Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K
[X] ANNUAL REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-25375
VIGNETTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2769415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 South MoPac Expressway
Austin, Texas 78746
(Address of principal executive offices)
-------------------
(512) 741-4300
(Registrant's telephone number, including area code)
-------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of each class)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
(1) Yes [X] No [_]
(2) Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_]
As of February 28, 2002, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $542,876,718.
As of February 28, 2002, there were 248,153,210 shares of the Registrant's
common stock outstanding.
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 2002 Annual Meeting of
Stockholders to be held May 15, 2002 are incorporated by reference in Part III
of this Form 10-K Report.
================================================================================
VIGNETTE CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Page
----
Part I.
Item 1. Business ....................................................... 3
Item 2. Properties ..................................................... 21
Item 3. Legal Proceedings .............................................. 21
Item 4. Submission of Matters to a Vote of the Security Holders ........ 21
Item 4A. Executive Officers and Directors of the Registrant ............. 22
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .......................................... 26
Item 6. Selected Consolidated Financial Data ........................... 27
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 28
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ..... 47
Item 8. Consolidated Financial Statements and Supplementary Data ....... 48
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures .................................... 48
Part III.
Item 10. Directors and Executive Officers of the Registrant ............. 49
Item 11. Executive Compensation ......................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 49
Item 13. Certain Relationships and Related Transactions ................. 49
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 50
SIGNATURES ................................................................. 53
2
PART I.
ITEM 1. BUSINESS
The statements contained in this Report on Form 10-K that are not purely
historical statements are forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements are based upon current expectations
and involve risks and uncertainties. Actual results may differ materially from
those indicated in such forward-looking statements. We are under no duty to
update any of the forward-looking statements after the date of this filing on
Form 10-K to conform these statements to actual results. Factors that might
cause or contribute to such a difference include, but are not limited to, those
discussed elsewhere in this report in the section entitled "Risk Factors That
May Affect Future Results" and the risks discussed in our other historical
Securities and Exchange Commission ("SEC") filings.
OVERVIEW
Vignette Corporation is a leading provider of content management
applications used by organizations to create and maintain effective online
relationships with their customers, employees, business partners and suppliers.
Vignette allows organizations to combine a comprehensive understanding of what
content or information assets they have across the business, and their value,
with Web applications that predict users' needs and expectations to deliver
improved online relationships. By putting the right information in front of the
right person at the right time, we help Web visitors make informed decisions,
and help organizations successfully manage those relationships.
The family of Vignette products is focused around the comprehensive content
management capabilities required by organizations to handle both the active
management of electronic assets across the business, and the delivery of that
content in context to multiple audiences.
Content Management -- the ability to manage and deliver content to
almost every electronic touch-point from
virtually any source. This includes the ability
to create new content, collect content from
existing sources, produce it for Web use,
deliver it in context, and observe its use by
Web visitors to continue to deliver the right
content to the right person at the right time.
Content Management
Extensions -- advanced capabilities to extend the
organization's ability to harness available
content, measure its value, deliver it through
multiple channels, and determine appropriate
content offers for different audiences.
Vignette applications leverage these content capabilities to enable
organizations to use the Web to generate revenue, decrease business costs,
manage information technology costs, and build competitive differentiation.
Our products are supported by the Vignette(R) Professional Services
organization, which offers a broad range of services, including strategic
planning, project management, general implementation services, and an extensive
array of training offerings. In addition, we partner with a number of systems
integrators such as Accenture, Deloitte Consulting, EDS, IBM Global Services,
Inforte and PricewaterhouseCoopers to implement our content management software
for their current and prospective clients. In many cases, we then work with the
system integrator to jointly implement the technology for the customer.
Additionally, our standards-based products have enabled us to build
relationships with key technology partners such as BEA Systems, IBM and Sun
Microsystems.
PRODUCTS
Our content management software solutions are embodied in the Vignette(R)
V6 product line. Vignette(R) V6 enables more effective online relationships with
customers, employees, business partners and suppliers. Vignette helps
organizations put the right information in front of the right person at the
right time by helping
3
the customer understand the value of content across the enterprise, regardless
of its source, and the needs of Web users. Our open architecture makes it
possible to deploy more powerful content management solutions to support
information portals, self-service applications, brand and retail sites,
value-chain integration and channel management applications. The benefits of our
products and solutions include:
o Adaptable design to allow organizations to more easily respond to
changing strategies and
o Powerful solutions to help maximize the performance customers'
e-business initiatives.
In September 2001, we launched and shipped the Vignette(R) V6 product
family, the newest release of our flagship content management application. The
core of the V6 product family is the Vignette(R) V6 Content Suite, which is the
first product on the market to combine our content management solution with the
ability to integrate with almost any data source and analyze the content to
deploy dynamic Web content. The Vignette(R) V6 family also includes the Vignette
content extensions, which our customers can use to further expand the
flexibility and functionality of the Vignette(R) V6 Content Suite.
Vignette(R) V6 Content Suite
Vignette(R) V6 Content Suite is an integrated set of content management
capabilities. Vignette(R) V6 Content Suite enables companies to integrate
content within and across organizational boundaries, manage and deploy content
to almost any electronic touch-point, and continually monitor and help optimize
the effectiveness of their online channel.
With Vignette(R) V6 Content Suite, our customers can:
o Manage content according to their preferred business processes;
o Gather data to help gain insight into their customers' behavior;
o Deliver personalization;
o More easily integrate and automate their business processes; and o
Aggregate content from almost any source.
Vignette(R) V6 Content Suite provides many features to help our customers
manage the phases of the content management lifecycle. The following list
highlights features as they relate to specific phases within the content
management lifecycle:
Content Management Vignette(R) V6 Content Suite includes an open set of
features and services for collecting, producing, delivering and analyzing
content. With information and content coming from many different sources, such
as enterprise resource planning (ERP) systems, sales force automation systems,
legacy systems, supplier catalogs, news feeds, user reviews, discussion forums,
database and file systems, we provide an easier-to-use application that allows a
company to manage its content across multiple Web sites and wireless devices.
Vignette(R) V6 Content Suite provides companies the ability to enrich
content with flexible metadata and apply workflow processes for approving,
editing and reviewing content using some of their favorite tools. Also, the
ability to schedule the launch and expiration of content enables companies to
provide customers with relevant and current content.
Insight The Internet offers enterprises the opportunity to more quickly
learn the preferences and habits of customers on a more timely basis. With
Vignette(R) V6 Content Suite, our customers can track and manage site usage and
customer behavior information. Vignette(R) V6 Content Suite provides data to
help gain behavioral insight with pre-configured segmentation, analysis and
reporting capabilities. The customer segmentation interface enables users to
explicitly define more manageable customer groups. The analysis components use
advanced data mining algorithms to organize customer behavior and help discover
less obvious but more profitable customer behavior. Users can gain an in-depth
understanding of site and customer usage through a customizable reporting
interface.
4
Personalization Vignette(R) V6 Content Suite lays the foundation for
extensive personalization by tracking customer behavior and maintaining
real-time profile information. The profile information contains logistical and
behavioral information about customers and employees gathered from multiple
sources. Implementing and managing profiles enables better control of content
delivery, resulting in a personalized interface that suits the individual and
the navigation burden.
Business Process Integration and Content Aggregation Companies rely on
applications that automate internal processes to execute business with their
customers and partners. Vignette(R) V6 Content Suite delivers capabilities to
integrate many Web applications with existing applications to more quickly
extend the company's presence to the online world. The integration and
aggregation capabilities include access to content in file systems, databases,
back-office ERP, SCM or CRM systems and a multitude of other locations,
including partner systems and Web sites. With robust business process
integration and content aggregation capabilities, one can more quickly build and
deploy links between disparate business systems to expose the right content at
the right time for customers, almost regardless of the platform, operating
system or native language.
Vignette(R) V6 Content Extensions
Vignette(R) V6 offers extensions that separately provide advanced
capability to the Vignette(R) V6 Content Suite. The extensions include the
following:
Vignette(R) V6 Advanced Deployment Server
Vignette(R) V6 Advanced Deployment Server (VADS) is designed for companies
that require an enterprise-wide development, testing, and production system for
their enterprise applications.
Benefits include:
o Enhanced management of both static and dynamic content,
application code, and targeted marketing campaigns, as well as
rich metadata for personalization, caching and visitor tracking;
o An architecture that supports an n-tiered development, testing
and production environment;
o A more flexible and adaptable design so that VADS can be adapted
to most production environments. The adaptability of VADS allows
businesses to transfer assets across environments primarily based
on business, not technical, requirements;
o A more rapid implementation time. VADS is a solution that can
enable a customer to more quickly install, configure, and run a
robust staging system;
o A more robust set of Application Programming Interfaces that can
be used to extend the functionality of VADS or to integrate the
functionality of VADS with third-party applications;
o By using strong (128-bit) or weak (40-bit) Secure Sockets Layer
encryption, VADS can be used to deploy assets in a secure manner,
thus providing protection to a user's sensitive data. VADS
leverages industry standard security protocols to provide a
reliable transfer of assets between environments, which reduces
risk and promotes interoperability.
