the Company's
common stock issued pursuant to the Zimba Plan that were subject to repurchase
by the Company. These repurchase rights generally lapse over a four-year period
from the date of grant. The options generally expire ten years from the date of
the grant.
43
46
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION PLAN ACTIVITY
A summary of the Company's stock option activity under all plans is set
forth below:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ----------------
Outstanding at December 31, 1997............................ 10,320,320 $ .10
Granted................................................... 6,939,984 1.40
Exercised................................................. (2,327,748) .07
Canceled.................................................. (2,341,176) .47
---------- ------
Outstanding at December 31, 1998............................ 12,591,380 .73
Granted................................................... 8,334,382 10.48
Exercised................................................. (3,138,792) .40
Canceled.................................................. (1,373,652) 2.63
---------- ------
Outstanding at December 31, 1999............................ 16,413,318 5.60
Granted................................................... 6,680,460 34.34
Exercised................................................. (4,549,257) 2.32
Canceled.................................................. (2,725,723) 11.15
---------- ------
Outstanding at December 31, 2000............................ 15,818,798 $17.73
========== ======
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 2000:
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF LIFE PRICE PRICE
EXERCISE PRICES NUMBER (YEARS) PER SHARE NUMBER PER SHARE
--------------- ---------- -------------- -------------- --------- --------------
$0.03 -- $0.38........................................ 1,784,966 6.04 $ 0.15 1,519,494 $ 0.12
$0.53 -- $1.63........................................ 2,232,701 6.98 $ 1.21 1,180,572 $ 1.16
$1.75 -- $3.00........................................ 2,599,867 8.11 $ 2.62 849,623 $ 2.54
$4.19 -- $18.75....................................... 2,103,827 8.81 $15.62 518,511 $14.64
$20.13 -- $26.60...................................... 2,001,848 9.11 $23.96 276,779 $25.88
$27.00 -- $36.91...................................... 2,339,597 9.24 $28.14 322,078 $27.45
$38.31 -- $56.56...................................... 2,755,992 9.63 $44.98 29,511 $41.52
---------- ---------
15,818,798 8.37 $17.73 4,696,568 $ 6.08
========== =========
STOCK-BASED COMPENSATION
In connection with the grant of certain stock options to employees, the
Company recorded deferred stock-based compensation of $0.8 million in 1999 prior
to the Company's initial public offering and $2.8 million in 2000, representing
the difference between the deemed fair value of the Company's common stock and
the option exercise price at the date of grant. This deferred stock-based
compensation is being amortized to operations over a four-year vesting period
using the graded vesting method. The Company also recorded deferred stock-based
compensation of $0.3 million in 2000 relating to the issuance of options to
consultants. This amount was computed using the Black-Scholes option valuation
model, and the related amortization is being charged to operations over the
related term of these consulting agreements. In addition, the Company recorded
$1.9 million of deferred stock-based compensation in conjunction with the
assumption of certain stock options in the acquisition of Influence and Zimba,
which is being amortized over four years. Deferred
44
47
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock-based compensation is presented as a reduction of stockholders' equity.
Amortization of stock-based compensation amounted to $1.5 million, $0.7 million
and $98,000 in 2000, 1999 and 1998, respectively.
1999 EMPLOYEE STOCK PURCHASE PLAN
The stockholders adopted the 1999 Employee Stock Purchase Plan (the
"Purchase Plan") in April 1999 under which 1,600,000 shares have been reserved
for issuance. The number of shares reserved under the Purchase Plan
automatically increase beginning on January 1 of each year by the lesser of
6,400,000 shares or 2% of the total amount of fully diluted common stock shares
outstanding on such date. Under the Purchase Plan, eligible employees may
purchase common stock in an amount not to exceed 10% of the employees' cash
compensation. The purchase price per share will be 85% of the lesser of the
common stock fair market value either at the beginning of a rolling two-year
offering period or at the end of each six-month purchase period within the
two-year offering period. During 2000, there were 967,472 shares issued under
the Purchase Plan at a weighted-average price of $4.04 per share. As of December
31, 2000, the Company has 2,171,584 shares available for future issuance under
the Purchase Plan.
