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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the Fiscal Year Ended: March 31, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the transition period from __________ to __________
Commission File Number: 0-27798
_________________________________
Workgroup Technology Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-3153644
--------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
91 Hartwell Ave., Lexington, MA 02421
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 674-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of May 25, 2000 (based on the closing price as quoted by Nasdaq
National Market as of such date) was approximately $4,490,000.
As of May 25, 2000, 8,070,407 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement relating to the Company's Annual
Meeting of Stockholders to be held on July 28, 2000 are incorporated by
reference into Part III hereof.
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Forward Looking Statements
From time-to-time, information provided by the Company or statements made
by its employees, including statements made herein, may contain "forward-
looking" information which involve risks and uncertainties. In particular, the
statements set forth below under the heading "WTC's Strategy" regarding the
Company's objectives to build on its market position, enhance product offerings,
expand third-party relationships and broaden distribution and market awareness
are "forward-looking" statements and are based on the assumptions and
expectations of the Company's management at the time such statements are made.
The Company's actual results may vary significantly from those stated in any
forward-looking statements. Important information about the factors that may
cause such differences include, but are not limited to, the risks, uncertainties
and other information discussed in "Certain Factors That May Affect Future
Results" in Management's Discussion and Analysis of Financial Condition and
Results of Operations included in this Form 10K.
PART I
ITEM 1. BUSINESS
General
Founded in 1992, Workgroup Technology Corporation ("WTC" or the "Company")
develops, markets and supports collaborative product data management ("PDM")
solutions to help manufacturers optimize product development. The Company's
proven family of collaborative PDM solutions, WTC ProductCenter(TM), provides
product development organizations with product content management and process
automation. This engineering solution is web-enabled and extendable across a
global enterprise, including customers, partners and the supply chain, and is
quickly implemented and customizable. WTC also offers WTC Professional Services
providing consulting, training and technical support to help companies achieve
rapid return on investment.
The Company was incorporated in the State of Delaware in May 1992. The
Company's principal executive offices are located at 91 Hartwell Avenue,
Lexington, Massachusetts 02421, and its telephone number is (781) 674-2000.
References herein to "WTC" and the "Company" include Workgroup Technology
Corporation and its wholly-owned subsidiary, Workgroup Technology GmbH.
Industry Background
Intense competitive pressures are driving companies to shorten their
product development cycles and time-to-market while improving their product
quality and reducing product costs. The globalization of markets, and
distributed design and manufacturing functions, requires flexible systems to
simplify the ever-increasing complexities of product information and processes
while having the ability to securely provide product information globally to
customers, partners and to various levels in the supply chain. These pressures
are forcing companies to re-engineer their management of the product development
process.
Effectively managing the product development process imposes significant
demands on information systems. Manufacturers create and store product
development information in a wide range of disparate applications and systems
such as Computer Aided Design ("CAD") systems; Electronic Design Automation
("EDA") systems; word processing; enterprise resource planning ("ERP") systems;
and various project management tools. Companies must be able to integrate these
islands of information in order for this critical product content to be
accessible across the enterprise and processes need to be put in place in order
to improve product development efficiencies.
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WTC Family of Products
WTC's family of products, WTC ProductCenter(TM) (formerly (CMS(TM)),
facilitates the management of product information and workflow processes with
collaborative product data management to optimize product development.
WTC ProductCenter is a proven enterprise-wide, collaborative product data
management solution that delivers web-enabled core and extended PDM
capabilities. This proven combination of secure product content management and
business process automation optimizes product development for manufacturers.
WTC ProductCenter's core PDM technology allows for the secure management of
product information. Core PDM allows designers and developers to manage,
share, modify and track all types of product data and documents throughout
the product development process and provides proven workflow capabilities
for automating business processes. The solution is designed to manage,
automate and accelerate the creation, capture, modification, control and
reuse of product and process information.
WTC ProductCenter's extended PDM technology allows all the members of the
product development process in the global enterprise, including
engineering, manufacturing, customers, partners and the supply chain, to
dynamically collaborate. WTC ProductCenter builds upon the core PDM engine
with a wide range of enterprise integrations such as CAD management, ERP
integration, engineering change management and supply chain management.
WTC ProductCenter Benefits:
Controlled and Secure Accessibility: Utilizing WTC ProductCenter's
secure electronic vault, a company's critical product information is
organized, stored and made accessible throughout the enterprise.
Access to the information is based on assigned permissions to users,
or groups of users, enabling the right information to be accessible to
those who need it at the right time.
Enterprise Integration: This flexible Windows/Unix/Web-based system
allows companies to integrate various information systems, tools, and
industry products for enterprise wide collaboration of information and
process automation. WTC ProductCenter provides various types of user
access through standard interfaces and toolkits for native or web-
based user interfaces. WTC also provides application-specific
integrations with industry applications such as Pro/ENGINEER(R),
SolidWorks(R), AutoCAD(R), FrameMaker(R), and Microsoft(R) Office(TM).
Quick Adaptability: WTC ProductCenter is a flexible, modular system
that can be quickly implemented and customized. As a result, WTC
ProductCenter can be managed without an overwhelming burden on
administrators and it can be tailored to suit the needs of a growing
enterprise, reducing the ongoing cost of ownership.
The WTC ProductCenter family of solutions is a suite of modules that, when
combined, offer a unified software solution that provides a consistent user
interface and common data management structure. WTC ProductCenter modules may
be deployed in various combinations to meet the specific needs of a customer.
The following modules comprise the WTC ProductCenter product family:
WTC ProductCenter(TM)
---------------------
The core of the WTC ProductCenter product family, WTC ProductCenter
provides comprehensive document and release management, including vault
management, version control, security,
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administration and reporting. WTC ProductCenter manages product-related
documents, data, and information, such as CAD models, bills of materials,
technical specifications and regulatory documents.