Vignette(R) V6 Multisite Content Manager
Vignette(R) V6 Multisite Content Manager provides a set of capabilities to
deploy and manage content on multiple Web sites and multiple portals. Key
features include:
o Allows users to create child sites that inherit similar
characteristics from a pre-existing parent site, which allows the
user to more easily manage and control content across a portfolio
of Web sites and portals;
o Allows a more rapid time-to-market through the use of pre-defined
content types, roles, workflows, taxonomies and integrated
search;
o Captures site traffic and usage data so that business users can
analyze it and make educated decisions regarding future
investment; and
o Facilitates group collaboration among employees, customer and
partners through online communication capabilities.
5
Vignette(R) V6 Relationship Management Server Advanced Edition
Vignette(R) V6 Relationship Management Server Advanced Edition leverages
the foundation built with the Vignette(R) V6 Content Suite to provide the
interaction management solutions to help build personalized interactions with
employees, customers and partners. This Extension enhances the content
lifecycle, by providing enterprises the ability to create an Internet
application that adapts to the needs of users and deliver the right content to
the right person at the right time. It enables businesses to:
o Provide extensive personalization capabilities with powerful real-time
behavior analysis and content recommendations; and
o Automatically deliver highly targeted content to those groups in the
form of campaigns.
Vignette(R) V6 Multi-Channel Communication Server
Vignette(R) V6 Multi-Channel Communication Server helps enable companies to
develop mobile applications that likely manage relationships with customers,
partners and employees via multiple electronic touch-points. Vignette(R) V6
Multi-Channel Communication Server enables the proactive distribution of
personalized content and provides closed-loop interaction with a customer's
audience via e-mail, pagers, mobile phones, personal digital assistants, and
other touch-points.
Vignette(R) V6 Content Collaborative Server
Vignette(R) V6 Content Collaborative Server is a standards-based solution
for automating trading partner and channel communication management, thereby
helping enable a rapid and secure exchange of business content transactions
between businesses and their trading partners, and provides flexible
capabilities for streamlining partner management and collaboration.
Vignette(R) V6 Content Collaborative Server leverages a Java(TM)-based
architecture and XML technologies, and offers multiple collaboration methods,
business transaction security, high performance, and support for established and
emerging industry standards.
Vignette(R) V6 Content Syndication Server
Vignette(R) V6 Content Syndication Server is a solution for
distribution--or syndication--of Web-based content from a business to
affiliates, customers, distributors, marketplaces, and other online trading
partners.
Utilizing a syndication engine and independent application server,
Vignette(R) V6 Content Syndication Server distributes packages of
content--including text, graphics, audio, video, applets, and other
information--directly to affiliates and customers.
By delivering flexible content syndication capabilities, Vignette(R) V6
Content Syndication Server can help enhance e-businesses to:
o Sales channels by simplifying the distribution of timely product
information and other content in a wide variety of formats;
o Increase sales to existing customers by targeting them with customized
content packages;
o Liquidate distressed inventories by distributing targeted product
information to broader audiences;
o Reduce operating costs and errors by automating the manual process of
distributing product information and other content; and
o Build stronger and longer-lasting relationships with key distribution
partners by supplying them with more up-to-the-minute, accurate, and
relevant information on a schedule of their choosing.
Vignette(R) V6 Content Syndication Server features a wide range of
supported input sources and content formats, as well as flexibility in delivery
options. It enables companies to leverage their Web-based content for
distribution to their affiliates and customers more quickly and easily.
6
Vignette(R) V6 Enterprise Adapters
Vignette(R) V6 Enterprise Adapters help users capitalize on their
investment in SAP, Siebel, PeopleSoft and J.D. Edwards applications, by
providing a more intuitive, easier-to-use and more flexible solution for
integrating information and business rules from these powerful applications into
their particular content lifecycle. No Adapter is sponsored or endorsed by, or
affiliated in any way with, the owner of the applicable technology for which
such Adapter relates.
OPEN ARCHITECTURE
Vignette has built one of the most open and comprehensive platforms in the
market. We provide support for major industry standard platforms, including both
the Java 2 Platform-Enterprise Edition (J2EE(TM)) and Microsoft .NET standards,
with product-specific support for IBM WebSphere, BEA WebLogic and Tomcat
application servers. Our applications provide support for the IBM AIX, Sun
Solaris and Windows 2000 operating systems, the IBM DB2, Oracle, SQL Server and
Sybase database platforms, and JavaServer Pages (JSP) and Active Server Pages
(ASP) as first-class templating languages, and also provide out-of-the box
integration functionality for leading development tools. Any listed environment
can take advantage of Vignette's extensive application program interfaces for
content management and personalization.
SERVICES
The Company provides services to help define on-line business objectives
and to develop and deliver integrated content management applications. Our
education, consulting and customer care services are based on the best
practices, methodologies and tools developed from experience. The Company's
services are designed to reduce time to deployment, mitigate risk and achieve
greater return on our customers' software investment.
Vignette Professional Services (VPS(TM)) organization offers global
consulting and education services to help customers identify strategic
e-business objectives, design integrated content management applications and
deliver solutions using the Company's products. Our services center around the
Vignette Solution Methodology. This established framework allows customers and
partners to leverage best practices to plan, build and maintain content
management solutions. VPS works jointly with consulting partners to provide
"best of class" services needed to create Internet applications designed to meet
customers' business objectives. We generally sell our services under
time-and-materials agreements.
Customer Care, Maintenance and Support Services organizations are committed
to our customers' on-going e-business success. Customer Care services include a
combination of account management and global technical support offerings that
are tailored to meet customers' specific needs. Account management services are
designed to streamline and strengthen our customers' relationship with Vignette.
Account managers work with customers to understand their business needs and to
help them leverage the appropriate Vignette technology and services that can
provide the greatest and most efficient return on their investment. Vignette
Global Support provides optional 24x7 access to skilled technical engineers and
flexible, easy-to-use telephone and Web resources that can provide our customers
with timely, effective assistance.
STRATEGY
Our objective is to maintain and extend our leadership position as a global
provider of content management solutions. To achieve this objective, we will
focus on expanding our customer base of Fortune 1000 and departmental
enterprises, extending our technology and product leadership through investment
in research and development, expanding our global sales capabilities, and
extending our partnership alliances with leading technology and services
companies.
STRATEGIC ALLIANCES
A critical element of our sales strategy is to establish strategic
alliances to assist us in marketing, selling and developing customer
applications, as well as to increase product interoperability within the
industry. This
7
approach is intended to increase the number of personnel available to perform
application design and development services for our customers and provide
additional marketing expertise and technical expertise in certain vertical
industry segments.
We have established partnerships with leading systems integrators such as
Accenture, Deloitte Consulting, EDS, IBM Global Services, Inforte and
PricewaterhouseCoopers. We have also established strategic alliances with
technology leaders like BEA Systems, IBM, and Sun Microsystems.
We intend to continue to invest in and extend our existing partner
relationships as well as to form new partnerships with other market leading
systems integrators and technology vendors.
ACQUISITIONS
We have completed four acquisitions since our inception, three of which
occurred during 2000 and one during 1999. We acquired no businesses during 2001.
All acquisitions were accounted for as purchase business combinations and
therefore, the net assets acquired, or net liabilities assumed were recorded at
their estimated fair value at the respective dates of acquisition and the
results of operations have been included with ours for the periods subsequent to
the respective acquisition dates.
Effective January 18, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of Engine 5, Ltd. ("Engine 5"), a
developer of enterprise-wide Java(TM) server technology, in exchange for 248,043
shares of our common stock and approximately $4.9 million in cash. The total
cost of the acquisition, including transaction costs of $400,000, was
approximately $20.0 million.
Additionally, as part of the Engine 5 acquisition, contingent consideration
of $3.8 million and $1.8 million was recorded during the years ended December
31, 2000 and 2001, respectively. Such contingent consideration was based upon
satisfaction of defined employment requirements subsequent to the January 18,
2000 acquisition date. All employment requirements have been satisfied and there
remains no future contingent stock issuance or cash payments subsequent to
December 31, 2001. The contingent consideration related to the Engine 5
acquisition was not included in the total purchase price, above, but was
expensed as future employment requirements were satisfied.
Effective February 15, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of DataSage, Inc. ("DataSage"), a leading
provider of e-marketing and personalization applications, in exchange for
9,458,061 shares of our common stock. At the time of the acquisition, the total
purchase price, including transaction costs of $1.1 million, was approximately
$586.6 million.
Effective July 5, 2000, we acquired all of the outstanding stock and
assumed all outstanding stock options of OnDisplay, Inc. ("OnDisplay"), a
leading provider of e-business infrastructure software for powering e-business
portals and e-marketplaces, in exchange for 42,016,975 shares of Vignette common
stock. At the time of the acquisition, the total purchase price, including
transaction costs of $14.0 million, was approximately $1.5 billion.
In connection with our acquisitions, we incurred one-time acquisition costs
and integration-related charges. Such charges relate to product integration,
cross training of employees, and other merger-related items. Additionally, a
portion of the OnDisplay and DataSage purchase price was allocated to in-process
research and development and was expensed upon the consummation of these
transactions. These related acquisition, integration and in-process research and
development charges totaled approximately $169.9 million and $1.9 million during
fiscal years 2000 and 2001, respectively.
CUSTOMERS
As of December 31, 2001, we had served over 1,300 end-user customers. Our
customer list includes successful organizations in the automotive,
entertainment, financial services, government, healthcare, high technology, new
media and publishing, retail, telecom and travel industries.