PRO FORMA EFFECT OF STOCK-BASED COMPENSATION
Pro forma information regarding results of operations and net loss per
share is required by SFAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS 123.
For all grants that were granted prior to the Company's initial public
offering in April 1999, the fair value of these options was estimated at the
date of the grant using a Black-Scholes option pricing model with the following
weighed-average assumptions: a risk-free interest rate of 5.5% and 5.0% for 1999
and 1998, respectively; no dividend yield or volatility factors of the expected
market price of the Company's common stock; and a weighted-average expected life
of the option of five years. The fair value for the options granted subsequent
to the Company's initial public offering was estimated at the date of grant
using a Black-Scholes option pricing model using the following weighted-average
assumptions: a risk-free interest rate of 6.2% and 5.5% for 2000 and 1999,
respectively; a volatility factor of the expected market price of the Company's
common stock of 100% for 2000 and 1999; no dividend yield; and a
weighted-average expected life of the option of five years.
The fair value of the shares granted under the Purchase Plan is estimated
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 2000: a risk-free interest rate of 6.2%; a volatility factor of
the expected market price of the Company's common stock of 100%; no dividend
yield; and a weighted-average expected life of approximately six months.
The weighted average fair value of options granted, which is the value
assigned to the options under SFAS 123, was $23.23, $9.08, and $0.21 for options
granted during 2000, 1999 and 1998, respectively. The weighted-average fair
value of shares granted issued under the Purchase Plan for 2000 was $2.44.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of
45
48
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS 123, the Company's net loss and basic and diluted net loss per share would
have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss, as reported....................................... $(13,516) $(1,495) $(9,285)
Net loss, pro forma......................................... $(78,891) $(9,989) $(9,637)
Basic and diluted net loss per share, as reported........... $ (0.19) $ (0.03) $ (0.61)
Basic and diluted net loss per share, pro forma............. $ (1.13) $ (0.21) $ (0.63)
6. NOTES RECEIVABLE FROM STOCKHOLDERS
During 1995, certain officers of the Company purchased a total of 1,600,000
shares of the Company's common stock in exchange for promissory notes. The notes
accrued interest at 7.12% per annum, with interest and principal payable on May
5, 2000. The notes were secured by the common shares purchased by these
officers. The principal and accrued interest on these notes were repaid in June
2000.
7. NOTES PAYABLE TO STOCKHOLDERS
In 1997 and 1998, the Company issued promissory notes to stockholders in
exchange for cash advances and payment for services. These notes accrued
interest at the bank's prime interest rate (8.5% at December 31, 1999) plus 2%
per annum, with a maximum rate of 10% per annum. Principal and accrued interest
on these notes at December 31, 1999 and 1998 were $3.4 million and $3.1 million,
respectively. The principal and accrued interest on these notes were repaid in
February 2000.
8. INCOME TAXES
The federal, state and foreign income tax provision for the years ended
December 31, 2000 and 1999 is summarized as follows:
YEAR ENDED
DECEMBER 31,
--------------
2000 1999
------ ----
(IN THOUSANDS)
Current:
Federal................................................... $2,111 $100
State..................................................... 101 185
Foreign................................................... 1,133 539
------ ----
$3,345 $824
====== ====
Due to operating losses and the inability to recognize the benefits
therefrom, there was no income tax provision for 1998.
Influence elected to be taxed as an S-corporation under Subchapter S of the
Internal Revenue Code through December 15, 1999. Consequently, Influence's
stockholders were taxed on their proportionate share of the taxable income and
no provision for income taxes has been provided in the statement of operations
for the period beginning January 1, 1999 through December 15, 1999 and for the
year ended December 31, 1998. Influence's S-corporation status was terminated on
December 15, 1999 when it was acquired by the Company.