WTC ProductCenter(TM) Workflow
------------------------------
WTC ProductCenter Workflow is a flexible and proven process management
application that allows companies to model the business process for WTC
ProductCenter managed information. Work requests are routed to the
appropriate individuals and groups, together with the information needed to
perform the work. WTC ProductCenter team members have access to the current
status of all workflow processes.
WTC ProductCenter(TM) Replication Server
----------------------------------------
When a customer needs to support an enterprise or an extended enterprise
distributed over wide-area networks ("WAN"), WTC ProductCenter Replication
Server supports distribution to multiple sites worldwide. The WTC
ProductCenter Replication Server distributes files to user-defined
replication vaults that can exist anywhere on the WAN. The WTC
ProductCenter Replication Server reduces network traffic and response time
for the distributed teams, particularly for those sharing work on large
design projects.
WTC ProductCenter(TM) C/C++ Toolkit
-----------------------------------
Through its C/C++ Toolkit module, WTC ProductCenter allows users to build
C/C++ applications and customize their environment by automating tasks such
as viewable generations, batch loading of product information, automating
workflow processes, or integrating other enterprise information systems
such as ERP.
WTC ProductCenter WebLink(TM) Toolkit
-------------------------------------
WTC ProductCenter WebLink Toolkit is an easy-to-use toolkit for producing
HTML-based web applications for accessing information managed within WTC
ProductCenter. WTC ProductCenter WebLink Toolkit allows customers to create
web-based clients which can be tailored specifically for particular users
or groups of users. Simplified clients can be created utilizing familiar
browser interfaces which mask the complexity of the underlying data
management system. The WebLink Toolkit enables organizations to replace
inefficient paper-based systems for distributing product development
information from the engineering department to other users of the
information within and outside of the company.
WTC ProductCenter(TM) Pro/ENGINEER(R) Integrator
------------------------------------------------
The WTC ProductCenter Pro/ENGINEER Integrator provides integration with
PTC's Pro/ENGINEER family of mechanical design and analysis tools. This
integration supports the management of all Pro/ENGINEER configurations and
automatically extracts and maintains the relationships and attributes which
define the Pro/ENGINEER design. By leveraging WTC ProductCenter release
management, the Pro/ENGINEER design team is able to easily build and
retrieve configurations throughout the product lifecycle.
WTC ProductCenter(TM) SolidWorks(R) Integrator
----------------------------------------------
The WTC ProductCenter SolidWorks Integrator provides integration with
SolidWorks Corporation's SolidWorks solid modeling solution. This
integration provides SolidWorks users with file and configuration
management of SolidWorks data. WTC ProductCenter SolidWorks Integrator
builds WTC ProductCenter associations automatically from SolidWorks
configurations and populates ProductCenter attributes from SolidWorks
attributes. This integration allows the SolidWorks design team to build and
retrieve configurations throughout the product lifecycle.
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WTC ProductCenter(TM) AutoCAD(R) Integrator
-------------------------------------------
The WTC ProductCenter AutoCAD Integrator provides integration with
Autodesk's AutoCAD design environment. This integration allows users to
build WTC ProductCenter configurations from AutoCAD data and populate WTC
ProductCenter attributes from AutoCAD attributes.
WTC ProductCenter(TM) FrameMaker(R) Integrator
----------------------------------------------
The WTC ProductCenter FrameMaker Integrator allows access to WTC
ProductCenter functions from within Adobe's FrameMaker publishing
environment. Users can automatically generate, add, and associate PDF
viewables on add and check-in and use FrameMaker variables to fill in WTC
ProductCenter attributes.
WTC ProductCenter(TM) Microsoft Office(R) Integrator
----------------------------------------------------
The WTC ProductCenter Microsoft Office Integrator provides Microsoft Word
and Microsoft Excel integrations to WTC ProductCenter. These integrations
work from within Word and Excel to provide direct access to common WTC
ProductCenter functions. Users can populate WTC ProductCenter attributes
from document properties and perform searches on custom or common
attributes.
WTC ProductCenter client products are available on Microsoft Windows
95/98/NT, Sun Solaris, HP-UX, SGI Irix, Netscape and Internet Explorer. WTC
ProductCenter server products are available on Microsoft Windows NT, Sun
Solaris, HP-UX, and SGI Irix. The web server component supports Netscape
Enterprise Server, Microsoft Internet Information Server, and Apache Web Server.
WTC ProductCenter also supports the Oracle 8 database.
WTC Professional Services offer a complete line of technical support,
consulting and training services. These services are an important component of
the total solution the Company provides to its customers.
System administrator training is provided to customers to prepare them for
successful implementation of WTC ProductCenter. Implementation and business
consulting services are offered to those customers who request assistance in
installing software, designing databases, organizing data and modeling
development processes. The Company also provides software maintenance which
includes central call center support, technical updates and maintenance releases
of products as determined by the Company.
WTC's Strategy
WTC's strategy is to continue to build on its position in the product data
management market with its PDM products. The Company intends to achieve this
goal by providing customers with pragmatic, adaptable solutions that can be put
into production quickly to meet customers' product development needs, expanding
third-party relationships, and creating an organization that can sustain its
future expansion.
In line with this strategy, the Company has further enhanced the
functionality of its core PDM technology with upgraded product releases,
additional applications and related products developed both internally and in
conjunction with leading technology partners. Also during fiscal 2000, the
Company continued to build upon its technology base by adding new features and
functionality, such as web-enabled capabilities, year 2000 compliance, and
Windows NT support, to the former CMS product with the controlled rollout of a
major new release re-named WTC ProductCenter.
During fiscal 2000, the Company discontinued its knowledge-based program
management solution, WTC OpCenter, which was first released in fiscal 1999. The
Company's focus since then has been redirected to its original core PDM
business.