8
COMPETITION
The market for our products is intensely competitive, subject to rapid
technological change and significantly affected by new product introductions and
other market activities of industry participants. We expect competition to
persist and intensify in the future. We have three primary sources of
competition: in-house development efforts by potential customers or partners;
other vendors of software that directly address e-business solutions; and
developers of point solution software that address only certain technology
components of e-business solutions (e.g., content management).
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and thus
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many current and potential
competitors have wider name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to our detriment. Such
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, and offer more attractive terms to
purchasers than we can. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third-parties to enhance their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
Such competition could materially and adversely affect our ability to
obtain revenues from either license or service fees from new or existing
customers on terms favorable to us. Further, competitive pressures may require
us to reduce the price of our software. In either case, our business, operating
results and financial condition would be materially and adversely affected.
There can be no assurance that we will be able to compete successfully with
existing or new competitors or that competition will not have a material adverse
effect on our business, financial condition and operating results. See "Risk
Factors that May Affect Future Results--Risks Related to Our Business--We Face
Intense Competition from Other Software Companies, Which Could Make it
Difficult to Acquire and Retain Customers Now and in the Future."
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development through
both internal development and technology acquisitions. Although we plan to
continue to evaluate externally developed technologies for integration into our
product lines, we expect that most enhancements to existing and new products
will be developed internally.
The majority of our research and development activity has been directed
towards future extensions to our family of products. This development consists
primarily of adding new competitive product features and additional tools and
products.
Our research and development expenditures, excluding the write-off of
acquired in-process research and development, for fiscal 1999, 2000 and 2001
were approximately $16.4 million, $58.3 million and $64.9 million, respectively.
We expect that we will continue to commit significant resources to research and
development in the future. Most research and development expenses have been
expensed as incurred.
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of new
industry standards could render existing products obsolete and unmarketable. Our
future success will depend in part on our ability to anticipate changes, enhance
our current products, develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
our customers. See "Risk Factors that May Affect Future Results--Risks Related
to Our Business--If We are Unable to Meet the Rapid Changes in Software
Technology, Our Existing Products Could Become Obsolete."
9
SALES AND MARKETING
We market our products primarily through our direct sales force and also
intend to expand our indirect sales through additional relationships with
systems integrators, VARs and OEMs. We generate leads from a variety of sources,
including businesses seeking partners to develop web-based applications. Initial
sales activities typically include a demonstration of our product capabilities
followed by one or more detailed technical reviews. As of December 31, 2001, the
direct sales force consisted of 343 sales executives and related support
personnel.
We seek to establish partnerships with major industry vendors that will add
value to our products and expand distribution opportunities.
We use a variety of marketing programs to build market awareness of us, our
brand name and our products, as well as to attract potential customers for our
products. A broad mix of programs are used to accomplish these goals, including
market research, product and strategy updates with industry analysts, public
relations activities, advertising, direct marketing and relationship marketing
programs, seminars, trade shows, speaking engagements and Web site marketing.
Our marketing organization also produces marketing materials in support of sales
to prospective customers that include brochures, data sheets, white papers,
presentations and demonstrations.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete is dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently own four patents
and have a number of patent applications pending in the United States. We have
eight registered trademarks in the United States, two pending trademark
applications in the United States, 38 registered trademarks in foreign
countries, and 16 pending trademark applications in foreign countries. We seek
to protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. We license our software
pursuant to signed license or "shrinkwrap" agreements, which impose certain
restrictions on the licensee's ability to utilize the software. Finally, we seek
to avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source code.
Due to rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments and
enhancements to existing products are more important than the various legal
protections of our technology to establishing and maintaining a technology
leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. However, the laws of many countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Any such
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, operating
results and financial condition. There can be no assurance that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products. We expect that developers of Web-based commerce software products will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and as the functionality of products
in different segments of the software industry increasingly overlaps. Any such
10
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all. A successful claim of product infringement against
us and our failure or inability to license the infringed technology or develop
or license technology with comparable functionality could have a material
adverse effect on our business, financial condition and operating results. See
"Risk Factors that May Affect Future Results--Risks Related to Our Business--Our
Business is Based on Our Intellectual Property and We Could Incur Substantial
Costs Defending Our Intellectual Property From Infringement or a Claim of
Infringement."
We include certain third-party software in our products. This third-party
software may not continue to be available on commercially reasonable terms. We
license data encryption and authentication technology from RSA Data Security,
Inc., load balancing and traffic management software from Resonate, Inc.,
development software from Iona Technologies, Inc., database access technology
from Rogue Wave Software, Inc., chart and graphing software from Corda
Technologies, concept and keyword search functionality from Autonomy, Inc., and
other software that is integrated with internally developed software. If we
cannot maintain licenses to this third-party software, shipments of our products
could be delayed until equivalent software could be developed or licensed and
integrated into our products, which could materially adversely affect our
business, operating results and financial condition.
EMPLOYEES
As of December 31, 2001, we had a total of 1,321 employees. Of the total
employees, 338 were in research and development, 394 in sales and marketing, 419
in professional services and customer support and 170 in finance and
administration. During fiscal year 2001, we significantly reduced our workforce
by approximately 975 employees to better align expenses and revenue levels. Our
future success will depend in part on our ability to attract, retain and
motivate highly qualified technical and management personnel, for whom
competition is intense. From time to time we also employ independent contractors
to support our professional services, product development, sales, marketing and
business development organizations. Our employees are not represented by any
collective bargaining unit, and we have never experienced a work stoppage. We
believe our relations with our employees are good.
11
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Our business, operating results or financial condition could be materially
adversely affected by any of the following risks. The trading price of our
common stock could decline due to any of these risks, and you as an investor may
lose all or part of your investment. You should also refer to the other
information set forth in this report, including our financial statements and the
related notes.
Risks Related to Our Business
We Expect to Incur Future Losses
We have not achieved profitability and we expect to incur net operating
losses in the coming quarter and potentially in future quarters. To date, we
have primarily funded our operations from the sale of equity securities. We
expect to continue to incur significant product development, sales and
marketing, and administrative expenses and, as a result, we will need to
generate significant revenues to achieve and subsequently maintain
profitability. We cannot be certain that we will achieve sufficient revenues for
profitability. If we do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis in the future.
Our Limited Operating History Makes Financial Forecasting Difficult
We were founded in December 1995 and thus have a limited operating history.
As a result of our limited operating history, we cannot forecast revenue and
operating expenses based on our historical results. Accordingly, we base our
expenses in part on future revenue projections. Most of our expenses are fixed
in the short term and we may not be able to quickly reduce spending if our
revenues are lower than we had projected. Our ability to forecast accurately our
quarterly revenue is limited because our software products have a long sales
cycle that makes it difficult to predict the quarter in which sales will occur.
We would expect our business, operating results and financial condition to be
materially adversely affected if our revenues do not meet our projections and
that net losses in a given quarter would be greater than expected.
Recent Terrorist Activities and Resulting Military and Other Actions Could
Adversely Affect Our Business
Terrorist attacks in New York City and Washington, D.C. in September of
2001 have disrupted commerce throughout the United States and other parts of the
world. The continued threat of terrorism within the United States and abroad and
the continuing potential for military action in Afghanistan and other countries
and heightened security measures in response to such threat may cause
significant disruption to commerce throughout the world. To the extent that such
disruptions result in delays or cancellations of customer orders, a general
decrease in corporate spending on information technology, or our inability to
effectively market, sell and deploy our software and services, our business and
results of operations could be materially and adversely affected. We are unable
to predict whether the threat of terrorism or the responses thereto will result
in any long term commercial disruptions or if such activities or responses will
have a long term material adverse effect on our business, results of operations
or financial condition.
We Must Successfully Complete the Implementation of Our Business Restructuring
Efforts
In accordance with our restructuring efforts announced during 2001, we are
currently transitioning our business and realigning our strategic focus towards
our core market, technologies and products. Internal changes resulting from our
business restructuring announced during 2001 are substantially complete, but
many factors may negatively impact our ability to implement our strategic focus
including our ability to manage the implementation, sustain the productivity of
our workforce and retain key employees, manage our operating expenses and
quickly respond to and recover from unforeseen events associated with the
restructuring. We may be required by market conditions to undertake additional
restructuring efforts in the future. Our business, results of operations or
financial condition could be materially adversely affected if we are unable to
manage the implementation, sustain the productivity of our workforce and retain
key employees, manage our operating expenses or quickly respond to and recover
from unforeseen events associated with any future restructuring efforts.
12
We Expect Our Quarterly Revenues and Operating Results to Fluctuate
Our revenues and operating results have varied significantly from quarter
to quarter in the past and we expect that our operating results will continue to
vary significantly from quarter to quarter. A number of factors are likely to
cause these variations, including:
o Demand for our products and services; o The timing of sales of our
products and services;
o The timing of customer orders and product implementations;
o Seasonal fluctuations in information technology purchasing;
o Unexpected delays in introducing new products and services;
o Increased expenses, whether related to sales and marketing, product
development or administration;
o Changes in the rapidly evolving market for e-business solutions;
o The mix of product license and services revenue, as well as the mix of
products licensed;
o The mix of services provided and whether services are provided by our
own staff or third-party contractors;
o The mix of domestic and international sales;
o Difficulties in collecting accounts receivable;
o Costs related to possible acquisitions of technology or businesses;
and
o The general economic climate.