The components of income (loss) before income tax provision attributable to
domestic and foreign operations are as follows:
46
49
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
(IN THOUSANDS)
Domestic..................................... $(12,745) $(1,437) $(7,705)
Foreign...................................... 2,574 766 (1,580)
-------- ------- -------
$(10,171) $ (671) $(9,285)
======== ======= =======
A reconciliation of the provision computed at the statutory federal income
tax rate to the income tax provision is as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ----- -------
(IN THOUSANDS)
Income tax provision computed at statutory
rate.......................................... $(3,560) $(235) $(3,250)
Federal alternative minimum taxes............... 2,794 100 --
State taxes..................................... 65 185 --
Foreign income tax.............................. 1,133 539 --
Non-deductible purchased technology............. 1,791 -- --
Non-deductible merger costs..................... 797 -- --
Valuation allowance............................. -- 235 3,250
Other........................................... 325 -- --
------- ----- -------
$ 3,345 $ 824 $ --
======= ===== =======
Significant components of the Company's deferred tax assets are as follows:
DECEMBER 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards..................... $ 16,085 $ 6,788
Tax credit carryforwards............................. 3,003 1,530
Deferred revenue..................................... 7,797 1,653
Reserves and accrued costs and expenses not currently
deductible........................................ 5,617 2,576
Amortization of intangibles.......................... 5,862 --
-------- --------
Total deferred tax assets.................... 38,364 12,547
Valuation allowance.................................... (38,364) (12,547)
-------- --------
Net deferred tax assets................................ $ -- $ --
======== ========
SFAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes the Company's historical operating performance and the
reported cumulative net losses in all prior years, the Company has provided a
full valuation allowance against its net deferred tax assets. The valuation
allowance increased by $25.8 million and $4.7 million during the years ended
December 31, 2000 and 1999, respectively.
As of December 31, 2000, approximately $28.2 million of the valuation
allowance reflected above relates to the tax benefits of stock option deductions
which will be credited to equity when realized.
At December 31, 2000, the Company had net operating loss carryforwards for
federal and state tax purposes of approximately $43.6 million and $14.6 million,
respectively. The Company also had federal and state research and development
tax credit carryforwards of approximately $2.1 million and $1.4 million,
47
50
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
respectively. The net operating loss and tax credit carryforwards will expire at
various dates beginning in 2001, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss and
credit carryforwards before utilization.
9. PROFIT SHARING PLAN
The Company has a profit sharing plan and trust under Section 401(k) of the
Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan via payroll withholdings, subject
to certain limitations. Contributions by the Company are at the discretion of
the Board of Directors. No discretionary contributions have been made by the
Company to date.
10. MAJOR CUSTOMERS AND REVENUES BY GEOGRAPHIC AREA
Revenue was derived from customers in the following geographic areas:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
(IN THOUSANDS)
North America........................................ $122,367 $51,180 $26,713
Europe............................................... 30,725 11,055 3,633
Other................................................ 966 144 --
-------- ------- -------
$154,058 $62,379 $30,346
======== ======= =======
No one customer accounted for more than ten percent of the Company's total
revenues in 2000, 1999 and 1998.
11. BUSINESS COMBINATIONS
Pooling-of-Interests Acquisition
In December 1999, the Company acquired Influence, a developer of analytic
applications for eBusiness. The merger was accounted for using the
pooling-of-interests method of accounting and as such the Company's historical
financial results for all dates and periods prior to the merger have been
restated to reflect the merger. In connection with the acquisition, the Company
issued 2,598,168 shares of its common stock to Influence's shareholders in
exchange for all of Influence's outstanding common stock. All outstanding
options to purchase Influence's common stock were converted into options to
purchase 574,104 shares of Informatica common stock. In connection with the
business combination, the Company incurred merger related costs of approximately
$2.1 million, which consisted primarily of fees for investment banking, legal
and accounting services incurred in conjunction with the merger.