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Customers
WTC's products are used by more than 50,000 users at hundreds of customer
sites worldwide and have been implemented across a range of industries including
telecommunications, medical products, automotive, aerospace and defense. WTC
customers include corporations such as 3Com Corporation; ADC Telecommunications,
Inc.; Alcatel USA; Arris Interactive; Eaton Corporation; General Electric
Company; Honeywell, Inc.; Siemens Energy & Automation, Inc.; United States
Surgical Corporation; U.S. Army; and Whirlpool Corporation.
Sales and Marketing
During fiscal 2000, the Company reorganized its sales organization into a
single group, National Accounts, which also includes support for value-added
resellers ("VARs"). The National Accounts group consists of sales
representatives, technical account managers, and telesales representatives, and
is focused on meeting the needs of, and expanding the Company's opportunities
within, its existing customer base, as well as with new customers.
The Company utilizes VARs to complement its direct sales force. These VARs
have vertical market expertise and are predominantly focused on providing
product development solutions to new and existing customers. To avoid channel
conflict, generally, direct sales personnel are compensated both on their
performance and that of the VARs in their territory. As of March 31, 2000, the
Company had seven VARs located throughout North America and Europe.
The Company also currently has an OEM relationship with Zuken, Inc., one of
Japan's largest independent software suppliers, focused on the ECAD marketplace.
OEM partners provide vertical market expertise and sell to customers generally
not targeted by or geographically accessible to the Company's direct sales
force.
To support the sales process, the Company conducts marketing programs that
include trade shows and customer communications programs, generally via its
website located at www.workgroup.com. The Company sponsors user groups and
customer advisory boards as a source of feedback about its customers'
requirements.
The Company does not believe that its revenue is materially impacted by
seasonality.
As of March 31, 2000, the Company's sales and marketing organization
consisted of 13 people located in the Company's headquarters in Lexington,
Massachusetts and in locations throughout the United States.
Customer Support and Consulting
The Company's customers utilize WTC ProductCenter in mission-critical
applications on which the success of the organization may depend. Therefore, a
high level of customer service, training and technical support is critical. The
Company's customer support organization provides support through telephone, the
worldwide web, electronic mail and fax communications. As of March 31, 2000, the
Company's customer support and consulting organization consisted of 15 people.
OEMs and some VARs offer first-level customer support to their end-user
customers and rely on the Company for any additional required support. The
Company receives fees for support and maintenance provided to these channel
partners. The Company offers consulting services, at a fee, to customers seeking
assistance in the implementation, use and expansion of the Company's products.
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Product Development
Since its inception, the Company has made substantial investments in research
and development. The Company believes its future success depends in part upon
its ability to enhance its existing products and to develop and introduce
products that address technological developments in the marketplace and the
increasingly sophisticated needs of its customers.
While the Company expects that certain of its new products will be developed
internally, the Company may, based upon timing and cost considerations, acquire
technology and/or products from third parties. Additionally, the Company has a
partners program which provides the Company's customers with various third-party
developed applications that are complementary to the Company's products.
As of March 31, 2000, the Company's product development staff consisted of 12
employees. The Company's total expense for research and development in fiscal
1998, 1999 and 2000 was $5.7 million, $6.7 million and $5.5 million,
respectively.
Competition
The PDM and product development markets are intensely competitive and are
subject to rapid change. The Company's competitors offer a variety of products
and services to address these markets. No company is currently the dominant
leader in the PDM market. However, the Company's CMS and WTC ProductCenter
family of products currently encounters direct competition from a number of
public and privately-held companies. In addition, the possible entrance of new
competitors may intensify competition in these markets. Vendors of relational
database management systems and enterprise resource planning systems, among
others, may compete with the Company in the future. Many of the Company's
current and possible future competitors have significantly greater financial,
technical, marketing and other resources than the Company, and many have well
established relationships with current and potential customers of the Company.
It is also possible that alliances among competitors may emerge and rapidly
acquire significant market share. The Company also expects that competition will
increase as a result of software industry consolidations. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which would materially adversely affect the Company's business, operating
results and financial condition.
The Company believes that the principal competitive factors affecting its
market include product features and functionality, such as flexibility,
scalability, ease of integration, ease of implementation, ease of use, quality,
and performance; price and total cost of ownership; customer service and
support; company reputation and financial viability; and effectiveness of sales
and marketing efforts. There can be no assurance that the Company will be able
to maintain a competitive position against current and potential competitors.
Proprietary Rights
The Company primarily relies upon a combination of copyright, trademark and
trade secret laws, nondisclosure agreements and license agreements to establish
and protect proprietary rights in its products. The Company currently holds a
patent on certain technology contained in its now-discontinued WTC OpCenter
product. The source code for the Company's products is protected both as a trade
secret and as an unpublished copyrighted work. Despite these precautions, it may
be possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. The software development
industry is characterized by rapid technological change. Therefore, the Company
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are more important to establishing
and maintaining a technology leadership
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position than the various legal protections of its technology. The Company is
not aware that any of its products infringe upon the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
such infringement by the Company or its licensors with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's market segment grows and the functionality of products in
different market segments overlaps. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or might require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company.
Workgroup Technology Corporation, Workgroup, WTC, the Company's logo, CMS,
WTC ProductCenter, Workflow, Replication Server, Pro/ENGINEER Integrator,
SolidWorks Integrator, AutoCAD Integrator, FrameMaker Integrator, Microsoft
Office Integrator, C/C++ Toolkit, WebLink Toolkit, WTC Professional Services,
and WTC OpCenter are trademarks of the Company. All other trademarks and trade
names referred to in this report are the property of their respective owners.
Employees
As of March 31, 2000, the Company employed 55 persons, including 12 product
development personnel, 10 sales personnel, 15 customer support, training and
consulting personnel, 15 finance and administration personnel and 3 marketing
personnel. None of the Company's employees is represented by a collective
bargaining arrangement, and the Company has experienced no work stoppages. The
Company considers its relations with its employees to be good.