Accordingly, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful. Investors should not rely on
the results of one quarter as an indication of future performance.
We will continue to invest in our research and development, sales and
marketing, professional services and general and administrative organizations.
We expect such spending, in absolute dollars, will be lower than in recent
periods; however, if our revenue expectations are not achieved, our business,
operating results or financial condition could be materially adversely affected
and net losses in a given quarter would be greater than expected.
Our Quarterly Results May Depend on a Small Number of Large Orders
In prior quarters, we derived a significant portion of our software license
revenues from a small number of relatively large orders. Our operating results
could be materially adversely affected if we are unable to complete a
significant order that we expected to complete in a specific quarter. No single
customer accounted for more than 10% of our total revenues during 2001.
If We Experienced a Product Liability Claim We Could Incur Substantial
Litigation Costs
Since our customers use our products for mission critical applications such
as Internet commerce, errors, defects or other performance problems could result
in financial or other damages to our customers. They could seek damages for
losses from us, which, if successful, could have a material adverse effect on
our business, operating results and financial condition. Although our license
agreements typically contain provisions designed to limit our exposure to
product liability claims, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. To date, we have
not experienced any product liability claims or litigation that we feel is
material to our business. However, such claims if brought against us, even if
not successful, would likely be time consuming and costly.
We Depend on Increased Business from Our Current and New Customers and if We
Fail to Grow Our Customer Base or Generate Repeat Business, Our Operating
Results Could Be Harmed
If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating results
would be seriously harmed. Many of our customers initially make a limited
purchase of our products and services. Some of these customers may not choose to
purchase additional licenses to expand their use of our products. Some of these
customers have not yet developed or deployed initial applications based on our
products. If these customers do not successfully
13
develop and deploy such initial applications, they may not choose to purchase
deployment licenses or additional development licenses. Our business model
depends on the expanded use of our products within our customers' organizations.
In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.
Our Operating Results May Be Adversely Affected by Small Delays in Customer
Orders or Product Implementations
Small delays in customer orders or product implementations can cause
significant variability in our license revenues and operating results for any
particular period. We derive a substantial portion of our revenue from the sale
of products with related services. In certain cases, our revenue recognition
policy requires us to substantially complete the implementation of our product
before we can recognize software license revenue, and any end of quarter delays
in product implementation could materially adversely affect operating results
for that quarter.
In Order to Increase Market Awareness of Our Products and Generate Increased
Revenue We Need to Continue to Strengthen Our Sales and Distribution
Capabilities
Our direct and indirect sales operations must increase market awareness of
our products to generate increased revenue. We cannot be certain that we will be
successful in these efforts. Our products and services require a sophisticated
sales effort targeted at the senior management of our prospective customers. All
new hires will require training and will take time to achieve full productivity.
We cannot be certain that our new hires will become as productive as necessary
or that we will be able to hire enough qualified individuals or retain existing
employees in the future. We plan to expand our relationships with systems
integrators and certain third-party resellers to build an indirect influence and
sales channel. In addition, we will need to manage potential conflicts between
our direct sales force and any third-party reselling efforts.
Failure to Maintain the Support of Third-Party Systems Integrators May Limit Our
Ability to Penetrate Our Markets
A significant portion of our sales are influenced by the recommendations of
our products made by systems integrators, consulting firms and other third
parties that help develop and deploy e-business applications for our customers.
Losing the support of these third parties may limit our ability to penetrate our
markets. These third parties are under no obligation to recommend or support our
products. These companies could recommend or give higher priority to the
products of other companies or to their own products. A significant shift by
these companies toward favoring competing products could negatively affect our
license and service revenue.
Our Lengthy Sales Cycle and Product Implementation Makes It Difficult to Predict
Our Quarterly Results
We have a long sales cycle because we generally need to educate potential
customers regarding the use and benefits of e-business applications. Our long
sales cycle makes it difficult to predict the quarter in which sales may fall.
In addition, since we recognize a portion of our revenue from product sales upon
implementation of our product, the timing of product implementation could cause
significant variability in our license revenues and operating results for any
particular period. The implementation of our products requires a significant
commitment of resources by our customers, third-party professional services
organizations or our professional services organization, which makes it
difficult to predict the quarter when implementation will be completed.
14
We May Be Unable to Adequately Sustain a Profitable Professional Services
Organization, Which Could Affect Both Our Operating Results and Our Ability to
Assist Our Customers with the Implementation of Our Products
Customers that license our software often engage our professional services
organization to assist with support, training, consulting and implementation of
their Web solutions. We believe that growth in our product sales depends in part
on our continuing ability to provide our customers with these services and to
educate third-party resellers on how to use our products.
During recent quarters, our professional services organization achieved
profitability; however, prior to 2000, services costs related to professional
services had exceeded, or had been substantially equal to, professional
services-related revenue. In this current economic climate, we make services
capacity decisions on a periodic basis based on our estimates of the future
sales pipeline, anticipated existing customer needs, and general market
conditions. Although we expect that our professional services-related revenue
will continue to exceed professional services-related costs in future periods,
we cannot be certain that this will occur.
We generally bill our customers for our services on a time-and-materials
basis. However, from time to time we enter into fixed-price contracts for
services, and may include terms and conditions that may extend the recognition
of revenue for work performed into following quarters. On occasion, the costs of
providing the services have exceeded our fees from these contracts and such
contracts have negatively impacted our operating results.
We May Be Unable to Attract Necessary Third-Party Service Providers, Which Could
Affect Our Ability to Provide Support, Consulting and Implementation Services
for Our Products
There may be a shortage of third-party service providers to assist our
customers with the implementation of our products. We do not believe our
professional services organization will be able to fulfill the expected demand
for support, consulting and implementation services for our products. We are
actively attempting to supplement the capabilities of our services organization
by attracting and educating third-party service providers and consultants to
also provide these services. We may not be successful in attracting these
third-party providers or maintaining the interest of current third- party
providers. In addition, these third parties may not devote enough resources to
these activities. A shortfall in service capabilities may affect our ability to
sell our software.
Our Business May Become Increasingly Susceptible to Numerous Risks Associated
with International Operations
International operations are generally subject to a number of risks,
including:
o Expenses associated with customizing products for foreign countries;
o Protectionist laws and business practices that favor local
competition;
o Changes in jurisdictional tax laws;
o Dependence on local vendors;
o Multiple, conflicting and changing governmental laws and regulations;
o Longer sales cycles;
o Difficulties in collecting accounts receivable;
o Foreign currency exchange rate fluctuations; and
o Political and economic instability.
We recorded 36% of our total revenue for the year ended December 31, 2001
through licenses and services sold to customers located outside of the United
States. We expect international revenue to remain a large percentage of total
revenue and we believe that we must continue to expand our international sales
activities in order to be successful. Our international sales growth will be
limited if we are unable to establish additional foreign operations, expand
international sales channel management and support organizations,
hire additional personnel, customize products for local markets, develop
relationships with international service providers and establish relationships
with additional distributors and third-party integrators. In that
15
case, our business, operating results and financial condition could be
materially adversely affected. Even if we are able to successfully expand
international operations, we cannot be certain that we will be able to maintain
or increase international market demand for our products.
To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of our
international revenues and costs will be denominated in foreign currencies in
the future. To date, we have not engaged in any foreign exchange hedging
transactions and we are therefore subject to foreign currency risk.
In Order to Properly Manage Future Growth, We May Need to Implement and Improve
Our Operational Systems on a Timely Basis
We have experienced periods of rapid expansion since our inception. Rapid
growth places a significant demand on management and operational resources. In
order to manage such growth effectively, we must implement and improve our
operational systems, procedures and controls on a timely basis. If we fail to
implement and improve these systems, our business, operating results and
financial condition will be materially adversely affected.
We May Be Adversely Affected if We Lose Key Personnel
Our success depends largely on the skills, experience and performance of
some key members of our management. If we lose one or more of these key
employees, our business, operating results and financial condition could be
materially adversely affected. In addition, our future success will depend
largely on our ability to continue attracting and retaining highly skilled
personnel. Like other software companies, we face competition for qualified
personnel, particularly in the Austin, Texas area. We cannot be certain that we
will be successful in attracting, assimilating or retaining qualified personnel
in the future.
We Have Relied and Expect to Continue to Rely on Sales of Our Vignette(R)V6
Product Line for Our Revenue
We currently derive substantially all of our revenues from the license and
related upgrades, professional services and support of our Vignette(R) V6
software products. We expect that we will continue to depend on revenue related
to new and enhanced versions of our Vignette(R) V6 product line for at least the
next several quarters. We cannot be certain that we will be successful in
upgrading and marketing our products or that we will successfully develop and
market new products and services. If we do not continue to increase revenue
related to our existing products or generate revenue from new products and
services, our business, operating results and financial condition would be
materially adversely affected.
Our Future Revenue is Dependent Upon Our Ability to Successfully Market Our
Existing and Future Products
We expect that our future financial performance will depend significantly
on revenue from existing and future software products and the related tools that
we plan to develop, which is subject to significant risks. There are significant
risks inherent in a product introduction such as our existing Vignette(R) V6
software products. Market acceptance of these and future products will depend on
continued market development for Internet products and services and the
commercial adoption of standards on which the Vignette(R) V6 is based. We cannot
be certain that either will occur. We cannot be certain that our existing or
future products offering will meet customer performance needs or expectations
when shipped or that it will be free of significant software defects or bugs. If
our products do not meet customer needs or expectations, for whatever reason,
upgrading or enhancing the product could be costly and time consuming.