48
51
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following information represents revenue and net income (loss) of the
separate companies for the periods preceding the business combination:
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
(IN THOUSANDS)
Revenues:
Informatica.............................................. $39,522 $28,895
Influence................................................ 2,292 1,451
------- -------
Combined................................................... $41,814 $30,346
======= =======
Net income (loss):
Informatica.............................................. $ 9 $(7,915)
Influence................................................ (492) (1,370)
------- -------
Combined................................................... $ (483) $(9,285)
======= =======
Purchase Acquisitions
In February 2000, the Company acquired Delphi Solutions AG ("Delphi"), a
distributor of Informatica products in Switzerland. The agreement was structured
as a share purchase and accounted for as a purchase transaction. The estimated
purchase price of $9.2 million included payments associated with 1999 revenues
and projections for 2000 revenues. The first payment of approximately $3.6
million was paid in February 2000, and the second payment of approximately $4.3
million was paid in January 2001. The final payment is expected to be paid in
July 2001. Accounts payable and accrued liabilities of $21.5 million as of
December 31, 2000 include a liability of $5.6 million related to the second and
final payments. The purchase price of the transaction was allocated to the
acquired assets and liabilities based on the estimated fair values as of the
date of the acquisition. Amounts allocated to goodwill of $9.0 million are being
amortized on a straight-line basis over a two-year period. As of December 31,
2000, accumulated amortization and amortization expense was approximately $3.8
million related to the Delphi acquisition. As part of this agreement, the
Company is required to hold a certificate of deposit for $8.1 million which is
classified as restricted cash on the Company's balance sheet until July 2001.
The results of operations of Delphi have been included in the Company's results
of operations since the acquisition date. Pro forma results of operations have
not been presented since the effects of the acquisition were not material to the
Company's consolidated financial position, results of operations or cash flows
for the periods presented.
In August 2000, the Company completed the acquisition of Zimba in a
transaction accounted for as a purchase. Zimba is a leading provider of
e-business analytic solutions that enable mobile professionals with real-time
access to corporate and external information through wireless devices, voice
recognition technology and the Internet. Under the terms of the agreement, the
Company issued 507,544 shares of common stock in exchange for the outstanding
shares of common stock of Zimba. In addition, all the outstanding options to
purchase Zimba common stock were automatically converted into options to
purchase the Company's common stock based on the conversion ratio in the
agreement with a corresponding adjustment to their respective exercise prices.
The total purchase price, including assumed liabilities and related expenses,
was $26.0 million, of which $2.1 million was allocated to identifiable
intangible assets, including core technology of $1.4 million, acquired workforce
of $0.4 million and patents of $0.3 million, $0.6 million was allocated to
assumed liabilities and related expenses, and the balance of $18.2 million was
allocated to goodwill. Goodwill and other intangible assets are being amortized
on a straight-line basis over two years for the acquired workforce and over
three years for the core technology, patents and goodwill. As of December 31,
2000, accumulated amortization and amortization expense was approximately $2.3
million related to the Zimba
49
52
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquisition. Purchased in-process research and development of $5.1 million was
expensed in the third quarter of 2000 because the in-process technology had not
reached technological feasibility and had no alternative uses. The value of the
purchased in-process research and development was computed using a discounted
cash flow analysis based on management's estimates of future revenues, cost of
revenues and operating expenses related to the products and technologies
acquired from Zimba. All assumed options of Zimba were valued at fair value and
included in the purchase price, net of the intrinsic value of any unvested
options, which were included in deferred stock-based compensation as a component
of stockholders' equity and are being amortized over the remaining vesting
period. The results of operations of Zimba have been included in the Company's
results of operations since the acquisition date. The following unaudited pro
forma adjusted summary reflects the condensed consolidated results of operations
for the year ended December 31, 2000 and 1999, assuming Zimba had been acquired
at the beginning of the pro forma periods presented and is not intended to be
indicative of future results:
YEAR ENDED
DECEMBER 31,
---------------------------
2000 1999
-------- -------
(IN THOUSANDS,)EXCEPT PER
SHARE DATA
Pro forma adjusted total revenue................ $154,058 $62,379
Pro forma adjusted net loss..................... $(15,322) $(9,378)
Pro forma adjusted net loss per share -- basic
and diluted................................... $ (0.22) $ (0.20)
12. ASSET ACQUISITIONS
In April 2000, the Company announced a strategic alliance with
PricewaterhouseCoopers ("PwC") to jointly develop, market, sell and support
analytic application products. In connection with the agreement relating to the
strategic alliance, PwC received 818,276 shares of the Company's common stock.