The Company's future success depends in large part on the ability to continue
to motivate and retain highly qualified employees, including management
personnel, and to attract and retain a significant number of additional
qualified personnel, including sales, product development and operations staff.
Competition for qualified personnel in the Company's industry is intense, and
many of the companies with which the Company competes for qualified personnel
have substantially greater financial and other resources than the Company.
Furthermore, competition for qualified personnel can be expected to become more
intense as competition in the Company's industry increases. There can be no
assurance that the Company will be able to recruit, retain and motivate a
sufficient number of qualified personnel to compete successfully. The loss of
any of the Company's senior management personnel or any material failure to
recruit, retain and motivate a sufficient number of qualified personnel could
have a material adverse effect on the Company.
ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 29,000 square feet of
office space in Lexington, Massachusetts. This facility accommodates research,
marketing, sales, customer support and corporate administration. The lease on
this facility expires in September 2001. The Company believes that its existing
facilities are adequate for its current needs and that, if necessary, additional
facilities are available for lease to meet future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes would have a
material impact on its business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended March 31, 2000, no matters were
submitted to a vote of security holders of the Company through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "WKGP". On May 25, 2000, the closing price of the Company's Common Stock
was $0.6875 per share. As of May 25, 2000, there were approximately 100 holders
of record of the Company's Common Stock and at least 2,000 beneficial holders,
based on information obtained from the Company's transfer agent.
The following table sets forth quarterly high and low prices of the Common
Stock for the indicated fiscal periods:
<TABLE>
<CAPTION>
2000 1999
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $2.06 $1.19 $4.00 $3.50
Second Quarter 1.81 1.00 3.56 2.13
Third Quarter 2.88 0.88 2.63 1.56
Fourth Quarter 4.25 1.25 2.88 1.50
</TABLE>
The Company has never paid cash dividends on its Common Stock and currently
intends to retain earnings, if any, for use in its business. Any future
declaration and payment of dividends will be subject to applicable law and the
discretion of the Company's Board of Directors and will depend upon the
Company's results of operations, earnings, financial condition, contractual
limitations, cash requirements, future prospects and other factors deemed
relevant by the Company's Board of Directors. The Company does not anticipate
paying any cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the financial
statements of the Company, and should be read in conjunction with those
statements, which are included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 7,703 $ 8,631 $ 7,638 $10,439 $10,477
Gross profit 4,059 5,069 4,465 7,969 8,794
Operating expenses 14,565 15,311 14,248 12,255 7,405
Income (loss) from operations (10,506) (10,242) (9,783) (4,286) 1,389
Net income (loss) (9,619) (8,936) (8,075) (2,407) 1,448
Basic net income (loss) per common share $ (1.20) $ (1.07) $ (0.98) $ (0.30) $ 0.80
Basic shares outstanding 8,012 8,360 8,226 7,994 1,808
Diluted net income (loss) per common share $ (1.20) $ (1.07) $ (0.98) $ (0.30) $ 0.29
Diluted shares outstanding 8,012 8,360 8,226 7,994 5,036
</TABLE>
<TABLE>
<CAPTION>
March 31,
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 9,707 $ 18,789 $28,442 $36,555 $39,426
Total assets 14,074 25,397 35,075 41,796 44,073
Total stockholders' equity 10,403 20,114 30,039 37,927 40,114
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and related notes thereto.
Results of Operations
The following table sets forth for the periods indicated, certain
consolidated financial data as a percentage of total revenue:
<TABLE>
<CAPTION>
Percentage of Total Revenue
------------------------------------
Fiscal Year Ended March 31,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Software licenses 25.4% 38.8% 42.9%
Maintenance and services 74.6 61.2 57.1
-------- -------- --------
Total revenue 100.0 100.0 100.0
Gross profit 52.7 58.7 58.5
Operating expenses:
Selling and marketing 74.5 79.9 80.9
Research and development 71.7 77.1 75.2
General and administrative 26.0 20.4 30.4
Restructuring 16.9 0.0 0.0
-------- -------- --------
Total operating expenses 189.1 177.4 186.5
Loss from operations (136.4)% (118.7)% (128.0)%
</TABLE>
Fiscal 2000 Compared to Fiscal 1999
Revenue. The Company's revenue consists of license fees for its WTC
ProductCenter (formerly CMS) and WTC OpCenter software products and fees for
professional services and software maintenance. The Company had total revenue
of $7,703,000 in fiscal 2000 as compared to total revenue of $8,631,000 in
fiscal 1999, a decrease of $928,000 or 10.8%.
Software license revenue decreased 41.7% in fiscal 2000 to $1,954,000 from
$3,353,000 in fiscal 1999. This revenue decrease resulted primarily from a
decline in the sales of the Weblink and View/Markup products, which had a
significant contribution to revenue in 1999 due to the initial offering to the
customer base. Secondarily, this revenue decrease is also attributable to the
discontinuance in fiscal 2000 of the Company's knowledge-based program
management product, WTC OpCenter.
Maintenance and services revenue increased 8.9% to $5,749,000 from
$5,278,000 in fiscal 1999. This increase resulted primarily from higher
maintenance revenue as a result of an increase in the customer maintenance base
and of a higher rate of maintenance contract renewals from such customers,
partially offset by a decrease in revenue from consulting services.
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Cost of Revenue and Gross Profit. The Company's cost of software license
revenue consists primarily of royalties payable to third parties upon the
license of products as well as costs associated with media, packaging,
documentation and delivery of the Company's products. Gross profit associated
with software license revenue for fiscal 2000 was $1,396,000 or 71.4% of
software license revenue versus $2,983,000 or 89.0% of software license revenue
in fiscal 1999. This decrease is primarily the result of lower software license
revenue and an increase in cost of revenue due to the write-off of prepaid
royalties related to the WTC OpCenter product line during fiscal 2000, and, to a
lesser extent, the mix of products sold during each of the periods which
required royalty payments to another party.