If We are Unable to Meet the Rapid Changes in Software Technology, Our Existing
Products Could Become Obsolete
The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology enhancements,
uncertain product life cycles, changes in customer demands, changes in packaging
and combination of existing products and evolving industry standards. We cannot
be certain that we will successfully develop and market new products, new
product enhancements or new products compliant with present or emerging Internet
technology standards. New products based on new
16
technologies, new industry standards or new combinations of existing products as
bundled products can render existing products obsolete and unmarketable. To
succeed, we will need to enhance our current products and develop new products
on a timely basis to keep pace with developments related to Internet technology
and to satisfy the increasingly sophisticated requirements of our customers.
Internet commerce technology, particularly e-business applications technology,
is complex and new products and product enhancements can require long
development and testing periods. Any delays in developing and releasing enhanced
or new products could have a material adverse effect on our business, operating
results and financial condition.
We Face Intense Competition from Other Software Companies, Which Could Make it
Difficult to Acquire and Retain Customers Now and in the Future
Our market is intensely competitive. Our customers' requirements and the
technology available to satisfy those requirements continually change. We expect
competition to persist and intensify in the future.
Our principal competitors include: in-house development efforts by
potential customers or partners; other vendors of software that directly address
elements of e-business applications; and developers of software that address
only certain technology components of e-business applications (e.g., content
management).
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we do. Many of these companies can also leverage
extensive customer bases and adopt aggressive pricing policies to gain market
share. Potential competitors may bundle their products in a manner that may
discourage users from purchasing our products. In addition, it is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the price of our software. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully against current or future
competitors, our business, operating results and financial condition would be
materially adversely affected.
Potential Future Acquisitions Could Be Difficult to Integrate, Disrupt Our
Business, Dilute Stockholder Value and Adversely Affect Our Operating Results
We may acquire other businesses in the future, which would complicate our
management tasks. We may need to integrate widely dispersed operations that have
different and unfamiliar corporate cultures. These integration efforts may not
succeed or may distract management's attention from existing business
operations. Our failure to successfully manage future acquisitions could
seriously harm our business. Also, our existing stockholders would experience
dilution if we financed the acquisitions by issuing equity securities.
The Internet is Generating Privacy Concerns in the Public and Within
Governments, Which Could Result in Legislation Materially and Adversely
Affecting Our Business or Result in Reduced Sales of Our Products, or Both
Businesses use our Vignette(R) V6 products to develop and maintain profiles
to tailor the content to be provided to Web site visitors. Typically, the
software captures profile information when consumers, business customers or
employees visit a Web site and volunteer information in response to survey
questions. Usage data collected over time augments the profiles. However,
privacy concerns may nevertheless cause visitors to resist providing the
personal data necessary to support this profiling capability. More importantly,
even the perception of security and privacy concerns, whether or not valid, may
indirectly inhibit market acceptance of our products. In addition, legislative
or regulatory requirements may heighten these concerns if businesses must notify
Web site users that the data captured after visiting certain Web sites may be
used by marketing entities to unilaterally direct product promotion and
advertising to that user. We are not aware of any such legislation or regulatory
requirements currently in effect in the United States. Other countries and
political entities, such as the European Economic Community, have adopted such
legislation or regulatory requirements. The United States may adopt similar
legislation or regulatory requirements. If consumer privacy concerns are not
adequately addressed, our business, financial condition and operating results
could
17
be materially adversely affected.
Our Vignette(R) V6 products use "cookies" to track demographic information
and user preferences. A "cookie" is information keyed to a specific server, file
pathway or directory location that is stored on a user's hard drive, possibly
without the user's knowledge, but generally removable by the user. Countries
such as Germany have imposed laws limiting the use of cookies, and a number of
Internet commentators, advocates and governmental bodies in the United States
and other countries have urged passage of laws limiting or abolishing the use of
cookies. If more such laws are passed, our business, operating results and
financial condition could be materially adversely affected.
We Develop Complex Software Products Susceptible to Software Errors or Defects
that Could Result in Lost Revenues, or Delayed or Limited Market Acceptance
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects. Serious
defects or errors could result in lost revenues or a delay in market acceptance,
which would have a material adverse effect on our business, operating results
and financial condition.
Our Product Shipments Could Be Delayed if Third-Party Software Incorporated in
Our Products is No Longer Available
We integrate third-party software as a component of our software. The
third-party software may not continue to be available to us on commercially
reasonable terms. If we cannot maintain licenses to key third-party software,
shipments of our products could be delayed until equivalent software could be
developed or licensed and integrated into our products, which could materially
adversely affect our business, operating results and financial condition.
Our Business is Based on Our Intellectual Property and We Could Incur
Substantial Costs Defending Our Intellectual Property from Infringement or a
Claim of Infringement
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We could incur
substantial costs to prosecute or defend any such litigation. Although we are
not involved in any such litigation which we believe is material to the
Company's business, if we become a party to litigation in the future to protect
our intellectual property or as a result of an alleged infringement of other's
intellectual property, we may be forced to do one or more of the following:
o Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
o Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not
be available on reasonable terms; and
o Redesign those products or services that incorporate such technology.
We rely on a combination of patent, trademark, trade secret and copyright
law and contractual restrictions to protect our technology. These legal
protections provide only limited protection. If we litigated to enforce our
rights, it would be expensive, divert management resources and may not be
adequate to protect our business.
Anti-Takeover Provisions in Our Charter Documents and Delaware Law Could Prevent
or Delay a Change in Control of Our Company
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. Such provisions include:
o Authorizing the issuance of "blank check" preferred stock;
o Providing for a classified board of directors with staggered,
three-year terms;
o Prohibiting cumulative voting in the election of directors;
o Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and
18
bylaws;
o Limiting the persons who may call special meetings of stockholders;
o Prohibiting stockholder action by written consent; and
o Establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings.
Certain provisions of Delaware law and our stock incentive plans may also
discourage, delay or prevent someone from acquiring or merging with us.
Risks Related to the Software Industry
Our Business is Sensitive to the Overall Economic Environment; the Continued
Slowdown in Information Technology Spending Could Harm Our Operating Results
The primary customers for our products are enterprises seeking to launch or
expand e-business initiatives. The continued significant downturn in our
customers' markets and in general economic conditions that result in reduced
information technology spending budgets would likely result in a decreased
demand for our products and services and harm our business. Industry downturns
like these have been, and may continue to be, characterized by diminished
product demand, erosion of average selling prices, lower than expected revenues
and difficulty making collections from existing customers.
Our Performance Will Depend on the Growth of the Internet for Transacting
Business
Our future success depends heavily on the Internet being accepted and
widely used for commerce. If Internet commerce does not continue to grow or
grows more slowly than expected, our business, operating results and financial
condition would be materially adversely affected. Consumers and businesses may
reject the Internet as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, slow development of
enabling technologies or insufficient commercial support. The Internet
infrastructure may not be able to support the demands placed on it by increased
Internet usage and bandwidth requirements. In addition, delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased government regulation could
cause the Internet to lose its viability as a commercial medium. Even if the
required infrastructure, standards, protocols or complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
Our Performance Will Depend on the New Market for E-Business Applications
Software
The market for e-business applications software is new and rapidly
evolving. We expect that we will continue to need intensive marketing and sales
efforts to educate prospective customers about the uses and benefits of our
products and services. Accordingly, we cannot be certain that a viable market
for our products will emerge or be sustainable. Enterprises that have already
invested substantial resources in other methods of conducting business may be
reluctant or slow to adopt a new approach that may replace, limit or compete
with their existing systems. Similarly, individuals have established patterns of
purchasing goods and services. They may be reluctant to alter those patterns.
They may also resist providing the personal data necessary to support our
existing and potential product uses. Any of these factors could inhibit the
growth of online business generally and the market's acceptance of our products
and services in particular.
There is Substantial Risk that Future Regulations Could Be Enacted that Either
Directly Restrict Our Business or Indirectly Impact Our Business by Limiting the
Growth of Internet Commerce
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. If enacted, such laws, rules or
regulations could limit the market for our products and services, which could
materially adversely affect our business, financial condition and operating
results. Although many of these regulations may not apply to our business
directly, we expect that laws regulating the solicitation, collection or
processing of personal and consumer information could indirectly affect our
business. The Telecommunications Act of 1996 prohibits certain types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation
19
are currently unsettled. In addition, although substantial portions of the
Communications Decency Act were held to be unconstitutional, we cannot be
certain that similar legislation will not be enacted and upheld in the future.
It is possible that such legislation could expose companies involved in Internet
commerce to liability, which could limit the growth of Internet commerce
generally. Legislation like the Telecommunications Act and the Communications
Decency Act could dampen the growth in Web usage and decrease its acceptance as
a communications and commercial medium.
The United States government also regulates the export of encryption
technology, which our products incorporate. If our export authority is revoked
or modified, if our software is unlawfully exported or if the United States
government adopts new legislation or regulation restricting export of software
and encryption technology, our business, operating results and financial
condition could be materially adversely affected. Current or future export
regulations may limit our ability to distribute our software outside the United
States. Although we take precautions against unlawful export of our software, we
cannot effectively control the unauthorized distribution of software across the
Internet.