The total purchase price, including related expenses, was approximately $31.8
million, which was allocated to goodwill and various identifiable intangible
assets, including goodwill of $22.9 million, core technology of $1.7 million and
acquired workforce and consultants of $5.0 million. Goodwill and other
identifiable intangible assets are being amortized on a straight-line basis over
two years for the acquired workforce and consultants and over three years for
the core technology and goodwill. As of December 31, 2000, accumulated
amortization and amortization expense was approximately $8.0 million related to
the PwC strategic alliance. Purchased in-process research and development of
$2.2 million was expensed in the second quarter of 2000 because the in-process
technology had not reached technological feasibility and had no alternative
uses. The value of the purchased in-process research and development was
computed using a discounted cash flow analysis based on management's estimates
of future revenues, cost of revenues and operating expenses related to the
products and technologies acquired from PwC.
In November 2000, the Company completed an intellectual property transfer
agreement with certain individuals ("QRB Developers"). The acquisition was
accounted for as a purchase transaction. The total purchase price, including
related expenses, was approximately $4.1 million, of which $0.1 million was
allocated to the acquired workforce and $2.7 million was allocated to goodwill.
Goodwill and other identifiable intangible assets are being amortized on a
straight-line basis over three years for goodwill and over two years for the
acquired workforce. As of December 31, 2000, accumulated amortization and
amortization expense was approximately $0.1 million related to the QRB
Developers acquisition. Purchased in-process research and development of $1.3
million was expensed in the fourth quarter of 2000 because the in-process
technology had not reached technological feasibility and had no alternative
uses. The value of the purchased in-process research and development was
computed using a discounted cash flow analysis based on management's estimates
of future revenues, cost of revenues and operating expenses related to the
technologies acquired from QRB Developers.
50
53
INFORMATICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS (UNAUDITED)
In January 2001, the Company acquired syn-T-sys B.V. and syn-T-sys N.V.,
distributors of Informatica products in the Netherlands and Belgium,
respectively. The agreement was structured as a share purchase and will be
accounted for as a purchase transaction. Under the terms of the agreement, the
Company issued 44,161 shares of the Company's common stock in exchange for the
outstanding shares of capital stock of syn-T-sys B.V. and syn-T-sys N.V. and
paid cash consideration of approximately $5.7 million. The purchase price may be
increased by up to $1.5 million payable in shares of the Company's common stock
based upon the attainment of certain financial targets.
In February 2001, the Company entered into a fourteen month lease agreement
in Palo Alto, California covering approximately 14,000 square feet of space at
approximately $88,000 per month to meet its current space requirements until the
new facility in Redwood City, California is completed.
14. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000(1)(2):
Total revenues.............................. $25,933 $33,905 $42,808 $51,412
Gross profit................................ 20,878 26,960 34,346 41,375
Amortization of stock-based compensation.... 399 130 427 558
Amortization of goodwill and other
intangible assets......................... 374 3,798 4,367 5,624
Purchased in-process research and
development............................... -- 2,199 5,117 1,332
Income (loss) from operations............... 630 (3,980) (6,990) (3,679)
Net income (loss)........................... 698 (4,201) (7,453) (2,560)
Net income (loss) per share(2):
Basic..................................... $ 0.01 $ (0.06) $ (0.11) $ (0.03)
Diluted................................... $ 0.01 $ (0.06) $ (0.11) $ (0.03)
Shares used in calculation of net income
(loss) per share(2):
Basic..................................... 65,643 68,423 69,608 75,300
Diluted................................... 78,092 68,423 69,608 75,300
1999(1)(2):
Total revenues.............................. $10,980 $14,032 $16,802 $20,565
Gross profit................................ 8,962 11,556 13,814 17,051
Merger-related costs........................ -- -- -- 2,082
Amortization of stock-based compensation.... 125 162 186 269
Income (loss) from operations............... (983) 32 236 (1,194)
Net income (loss)........................... (1,175) 108 583 (1,011)
Net income (loss) per share(2):
Basic..................................... $ (0.07) $ 0.00 $ 0.01 $ (0.02)
Diluted................................... $ (0.07) $ 0.00 $ 0.01 $ (0.02)
Shares used in calculation of net income
(loss) per share(2):
Basic..................................... 16,734 47,789 62,058 63,341
Diluted................................... 16,734 59,575 75,250 63,341
---------------
(1) Amounts and per share data for periods prior to December 31, 1999 have been
retroactively restated to reflect the merger of Influence in a
pooling-of-interests transaction effective December 15, 1999.