Cost of maintenance and services revenue consists primarily of personnel
and related costs for the Company's customer support and professional services
organizations. The Company's gross profit on maintenance and services revenue
increased to $2,663,000 in fiscal 2000 from $2,086,000 in fiscal 1999. As a
percentage of maintenance and services revenue, the gross margin increased to
46.3% in fiscal year 2000 from 39.5% in fiscal year 1999. This increase in gross
profit is due primarily to a favorable mix of maintenance revenue, which is a
significant contributor to margin, for fiscal 2000 and, to a lesser extent, a
reduction in employee-related costs in the consulting organization, partially
offset by a reduction in consulting revenue.
Selling and Marketing. The Company's products are distributed worldwide
through its direct sales organization as well as its strategic partners, which
include resellers and OEMs. Selling and marketing expenses decreased 16.8% in
fiscal 2000 to $5,736,000 from $6,895,000 in fiscal 1999. This decrease is
primarily the result of reduced headcount and related expenses in the sales
organization, partially offset by higher employee costs in the marketing
organization, and WTC OpCenter related costs for marketing programs and external
market research consultants in the first two quarters of fiscal 2000.
Research and Development. Research and development expenses decreased 17.0%
in fiscal 2000 to $5,520,000 from $6,654,000 in fiscal 1999. The decrease in
fiscal 2000 resulted primarily from reduced headcount and related expenses. As a
result of this expense decrease and the lower revenue level of the Company,
research and development expenses as a percentage of revenue was 71.7% in fiscal
2000 versus 77.1% in fiscal 1999.
General and Administrative. In fiscal 2000, general and administrative
expenses increased 13.8% to $2,006,000 from $1,762,000 in fiscal 1999. The
increase in general and administrative expenses in fiscal 2000 as compared to
fiscal 1999 is due to higher employee related costs and costs associated with
the hiring of a new president. As a percentage of revenue, general and
administrative expenses increased to 26.0% in fiscal 2000 from 20.4% in fiscal
1999.
Restructuring. Restructuring expenses were $1,303,000 for the fiscal year
ended March 31, 2000. These costs are associated with the discontinuance of the
WTC OpCenter product line and the resulting restructuring of the Company which
occurred in the third quarter of fiscal 2000. These charges include severance
costs, costs related to discontinuing the WTC OpCenter product line, asset
disposition and write-down costs, and other restructuring costs.
In October 1999, the Board of Directors authorized management actions that
resulted in the discontinuance of development and selling and marketing efforts
related to the WTC OpCenter product and the related restructuring of the
Company. The Company's actions resulted in the elimination of 33 positions, a
workforce reduction of approximately 35%, during the third quarter of fiscal
2000, of which six were from Services, which are typically reported in Total
cost of revenue, eleven from Research and development, fourteen from Selling and
marketing, and two from General and administrative.
Revenue from the license of WTC OpCenter products and related professional
services and maintenance were immaterial for fiscal year 2000. The Company does
not expect to have any further revenue related to the WTC OpCenter product line.
-11-
<PAGE>
During fiscal 2000, the Company recorded restructuring charges of
$1,303,000 and charges of $288,000 for the write-off of prepaid royalties
associated with the WTC OpCenter product line. Charges applied or paid during
the fiscal year were approximately $1,582,000. At March 31, 2000 the Company had
an accrual for restructuring charges of $9,000 related to the pending closing of
its Germany-based subsidiary, Workgroup Technology GmbH, which is expected to be
paid during fiscal year 2001.
The $1,591,000 of restructuring and other charges recorded in fiscal year
2000 include a write-off of prepaid third party royalties of $288,000 and an
asset write-down of $270,000, which are non-cash items. The remaining $1,033,000
of restructuring and other charges required, or will require, the use of cash.
The restructuring charges were determined based on formal plans approved by
the Company's management using information available to it at the time. The
Company does not expect to record any additional amounts related to this
restructuring.
The activity impacting the accrual for the discontinuance of the WTC
OpCenter product line and the related restructuring charges during fiscal year
2000 is summarized below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Charges Charges Balance at
to Cost of Charges to Applied March 31,
Revenue Operations or Paid 2000
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Workforce reductions $ - $ 618,000 $ 618,000 $ -
-----------------------------------------------------------------------------------------------------------------------
WTC OpCenter contract settlements - 280,000 280,000 -
-----------------------------------------------------------------------------------------------------------------------
Third-party royalty costs 288,000 - 288,000 -
-----------------------------------------------------------------------------------------------------------------------
Asset write-downs - 270,000 270,000 -
-----------------------------------------------------------------------------------------------------------------------
Other restructuring costs - 135,000 126,000 9,000
-----------------------------------------------------------------------------------------------------------------------
Totals $288,000 $1,303,000 $1,582,000 $9,000
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest and Other Income, Net. Interest and other income, net consists
primarily of interest earned on cash and cash equivalents and other income,
offset by interest expense associated with equipment financing. As a result of
lower average cash and cash equivalent balances during fiscal 2000, interest and
other income, net decreased 32.1% to $887,000 in fiscal 2000 from $1,306,000 in
fiscal 1999.
Fiscal 1999 Compared to Fiscal 1998
Revenue. The Company's revenue consists of license fees for its CMS and WTC
OpCenter software products and fees for professional services and software
maintenance. The Company had total revenue of $8,631,000 in fiscal 1999 as
compared to total revenue of $7,638,000 in fiscal 1998, an increase of $993,000
or 13.0%.
Software license revenue increased 2.3% in fiscal 1999 to $3,353,000 from
$3,277,000 in fiscal 1998. The revenue increase resulted primarily from sales of
the Company's knowledge-based program management product, WTC OpCenter, which
was first released in the third quarter of fiscal 1999.