Risks Related to the Securities Markets
Our Stock Price May Be Volatile
The market price of our common stock has been highly volatile and has
fluctuated significantly in the past. We believe that it may continue to
fluctuate significantly in the future in response to the following factors, some
of which are beyond our control:
o Variations in quarterly operating results;
o Changes in financial estimates by securities analysts;
o Changes in market valuations of Internet software companies;
o Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o Loss of a major customer or failure to complete significant license
transactions;
o Additions or departures of key personnel;
o Difficulties in collecting accounts receivable;
o Sales of common stock in the future; and
o Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of Internet and software
companies.
Our Business May Be Adversely Affected by Class Action Litigation Due to Stock
Price Volatility
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We are a party to the securities class action litigation described
in Part I, Item 3 - "Legal Proceedings" of this Report. The defense of this
litigation described in Part I, Item 3 may increase our expenses and divert our
management's attention and resources, and an adverse outcome could harm our
business and results of operations. Additionally, we may in the future be the
target of similar litigation. Future securities litigation could result in
substantial costs and divert management's attention and resources, which could
have a material adverse effect on our business, operating results and financial
condition.
We May Be Unable to Meet Our Future Capital Requirements
We expect the cash on hand, cash equivalents, marketable securities and
short-term investments to meet our working capital and capital expenditure needs
for at least the next 12 months. After that time, we may need to raise
additional funds and we cannot be certain that we would be able to obtain
additional financing on favorable terms, if at all. Further, if we issue equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds, if needed, on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could have a material adverse effect on our
business, operating results and financial condition.
20
ITEM 2. PROPERTIES
Our principal research, development, sales, marketing and administrative
headquarter offices are located in Austin, Texas. We own no real estate or
facilities. As of December 31, 2001, we leased office space in the following
locations: Austin and Houston, Texas; San Ramon, California; New York City, New
York; Reston, Virginia; Waltham and Boston, Massachusetts; Maidenhead, England;
Madrid, Spain; Hamburg, Germany; Sydney, Australia; and Singapore. Such leases
have remaining terms of up to 10 years. All offices listed above support sales
and services activity, and we have research and development activity in our
Austin, Texas and Waltham, Massachusetts offices.
Additionally, we lease several medium-sized, short-term offices, with
remaining terms of less than one year. Such offices are located in: Atlanta,
Georgia; Los Angeles, California; Gaithersburg, Maryland; Paris, France; Munich,
Germany; Melbourne, Australia; and Hong Kong, China. We also lease and utilize
numerous full service managed suites, executive suites, and serviced office
short-term leases for small sales offices across the United States and around
the world. These small offices generally have lease terms of less than one year,
to allow us the flexibility to more quickly adjust to changing business and
customer support requirements. As of December 31, 2001, we leased office space
in 19 countries outside of the United States.
Throughout fiscal year 2001, we pursued a global consolidation of our
leased office portfolio. Some of the resulting excess lease space had terms that
expired in 2001, or will expire in the near term, and we have successfully
negotiated early terminations of some leases, in part or in whole. We currently
sublease surplus office space in Austin, Texas; Boston and Waltham,
Massachusetts; and Singapore to unrelated third-parties. We are in the process
of actively marketing and attempting to sublease our remaining surplus
properties located in Austin and Houston, Texas; Los Angeles and San Ramon,
California; Waltham, Massachusetts; and New York City, New York for the
remaining lease terms.
ITEM 3. LEGAL PROCEEDINGS
On October 26, 2001, a class action lawsuit was filed against the Company
and certain of its current and former officers and directors in the United
States District Court for the Southern District of New York in an action
captioned Leon Leybovich v. Vignette Corporation, et al., seeking unspecified
damages on behalf of a purported class that purchased Vignette common stock
between February 18, 1999 and December 6, 2000. Also named as defendants were
four underwriters involved in the Company's initial public offering of Vignette
stock in February 1999 and the Company's secondary public offering of Vignette
stock in December 1999 - Morgan Stanley Dean Witter, Inc., Hambrecht & Quist,
LLC, Dain Rauscher Wessels and U.S. Bancorp Piper Jaffray, Inc. The complaint
alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933
and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, based on, among other things, claims that the four
underwriters awarded material portions of the shares in the Company's initial
and secondary public offerings to certain customers in exchange for excessive
commissions. The plaintiff also asserts that the underwriters engaged in "tie-in
arrangements" whereby certain customers were allocated shares of Company stock
sold in its initial and secondary public offerings in exchange for an agreement
to purchase additional shares in the aftermarket at pre-determined prices. With
respect to the Company, the complaint alleges that the Company and its officers
and directors failed to disclose the existence of these purported excessive
commissions and tie-in arrangements in the prospectus and registration statement
for the Company's initial public offering and the prospectus and registration
statement for the Company's secondary public offering. The Company believes that
this lawsuit is without merit and intends to defend itself vigorously.
The Company is also subject to various legal proceedings and claims arising
in the ordinary course of business. The Company's management does not expect
that the results in any of these legal proceedings will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ending December 31, 2001.
21
ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers and directors of Vignette as of February 28, 2002:
Name Age Position
- ---- --- --------
Gregory A. Peters (1) ......... 41 Chief Executive Officer and Chairman of the Board of Directors
Thomas E. Hogan ............... 42 President and Chief Operating Officer and Director,
William R. Daniel ............. 46 Senior Vice President and General Manager, Strategy and
Technology
Peter A. Espinosa ............. 42 Senior Vice President, Global Sales and Operations
Bryce M. Johnson .............. 43 Senior Vice President, Secretary and General Counsel
Philip C. Powers .............. 43 Senior Vice President, Global Marketing
Charles W. Sansbury ........... 34 Senior Vice President and Chief Financial Officer
David J. Shirk ................ 35 Senior Vice President, Products
Jeanne K. Urich ............... 49 Senior Vice President, Global Professional Services
Robert E. Davoli (2) .......... 53 Director
Jeffrey S. Hawn (3) ........... 38 Director
Joseph A. Marengi (2)(3) ...... 48 Director
Steven G. Papermaster (3) ..... 43 Director
- --------------
(1) Member of the Stock Option Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
Set forth below is biographical information about each of our executive
officers and directors.
Gregory A. Peters has served as our Chief Executive Officer and as a
director since June 1998 and has served as the Chairman of the Board since
January 2000. From June 1998 to March 2001, Mr. Peters served as our President.
From October 1997 to May 1998, Mr. Peters served as President and Chief
Executive Officer of Logic Works, Inc., a software company. Mr. Peters joined
Logic Works as Chief Financial Officer and Executive Vice President, Finance and
Operations in August 1996 and served as Acting President and Chief Executive
Officer from April 1997 to October 1997. From April 1994 to August 1996, Mr.
Peters served as Chief Financial Officer, Treasurer and Senior Vice President,
and from 1992 to March 1994, as Controller and Treasurer, at Micrografx, Inc., a
Windows-based graphics software company. From 1990 to 1992, Mr. Peters held
various financial positions at DSC Communications Corporation, a
telecommunications company. Mr. Peters is a Certified Public Accountant and
received his Bachelor of Arts degree in Business Administration from Rhodes
College in Memphis, Tennessee.
Thomas E. Hogan has served as our President, Chief Operating Officer and as
a director since April 2001. Mr. Hogan is responsible for managing the Company's
worldwide operations including sales, marketing, professional services and
product development. From March 1999 to March 2001, Mr. Hogan served in various
roles, including most recently as Senior Vice President of Worldwide Sales and
Operations of Siebel Systems Inc. At Siebel Systems, he was responsible for
generating license revenue through all distribution channels, including direct
sales, telesales and the reseller channel. Prior to his employment at Siebel
Systems, Mr. Hogan worked at IBM Corporation from January 1982 to March 1999,
where he held several executive posts, including Vice President of Midrange
Systems, Vice President of Sales, Consumer Packaged Goods and Vice President,
Sales Operations. Mr. Hogan received his Bachelor of Sciences degree in
Biomedical Engineering from the University of Illinois and his Masters of
Business Administration degree in finance and international business with
distinction from the J.L. Kellogg Graduate School of Management at Northwestern
University.
William R. Daniel has served as our Senior Vice President and General
Manager of Strategy and Technology since July 2001. From September 1999 to June
2001, he served as our Senior Vice President of Products and from November 1998
to August 1999, he served as our Vice President, Business Development. From
August 1995 to May 1998, Mr. Daniel served as President, Chief Operating
Officer, and was a co-founder of Wallop Software, Inc., a provider of web
application development and assembly solutions. From June 1988 to July 1995, he
served as Chief Operating Officer and Senior Vice President of Datis Corporation
(acquired by HCIA, Inc. in 1995), a healthcare information provider. Mr. Daniel
received his Bachelor of Arts degree in Engineering Sciences with honors from
Dartmouth College and his Masters of
22
Business Administration degree in finance with honors from the Haas School of
Business at the University of California, Berkeley.
Peter A. Espinosa has served as our Senior Vice President of Global Sales
and Operations since January 2002 and as our Vice President of North American
Sales from May 2001 to January 2002. From December 1999 to May 2001, Mr.