(2) Amounts have been restated to reflect two-for-one stock splits, effected in
the form of stock dividends, to each stockholder of record as of February
18, 2000 and November 29, 2000.
51
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors is included under the caption
"Proposal One-Election of Directors" in the Proxy Statement for the 2001 Annual
Meeting to be held on May 24, 2001 (the "2001 Proxy Statement") and is
incorporated herein by reference. Information with respect to Executive Officers
is included under the heading "Executive Officers and Directors" in Part I
hereof after Item 4.
Information regarding delinquent filers pursuant to Item 405 of Regulation
S-K is included under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2001 Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Proposal One -- Election of Directors -- Director Compensation" and "Executive
Officer Compensation" in the 2001 Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the heading
"Security Ownership of Principal Stockholders and Management" in the 2001 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"Transactions with Management" in the 2001 Proxy Statement and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. FINANCIAL STATEMENTS
Reference is made to the Index to Consolidated Financial Statements of
Informatica Corporation under Item 8 of Part II hereof.
2. FINANCIAL STATEMENT SCHEDULE
The following schedule of the Company is included herein:
Valuation and Qualifying Accounts (Schedule II)
All other schedules are omitted because they are not applicable or the
amounts are immaterial or the required information is presented in the
Consolidated Financial Statements and Notes thereto in Item 8 above.
The following documents are included in Exhibit 23 hereto:
Exhibit 23.2 Consent of Ernst & Young LLP, Independent Auditors
52
55
3. EXHIBITS
See Item 14(c) below.
(b) REPORTS ON FORM 8-K
A current report on Form 8-K was filed with the Securities and Exchange
Commission by Informatica on September 6, 2000 to report the consummation of our
merger with Zimba. An amendment to this current report on Form 8-K was filed
with the Securities and Exchange Commission by Informatica on November 3, 2000
with the required financial information.
(c) EXHIBITS
See Exhibit Index.
53
56
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, State of California on this 23rd day of March, 2001.
INFORMATICA CORPORATION
By: /s/ GAURAV S. DHILLON
------------------------------------
Gaurav S. Dhillon
Chief Executive Officer, Secretary
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GAURAV S. DHILLON Chief Executive Officer, March 23, 2001
--------------------------------------------------- Secretary and Director
Gaurav S. Dhillon
/s/ DIAZ H. NESAMONEY President, Chief Operating March 23, 2001
--------------------------------------------------- Officer and Director
Diaz H. Nesamoney
/s/ EARL E. FRY Senior Vice President and Chief March 23, 2001
--------------------------------------------------- Financial Officer (Principal
Earl E. Fry Financial and Accounting Officer)
/s/ VINCENT R. WORMS Director March 23, 2001
---------------------------------------------------
Vincent R. Worms
/s/ DAVID W. PIDWELL Director March 23, 2001
---------------------------------------------------
David W. Pidwell
/s/ A. BROOKE SEAWELL Director March 23, 2001
---------------------------------------------------
A. Brooke Seawell
54
57
INFORMATICA CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCES AT CHARGED TO BALANCES AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- -----------
PROVISION FOR DOUBTFUL ACCOUNTS
Year ended December 31, 2000................... $937 $242 $(353) $ 826
==== ==== ===== ======
Year ended December 31, 1999................... $691 $246 $ -- $ 937
==== ==== ===== ======
Year ended December 31, 1998................... $420 $320 $ (49) $ 691