Maintenance and services revenue increased 21.0% to $5,278,000 from
$4,361,000 in fiscal 1998. This increase resulted primarily from higher
maintenance revenue as a result of an increase in the customer maintenance base
and a higher rate of maintenance renewals from customers as well as an increase
in revenue from consulting services.
-12-
<PAGE>
Cost of Revenue and Gross Profit. The Company's cost of software license
revenue consists primarily of royalties payable to third parties upon the
license of products as well as costs associated with media, packaging,
documentation and delivery of the Company's products. Gross profit associated
with software license revenue for fiscal 1999 was $2,983,000 or 89.0% of
software license revenue versus $3,000,000 or 91.5% of software license revenue
in fiscal 1998. This decrease in gross margin resulted primarily from the mix of
products sold during each of the periods which required royalty payments to
another party as well as higher packaging costs associated with the initial
release of WTC OpCenter.
Cost of maintenance and services revenue consists primarily of personnel
and related costs for the Company's customer support and professional services
organizations. The Company's gross profit on maintenance and services revenue
increased to $2,086,000 in fiscal 1999 from $1,465,000 in fiscal 1998. As a
percentage of maintenance and services revenue, the gross margin increased to
39.5% in fiscal year 1999 from 33.6% in fiscal year 1998. This increase in gross
profit is due primarily to a favorable mix of higher margin maintenance revenue
for fiscal 1999 and, to a lesser extent, higher revenue productivity in the
consulting organization.
Selling and Marketing. The Company's products are distributed worldwide
through its direct sales organization as well as its strategic partners, which
include resellers and OEMs. Selling and marketing expenses increased 11.6% in
fiscal 1999 to $6,895,000 from $6,178,000 in fiscal 1998. This increase is
primarily attributable to higher recruiting and personnel costs resulting from
an increase in the number of employees in the selling and marketing
organizations as well as additional marketing program costs associated with the
release of WTC OpCenter.
Research and Development. Research and development expenses increased 15.8%
in fiscal 1999 to $6,654,000 from $5,747,000 in fiscal 1998. The increase in
fiscal 1999 resulted primarily from the increased use of external contractors to
develop and enhance the Company's products. As a result of this expense increase
and the higher revenue level of the Company, research and development expenses
as a percentage of revenue was 77.1% in fiscal 1999 versus 75.2% in fiscal 1998.
General and Administrative. In fiscal 1999, general and administrative
expenses decreased 24.1% to $1,762,000 from $2,323,000 in fiscal 1998. The
decrease in general and administrative expenses in fiscal 1999 as compared to
fiscal 1998 was due to expenses associated with the termination and recruitment
of several management positions in fiscal 1998. As a percentage of revenue,
general and administrative expenses decreased to 20.4% in fiscal 1999 from 30.4%
in fiscal 1998.
Interest and Other Income, Net. Interest and other income, net consists
primarily of interest earned on cash and cash equivalents. As a result of a
lower average cash balance and slightly lower interest rates during fiscal 1999,
net interest income decreased 26.5% to $1,306,000 in fiscal 1999 from $1,778,000
in fiscal 1998.
Provision for Income Taxes. For fiscal 1999, the provision for income taxes
decreased to zero from $70,000 for fiscal 1998. The fiscal 1998 provision for
taxes was attributable to state taxes as well as taxable income in the Company's
foreign subsidiaries, some of which have been closed.
Liquidity, Capital Resources and Market Risks
Cash and cash equivalents at March 31, 2000 decreased $9,644,000 to
$12,406,000 from $22,050,000 at March 31, 1999. This decrease results primarily
from cash used for operating activities of $9,095,000, which included
restructuring costs of $1,024,000, stock repurchases of $206,000 and capital
expenditures of $447,000 in fiscal 2000.
-13-
<PAGE>
In October 1998 and May 1999, the Board of Directors authorized the
repurchase, at management's discretion, of up to 500,000 and 250,000 shares,
respectively, of the Company's outstanding common stock, to be purchased from
time-to-time on the open market at prevailing prices. At March 31, 2000, the
Company had repurchased approximately 600,000 of the 750,000 shares authorized.
In May, 2000, the Board of Directors authorized the repurchase, at management's
discretion, of up to an additional 1,000,000 shares to be purchased from time-
to-time on the open market at prevailing prices. Subsequent to March 31, 2000
and as of May 31, 2000, no additional shares have been repurchased.
The Company believes its existing cash and cash equivalent balances will be
sufficient to meet its cash requirements for at least the next fiscal year.
During fiscal 2000, the Company did not own any derivative financial
instruments, or other financial and commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standard
No. 107. The Company holds no investment securities nor has it issued any debt
obligations which would require disclosure of market risk. Currently, the
Company does not engage in foreign currency hedging activities.
To date, neither foreign currency exposure nor inflation has had a material
impact on the Company's financial results.
Year 2000 Readiness Disclosure Statement
Last year, the Company discussed the nature and progress of its plans to
become Year 2000 ("Y2K") ready. In late 1999, the Company completed its
identification and Y2K testing of its software product offerings, internal
infrastructure and major suppliers. As a result of those efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company has not
experienced any material adverse effects on its products, including any problems
with third party software incorporated into its products, due to the transition
to Year 2000. The Company has not incurred any material costs in connection with
Y2K compliance to date and does not expect to incur any material levels of
expenditure on this issue during fiscal 2001. The Company will continue to
monitor its computer systems and those of its suppliers and vendors to ensure
that any latent Y2K matters that may arise are addressed promptly.
Certain Factors That May Affect Future Results
The Company does not provide forecasts of its future financial performance.
However, from time-to-time information provided by the Company or statements
made by its employees may contain "forward-looking" information that involves
risks and uncertainties. In particular, statements contained in filings with the
Securities and Exchange Commission, press releases and oral statements which are
not historical facts constitute forward-looking statements and are made under
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results of operations and financial condition have
varied and may in the future vary significantly from those stated in any
forward-looking statements and there can be no assurance that the results set
forth in those statements will be achieved.