Espinosa was Vice President and Chief Sales Officer for NetSales, Inc., a
provider of e-business solutions for supplier enablement. From May 1999 to
December 1999, he was Vice President of North American Sales for Cambridge
Technology Partners, a global e-services subsidiary of Novell, Inc. From May
1998 to May 1999, Mr. Espinosa was the Vice President of World-Wide Sales and
Marketing for Peritus Software Services, an independent software development
organization. Prior to his employment with Peritus Software Services, Mr.
Espinosa worked at IBM Corp. for 17 years in a variety of sales and marketing
positions. His most recent position at IBM Corp. was as Executive Assistant to
the Chairman of the Board of Directors and Chief Executive Officer. Mr. Espinosa
received his Bachelor of Arts degree in Speech Communications and Political
Sciences from Luther College in Decorah, Iowa.
Bryce M. Johnson has served as our Senior Vice President and General
Counsel since December 2000 and is responsible for overseeing the Company's
legal, human resources and governmental affairs. From March 1997 to November
2000, Mr. Johnson was the Chief Legal Counsel for Tivoli Systems Inc. and
Associate General Counsel of IBM Corporation. From May 1984 to March 1997, Mr.
Johnson held a variety of legal positions with IBM Corporation, including
Counsel to IBM Europe in Paris, France. Mr. Johnson received his Bachelor of
Arts degree with highest honors from Georgetown College and his Doctorate of
Jurisprudence from the University of Kentucky.
Philip C. Powers has served as our Senior Vice President of Global
Marketing since February 2002, as our Senior Vice President of Professional
Services from September 1999 to February 2002 and as our Vice President,
Professional Services from August 1998 to September 1999. From February 1997 to
August 1998 he served as Vice President of Worldwide Professional Services at
Tivoli Systems, Inc., a client/server software company. From January 1981 to
February 1997, he held several management roles at IBM which most recently
included Director of Worldwide Channel Marketing for IBM's software group and
Director of Worldwide Marketing, LAN systems for IBM's personal software
products division. Mr. Powers received his Bachelor of Arts in Marketing and
Business Management from the University of Dayton.
Charles W. Sansbury has served as our Chief Financial Officer since
September 2001. He served as our Senior Vice President of Corporate Development
from January 2000 to August 2001, helping guide our strategic financing
initiatives. From June 1996 to January 2000, Mr. Sansbury was a Principal in the
Technology Investment Banking Group at Morgan Stanley Dean Witter. From August
1993 to June 1996, Mr. Sansbury was an investment banker at Lehman Brothers. Mr.
Sansbury received his Master of Business Administration degree from the Wharton
School of the University of Pennsylvania and his Bachelor of Science degree from
Georgetown University.
David J. Shirk has served as our Senior Vice President of Products since
July 2001. He served as our Senior Vice President and General Manager,
Application Platform Products Division, from July 2000 to June 2001. From March
1998 to June 2000, Mr. Shirk worked at Novell Corporation as Chief Technology
Officer and Senior Vice President of Product Management, where he was
responsible for delivering Novell's Net services software strategy and roadmap
for all Novell products. From March 1996 to February 1998, he was Vice President
of Marketing at Oracle Corporation in charge of its Industry Applications
Division. He has more than 12 years of experience in product development,
product marketing, business application and vertical industry business
solutions. Mr. Shirk received his Bachelor of Arts degree in Business
Administration from Ohio State University.
Jeanne K. Urich has served as our Senior Vice President of Global
Professional Services since February 2002. From February 2001 to February 2002,
Ms. Urich served as Vice President of Global Professional Services and Training
at Blue Martini Software, Inc., a provider of electronic customer relationship
management software applications. From March 2000 to December 2000, Ms. Urich
served as Senior Vice President of Global e-Business Professional Services and
Training for Nortel Networks Corporation, a global supplier of networking
solutions and services. From July 1998 to March 2000, Ms. Urich served in a
similar position at Clarify, Inc. a provider of customer relationship management
software. From January 1998 to July 1998, Ms. Urich was worldwide director of
technology services at Compaq Corporation, a global provider of
23
technology and solutions. From July 1996 to December 1997, Ms. Urich served in a
similar position at Tandem Computers, a supplier of computer products and
services. From July 1976 to July 1996, Ms. Urich held various management
positions including director of services marketing and business development at
Digital Equipment Corporation, a supplier of computer products and services. Ms.
Urich received her Bachelor of Arts degree in mathematics and computer sciences
from Vanderbilt University.
Robert E. Davoli has served as a director of Vignette since February 1996.
Mr. Davoli has served as General Partner of Sigma Partners, a venture capital
firm, since January 1995. He served as President and Chief Executive Officer of
Epoch Systems, a client-server software company, from February 1993 to September
1994. From May 1986 through June 1992, Mr. Davoli was the President and Chief
Executive Officer of SQL Solutions, a relational database management systems
consulting and tools company that he founded and sold to Sybase, Inc. in January
1990. He is a director of the following publicly held companies: ISS Group,
Inc., a network security software company, StorageNetworks, Inc., a data storage
management software applications and services company, and Versata, Inc., a
business logic development and management software company, and he serves as a
director of several privately held companies. Mr. Davoli received his Bachelor
of Arts degree in History from Ricker College.
Jeffrey S. Hawn has served as a director of Vignette since November 2001.
Mr. Hawn has served as Senior Vice President, Operations for BMC Software, Inc.
since January 2002, where he is responsible for overseeing the finance,
corporate planning and development, and information technology and business
operations. He joined BMC Software in July 2000 and served as Senior Vice
President, BMC Ventures through January 2002, where he was responsible for
identifying, developing and managing BMC's emerging technologies and new
business opportunities. Prior to joining BMC Software, Mr. Hawn was a partner
with McKinsey & Company, a leading management consulting firm, where he led the
firm's technology practices and served as manager of the Austin, TX office.
During his tenure at McKinsey & Company, Mr. Hawn served a variety of hardware,
software, telecom and IT services firms over the course of nearly 10 years.
Before joining McKinsey & Company, he was with First Boston's investment banking
group. Mr. Hawn received his Master of Business Administration degree from the
University of Texas at Austin and his Bachelor of Science degree in Mechanical
Engineering from Southern Methodist University.
Joseph A. Marengi has served as a director of Vignette since July 1999. Mr.
Marengi. Mr. Marengi is a Senior Vice President with Dell Computer Corporation
and is responsible for the Dell Americas units serving corporate, government,
education, healthcare, consumer and small and medium business customers
throughout the United States, Canada and Latin America. Prior to joining Dell in
July 1997, Mr. Marengi worked with Novell, Inc., most recently serving as
President and Chief Operating Officer. He joined Novell in 1989, beginning as
director of the Eastern region and moving through successive promotions to
become Executive Vice President of Worldwide Sales and Field Operations. Mr.
Marengi received his Bachelor of Arts degree in Public Administration from the
University of Massachusetts, Boston, and his Masters degree in Management from
the University of Southern California.
Steven G. Papermaster has served as a director of Vignette since September
1998. Mr. Papermaster has served as the Chairman of Powershift Group, a
technology venture development group, since 1996. He is also Chairman of
Perficient, Inc., a provider of professional services to Internet software
companies, as well as a director of several privately held companies. Mr.
Papermaster was the Founder, Chairman and Chief Executive Officer (CEO) of BSG
Corporation, a system integration company, from 1987 to 1996. Mr. Papermaster
also founded Enterprise Technology Institute in 1990. Mr. Papermaster was also
CEO and Chairman of Agillion, Inc., an Internet business service provider for
small and mid-sized businesses, until November 2001, when he resigned as CEO and
remained as Chairman. Agillion filed for bankruptcy under Chapter 7 of the
United States Bankruptcy Code in July 2001. Mr. Papermaster received his
Bachelor of Arts degree in Finance from the University of Texas at Austin.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers and persons
who hold more than 10% of our outstanding Common Stock are subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, which require them to file reports with respect to their ownership
of our Common Stock and their transactions in such Common Stock. We believe that
all reporting requirements
24
under Section 16(a) for such fiscal year were met in a timely manner by our
executive officers, Board members and greater than ten-percent stockholders.
25
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"VIGN." Public trading of the common stock commenced on February 19, 1999. Prior
to that, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low closing sale price per
share of our common stock on the Nasdaq National Market in each of the last
eight fiscal quarters, as adjusted for the two-for-one forward split of our
common stock paid on December 1, 1999 and for the three-for-one forward split of
our common stock paid on April 14, 2000.
High Low
---------- ----------
Year Ended December 31, 2001:
Fourth Quarter .................... $ 6.65 $ 3.38
Third Quarter ..................... 9.36 3.54
Second Quarter .................... 10.59 3.88
First Quarter ..................... 16.63 5.16
Year Ended December 31, 2000:
Fourth Quarter .................... $ 34.38 $ 15.75
Third Quarter ..................... 52.25 27.00
Second Quarter .................... 66.98 25.50
First Quarter ..................... 99.00 51.67
At March 20, 2002, there were approximately 1,223 holders of record of our
common stock and the closing price of our common stock was $2.80 per share.
Cash Dividends
We have never declared or paid any cash dividends on our common stock or other
securities and do not anticipate paying cash dividends in the foreseeable
future.