==== ==== ===== ======
BALANCES AT BALANCES AT
BEGINNING CHARGED TO END OF
OF PERIOD REVENUE DEDUCTIONS PERIOD
----------- ---------- ---------- -----------
SALES AND RETURN ALLOWANCES
Year ended December 31, 2000................... $1,040 $2,506 $(514) $3,032
====== ====== ===== ======
Year ended December 31, 1999................... $1,040 $ -- $ -- $1,040
====== ====== ===== ======
Year ended December 31, 1998................... $ 200 $ 886 $ (46) $1,040
====== ====== ===== ======
55
58
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
------- --------
2.1 Agreement and Plan of Merger dated as August 29, 2000 by and
among Informatica Corporation, a Delaware corporation, I-2
Merger Corporation, a Delaware corporation and Zimba, a
California corporation.(3)
3.1 Form of Company's Amended and Restated Certificate of
Incorporation.(1)
3.2 Company's Amended and Restated Bylaws.(1)
3.4 Certificate of amendment to the Company's amended and
restated certificate of incorporation to increase the
aggregate number of shares of the Company's common stock
authorized for issuance from 100,000,000 to 200,000,000
shares.(4)
4.1 Reference is made to Exhibits 3.1 and 3.2.
10.3 Seconded Amended and Restated Investor Rights Agreement with
the investors listed on Exhibits A and B thereto, dated as
of June 3, 1997.(2)
10.6* Form of Indemnification Agreement between the Company and
each of its executive officers and directors.(1)
10.8 Lease Agreement regarding Sublease, dated January 29, 1998,
by and among the Company, Informix Corporation and Palo Alto
Bayshore Investors, LLC.(2)
10.9* Company's 1993 Flexible Stock Incentive Plan, including
forms of agreements thereunder.(2)
10.10* Company's 1996 Flexible Stock Incentive Plan, including
forms of agreements thereunder.(2)
10.11* Company's 1999 Stock Incentive Plan.(1)
10.12* Company's 1999 Employee Stock Purchase Plan, including forms
of agreements thereunder.(1)
10.13* Company's 1999 Non-Employee Director Stock Incentive
Plan.(1)
10.14 Lease Agreement regarding Building 1 Lease, dated February
22, 2000, by and among the Company and Pacific Shores Center
LLC.(5)
10.15 Lease Agreement regarding Building 2 Lease, dated February
22, 2000, by and among the Company and Pacific Shores Center
LLC.(5)
10.18** Intellectual Property and Consulting Services Transfer
Agreement, executed by the parties on April 1, 2000, by and
among the Company and PricewaterhouseCoopers LLP.(4)
10.19 Assignment and Assumption Agreement, dated April 3, 2000, by
and among the Company and PricewaterhouseCoopers LLP.(4)
10.20 Registration Rights Agreement dated April 3, 2000, by and
among the Company and PricewaterhouseCoopers LLP.(4)
21.1 List of Significant Subsidiaries.(2)
23.2 Consent of Ernst & Young LLP, Independent Auditors.
---------------
(1) Incorporated by reference to identically numbered Exhibit to Amendment No. 1
of the Company's Registration Statement on Form S-1/A (Commission File No.
333-72677), which was filed on April 8, 1999.
(2) Incorporated by reference to identically numbered Exhibit to the Company's
Registration Statement on Form S-1 (Commission File No. 333-72677), which
was filed on February 19, 1999.
(3) Incorporated by reference to identically numbered Exhibit to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on September 6, 2000, as amended in the
56
59
Company's Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on November 3, 2000.
(4) Incorporated by reference to identically numbered Exhibit to the Company's
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on August 14, 2000.
(5) Incorporated by reference to identically numbered Exhibit to the Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
March 30, 2000.
* Indicates management contract or compensatory plan or arrangement.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
57