The Company's future results are subject to substantial risks and
uncertainties. Because the Company derives a substantial portion of its revenue
from software license fees, the Company's quarterly and annual operating results
are sensitive to the size, timing and shipment of individual orders, customer
order deferrals in anticipation of new products or the lengthening of the sales
cycle either generally or with respect to individual customers. In addition, the
Company's continued growth is dependent on achieving broader market acceptance
of its products, including the recently introduced WTC ProductCenter and the
growth of
-14-
<PAGE>
the product data management market and the ability of the Company to introduce
enhancements and additional integrations to its products in a timely manner to
meet the evolving needs of its customers. The Company also relies on certain
intellectual property protections to preserve its intellectual property rights.
Any invalidation of the Company's intellectual property rights or lengthy and
expensive defense of those rights could have a material adverse effect on the
Company. The segment of the software industry in which the Company is engaged is
extremely competitive. Certain current and potential competitors of the Company
are more established and benefit from greater market recognition and have
substantially greater financial, development and marketing resources than the
Company.
The Company's quarterly and annual operating results are impacted by a
variety of factors that could materially adversely affect revenues and
profitability, including the timing and shipment of enhancements to the
Company's products and changes or anticipated changes in economic conditions.
Because the Company's operating expenses are relatively fixed, an unanticipated
shortfall in revenue in a quarter may have an adverse impact on the Company's
results of operations for that quarter. As a result of the foregoing and other
factors, the Company may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition and stock price.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are included herein and are
indexed under Item 14 (a) (1) - (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters in the last two years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item may be found under the sections
captioned "Election of Directors," "Occupations of Directors and Executive
Officers" and "Section 16 Reporting" in the Company's Proxy Statement (the "2000
Proxy Statement") for the Company's Annual Meeting of Stockholders to be held on
July 28, 2000, and is incorporated herein by reference. The 2000 Proxy Statement
will be filed with the Securities and Exchange Commission not later than 120
days after the close of the Company's year ended March 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
-15-
<PAGE>
The information required by this item may be found under the section
captioned "Compensation and Other Information Concerning Directors and Officers"
in the 2000 Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item may be found under the section
captioned "Management and Principal Holders of Voting Securities" in the 2000
Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item may be found under the section
captioned "Certain Transactions" in the 2000 Proxy Statement, and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants................................................................................ F-1
Consolidated Balance Sheets at March 31, 2000 and 1999........................................................... F-2
Consolidated Statements of Operations for the years ended March 31, 2000, 1999 and 1998.......................... F-3
Consolidated Statements of Stockholders' Equity for the years ended March 31, 2000, 1999 and 1998................ F-4
Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998.......................... F-5
Notes to Consolidated Financial Statements....................................................................... F-6
</TABLE>
(a)(2) Financial Statement Schedules:
All schedules for which provisions made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
-16-
<PAGE>
(a)(3) List of Exhibits.
The following exhibits are filed as part of and incorporated by reference
into, this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1) 1996 Stock Plan
10.2(2) Form of Incentive Stock Option Agreement under the 1996 Stock Plan
10.3(2) Form of Non-Qualified Stock Option Agreement under the 1996 Stock Plan
10.4(1) 1996 Employee Stock Purchase Plan
10.5(2) 1996 Employee Stock Purchase Plan Enrollment Authorization Form
10.6(1) 1996 Non-Employee Director Stock Option Plan
10.7(2) Form of Non-Qualified Stock Option Agreement under the 1996 Non-Employee
Director Stock Option Plan of the Registrant
10.8(1) Registration Rights Agreement between the Company and the Preferred Stockholders,
James Carney and James Simmons, as amended as of November 27, 1995
10.9(3) Master Lease Agreement between the Company and Mortimer B. Zuckerman and
Edward H. Linde, Trustees of 91 Hartwell Avenue Trust dated July 30, 1996
10.10(1) Form of Executive Management Incentive Compensation Plan of the Company
10.11(1) Form of Non-Competition Agreement between the Company, its executive officers
and founders
10.13(4) Employment Agreement between the Company and John P. McDonough
10.14(5) Form of Severance Agreement between the Company and certain executive officers
10.15* Employment Agreement between the Company and Patrick H. Kareiva
21.1(5) Subsidiaries of the Company
23.1* Consent of Independent Accountants (PricewaterhouseCoopers LLP)
24.1* Power of Attorney (see page 18)
27.1* Financial Data Schedule
</TABLE>
__________________
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 333-00810).
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
(5) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1999.
* Filed herewith.
(b) Reports On Form 8-K.
There were no reports on Form 8-K filed by the Company for the quarter
ended March 31, 2000.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WORKGROUP TECHNOLOGY CORPORATION
Date: May 31, 2000 By: /s/ Patrick H. Kareiva
---------------------------------------------------
Patrick H. Kareiva
President, Chief Executive Officer, Chief Financial
Officer, Director, Treasurer and Secretary
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officer and directors of Workgroup Technology
Corporation, hereby severally constitute and appoint Patrick H. Kareiva our true
and lawful attorney, with the power to sign for us and in our names in the
capacities indicated below, any amendments to this Report on Form 10-K, and
generally to do all things in our names and on our behalf in such capacities to
enable Workgroup Technology Corporation to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all the requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities indicated, on the 31st day of May, 2000.