26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this Report on Form
10-K. The consolidated statements of operations data for the years ended
December 31, 1999, 2000 and 2001 and the consolidated balance sheet data at
December 31, 2000 and 2001 are derived from audited consolidated financial
statements included elsewhere in this Report on Form 10-K. The consolidated
statements of operations data for the years ended December 31, 1997 and 1998 and
the consolidated balance sheet data at December 31, 1997, 1998 and 1999 are
derived from audited consolidated financial statements not included in this
Report on Form 10-K.
Year ended December 31,
-----------------------------------------------------------
1997 1998 1999 (2) 2000 (3) 2001
-------- -------- -------- --------- -----------
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue:
Product license ............................. $ 1,943 $ 8,584 $ 46,292 $ 216,257 $ 154,381
Services .................................... 1,081 7,621 42,893 150,404 142,369
-------- -------- -------- --------- -----------
Total revenue ....................... 3,024 16,205 89,185 366,661 296,750
Cost of revenue:
Product license ............................. 37 964 3,306 7,611 5,243
Services (1) ................................ 1,438 9,340 32,815 109,039 78,299
-------- -------- -------- --------- -----------
Total cost of revenue ............... 1,475 10,304 36,121 116,650 83,542
-------- -------- -------- --------- -----------
Gross profit 1,549 5,901 53,064 250,011 213,208
Operating expenses:
Research and development (1) ................ 2,895 6,962 16,447 58,324 64,850
Sales and marketing (1) ..................... 4,964 15,880 50,232 177,391 178,282
General and administrative (1) .............. 1,333 4,864 9,494 38,625 29,907
Purchased in-process research and
development, acquisition-related
and other charges ......................... - 2,089 15,641 169,885 1,919
Impairment of goodwill ...................... - - - - 799,169
Business restructuring charges .............. - - - - 120,935
Amortization of deferred stock
compensation .............................. - 2,475 5,654 33,863 8,734
Amortization of intangibles ................. - - 1,796 328,691 500,045
-------- -------- -------- --------- -----------
Total operating expenses ............ 9,192 32,270 99,264 806,779 1,703,841
-------- -------- -------- --------- -----------
Loss from operations ............. (7,643) (26,369) (46,200) (556,768) (1,490,633)
Other income, net ................................ 169 172 3,723 25,992 (35,275)
-------- -------- -------- --------- -----------
Loss before income taxes ......... (7,474) (26,197) (42,477) (530,776) (1,525,908)
Provision for income taxes ....................... - - - 1,449 1,731
-------- -------- -------- --------- -----------
Net loss ......................... $ (7,474) $(26,197) $(42,477) $(532,225) $(1,527,639)
======== ======== ======== ========= ===========
Basic net loss per share ......................... $ (0.70) $ (1.53) $ (0.31) $ (2.59) $ (6.32)
======== ======== ======== ========= ===========
Shares used in computing basic
net loss per share ............................. 10,728 17,094 137,253 205,885 241,762
- --------------
(1) Excludes amortization of deferred stock compensation as follows:
Year ended December 31,
-----------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- --------- -----------
Cost of revenue - services ................... $ - $ 376 $ 820 $ 2,968 $ 1,965
Research and development ..................... - 573 1,059 12,300 2,446
Sales and marketing .......................... - 898 2,248 11,785 3,066
General and administrative ................... - 628 1,527 6,810 1,257
-------- -------- -------- --------- -----------
$ - $ 2,475 $ 5,654 $ 33,863 $ 8,734
======== ======== ======== ========= ===========
27
As of December 31,
------------------------------------------------------
1997 1998 1999 (2) 2000 (3) 2001
------- -------- --------- ---------- ---------
(in thousands)
Consolidated Balance Sheet Data:
Consolidated Statements of Operations Data:
Cash, cash equivalents and
short-term investments ........................ $ 6,865 $ 12,242 $ 402,229 $ 447,833 $ 391,632
Working capital .................................. 4,255 3,757 375,211 389,831 305,826
Total assets ..................................... 8,499 21,349 498,166 2,190,954 663,026
Long-term debt and capital lease
obligation, less current portion .............. 833 758 - 782 240
Redeemable convertible preferred stock ........... 13,458 36,258 - - -
Total stockholders' equity (deficit) ............. (9,248) (30,767) 437,059 2,024,513 510,301
- ------------
(2) Reflects the acquisition of Diffusion, Inc. on June 30, 1999.
(3) Reflects the acquisitions of Engine 5, Ltd., DataSage, Inc. and OnDisplay,
Inc. on January 18, 2000, February 15, 2000 and July 5, 2000, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this Report on Form 10-K that are not purely
historical statements are forward-looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those indicated in such
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this filing on Form 10-K to conform
these statements to actual results. Factors that might cause or contribute to
such a difference include, but are not limited to, those discussed elsewhere in
this report in the section entitled "Risk Factors That May Affect Future
Results" and the risks discussed in our other historical SEC filings.
Overview
Vignette Corporation is a leading provider of content management applications
used by organizations to create and maintain effective online relationships with
their customers, employees, business partners and suppliers. Vignette allows
organizations to combine a comprehensive understanding of what content assets
they have across the business, and their value, with Web applications that
predict users' needs and expectations. By putting the right information in front
of the right person at the right time, we help Web visitors make informed
decisions, and help organizations successfully manage those relationships.
The family of Vignette products is focused around the comprehensive content
management capabilities required by organizations to handle both the active
management of electronic assets across the business, and the delivery of that
content in context to multiple audiences.
Content Management -- the ability to manage and deliver content to
almost every electronic touch-point from
virtually any source. This includes the ability
to create new content, collect content from
existing sources, produce it for Web use,
deliver it in context, and observe its use by
Web visitors to continue to deliver the right
content to the right person at the right time.
Content Management
Extensions -- advanced capabilities to extend the
organization's ability to harness all available
content, measure its value, deliver it through
multiple channels, and determine appropriate
content offers for different audiences.
Our applications leverage these content capabilities to enable organizations
to use the Web to generate revenue. We are focused on the online success of our
more than 1,300 customers.
28
Our products are supported by our services organization, which offers a broad
range of services, including strategic planning, project management, account
management, general implementation services, technical support and an extensive
array of training offerings.
Our business is facilitated by a community of skilled partners specifically
selected to support our customers and to ensure their success. This "Vignette
Economy" includes a number of partnerships with leading system integrators like
Accenture, Deloitte Consulting, EDS, IBM Global Services, Inforte and
PricewaterhouseCoopers. It also includes strategic alliances with technology
leaders like BEA Systems, IBM and Sun Microsystems.
We are headquartered in Austin, Texas, and operate satellite offices in other
U.S. cities. In addition, we have offices throughout the Americas, Europe, Asia
and Australia. We had 1,321 full-time employees at December 31, 2001. Headcount
decreased from 2,330 at December 31, 2000 due primarily to the restructuring
efforts we implemented in 2001.
Since our inception, we have incurred substantial costs to develop our
technology and products, market, sell and service these products, recruit and
train personnel and build an infrastructure. As a result, we have incurred
significant losses since our inception and, as of December 31, 2001, we had an
accumulated deficit of approximately $2.1 billion. We believe our success
depends on the continued development and acceptance of our products and
services, the growth of our customer base as well as the overall growth in the
content management applications market. Accordingly, we intend to invest in
research and development, sales, marketing, professional services and to a
lesser extent our operational and financial systems, as necessary. Furthermore,
we expect to continue to incur operating losses in the near future, and we will
require increases in revenues before we achieve and sustain profitability;
however, we cannot assure that such increases in revenue will result in
profitability.
2001 Highlights
Vignette(R) V6 Introduction In September 2001, we launched and shipped the
Vignette(R) V6 product family, the newest release of our flagship content
management application. The core of the V6 family is the Vignette Content Suite,
which is the first product on the market to combine industry-leading content
management, content integration and content analysis applications in a single
solution. The Vignette(R) V6 family also includes the Vignette content
extensions, which our customers can use to further expand the power, flexibility
and functionality of the Vignette Content Suite.
Restructuring Efforts During fiscal year 2001, we approved a restructuring plan
that reduced headcount and infrastructure and consolidated operations. As a
result, we reduced headcount by approximately 975 individuals and recorded
$120.9 million in business restructuring charges in 2001.
In March 2002, we approved a plan to further align our cost structure with
current economic and industry conditions. These actions, which will affect
employees across all levels, functional areas and geographies, will include:
o voluntary salary reductions effective April 1, 2002 through September 30,
2002;
o headcount reductions; and
o facilities consolidation.
We will issue stock options to certain employees who volunteer for a salary
reduction. We expect to record deferred compensation for the intrinsic value of
the stock options as of the grant date. Such amount will be amortized to expense
over the one-year vesting period.
Impairment of Goodwill As a result of negative economic, industry and
Company-specific trends experienced throughout 2001, we recorded a $799.2
million non-cash, goodwill impairment charge during the fourth quarter of 2001.
Such goodwill originally arose in connection with our four business acquisitions
completed during fiscal years 1999 and 2000. These acquisitions were generally
completed during a period when stock valuations for companies in the software
sector were at much higher levels.
29
Stock Option Exchange Program During 2001, we issued approximately 2.4 million
restricted shares and approximately 7.7 million options to, and concurrently
canceled approximately 19.2 million stock options of, certain employees who
elected to participate in our stock option exchange program. This program was
designed to retain our employees and to provide them with an incentive for
maximizing stockholder value. As a result of this transaction, we recorded
deferred compensation of approximately $14.9 million.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the