<TABLE>
<CAPTION>
Signature Title(s)
--------- --------
<S> <C>
/s/ Patrick H. Kareiva President, Chief Executive Officer, Chief Financial
------------------------------------------------- Officer, Director, Treasurer and Secretary (Principal
Patrick H. Kareiva Executive Officer)
/s/ James M. Carney Director, Chairman of the Board
-------------------------------------------------
James M. Carney
/s/ Stephen J. Gaal Director
-------------------------------------------------
Stephen J. Gaal
/s/ Charles E. Moran Director
-------------------------------------------------
Charles E. Moran
</TABLE>
-18-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Workgroup Technology Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Workgroup Technology Corporation and its subsidiary (the "Company") at March 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 19, 2000, except for the information in Note J, as to which the date is
May 31, 2000
F-1
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and 1999
(dollars in thousands)
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 12,406 $ 22,050
Accounts receivable (net of allowance of
$60 in 2000 and $200 in 1999) 763 1,835
Prepaid expenses and other current assets 209 194
-------- --------
Total current assets 13,378 24,079
Property and equipment, net 696 1,318
-------- --------
Total assets $ 14,074 $ 25,397
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53 $ 593
Accrued expenses 989 1,582
Accrued vacation 83 258
Accrued royalties 50 341
Deferred revenue 2,496 2,509
-------- --------
Total current liabilities 3,671 5,283
Commitments (Note G)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; no shares issued or
outstanding at March 31, 2000 and 1999 - -
Common stock, $.01 par value; 30,000,000 shares
authorized; 8,670,635 and 8,511,635 shares
issued at March 31, 2000 and 1999, respectively 87 85
Additional paid-in capital 44,406 44,325
Treasury stock, at cost; 600,214 shares at
March 31, 2000 and 488,914 shares at
March 31, 1999 (1,361) (1,155)
Accumulated deficit (32,729) (23,110)
Accumulated other comprehensive loss - (31)
-------- --------
Total stockholders' equity 10,403 20,114
-------- --------
Total liabilities and stockholders'
equity $ 14,074 $ 25,397
======== ========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal years ended March 31, 2000, 1999 and 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software licenses $ 1,954 $ 3,353 $ 3,277
Maintenance and services 5,749 5,278 4,361
-------- --------- --------
Total revenue 7,703 8,631 7,638
Cost of revenue:
Cost of software licenses 558 370 277
Cost of maintenance and services 3,086 3,192 2,896
-------- --------- --------
Total cost of revenue 3,644 3,562 3,173
-------- --------- --------
Gross profit 4,059 5,069 4,465
Operating expenses:
Selling and marketing 5,736 6,895 6,178
Research and development 5,520 6,654 5,747
General and administrative 2,006 1,762 2,323
Restructuring 1,303 - -
-------- --------- --------
Total operating expenses 14,565 15,311 14,248
-------- --------- --------
Loss from operations (10,506) (10,242) (9,783)
Interest and other income, net 887 1,306 1,778
-------- --------- --------
Loss before income taxes (9,619) (8,936) (8,005)
Provision for income taxes - - 70
-------- --------- --------
Net loss $ (9,619) $ (8,936) $ (8,075)
======== ========= ========
Basic and diluted net loss per common share $ (1.20) $ (1.07) $ (0.98)
Weighted average basic and diluted shares outstanding 8,012 8,360 8,226
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended March 31, 2000, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Treasury Stock Additional Other Total
------------ -------------- Paid-in Accumulated Comprehensive Comprehensive Stockholders'
Shares Amount Shares Amount Capital Deficit Income (Loss) Loss Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 8,115 $ 81 $43,955 $ (6,099) $ (10) $ 37,927
Sale of stock under stock plans 253 3 187 190
Comprehensive loss:
Net loss (8,075) $(8,075) (8,075)
Foreign currency translation
adjustment (3) (3) (3)
-----
Comprehensive loss (8,078)
---------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 8,368 84 44,142 (14,174) (13) 30,039
---------------------------------------------------------------------------------------------------------------------------------
Sale of stock under stock plans 144 1 183 184
Repurchase of common stock (489) $(1,155) (1,155)
Comprehensive loss:
Net loss (8,936) (8,936) (8,936)
Foreign currency translation
adjustment (18) (18) (18)
-----
Comprehensive loss (8,954)
---------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 8,512 85 (489) (1,155) 44,325 (23,110) (31) 20,114
---------------------------------------------------------------------------------------------------------------------------------
Sale of stock under stock plans 159 2 81 83
Repurchase of common stock (111) (206) (206)
Comprehensive loss:
Net loss (9,619) (9,619) (9,619)
Foreign currency translation
adjustment $ 31 31
-----
Comprehensive loss $(9,619)
---------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 8,671 $ 87 (600) $(1,361) $44,406 $(32,729) - $ 10,403
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years ended March 31, 2000, 1999 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,619) $ (8,936) $ (8,075)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 791 944 776
Equity-based compensation - - 73
Provision for doubtful accounts (4) - 150
Loss on disposal of assets 278 16 88
Changes in operating assets and liabilities:
Accounts receivable 1,076 (338) 532
Prepaid expenses and other current assets (16) 15 92
Other assets 1 16 10
Accounts payable (540) (438) 371
Accrued expenses (583) (160) 731
Accrued vacation (175) 29 (42)
Accrued royalties (291) 202 (42)
Deferred revenue (13) 625 90
----------- ---------- ----------
Net cash used in operating activities (9,095) (8,025) (5,246)
Cash flows from investing activities:
Purchases of property and equipment (447) (704) (1,099)
Cash flows from financing activities:
Proceeds from issuance of common stock 83 184 190
Payments for common stock repurchases (206) (1,155) -
Payments of capital lease obligations (10) (11) (14)
---------- ---------- ----------
Net cash provided by (used in) financing activities (133) (982) 176
Effect of exchange rate changes on cash 31 (18) (3)
---------- ---------- ----------
Net decrease in cash and cash equivalents (9,644) (9,729) (6,172)
Cash and cash equivalents, beginning of year 22,050 31,779 37,951
---------- ---------- ----------
Cash and cash equivalents, end of year $ 12,406 $ 22,050 $ 31,779
========== ========== ==========
Supplemental cash flow information:
Interest paid $ 3 $ 2 $ 2
Income taxes paid $ 7 $ 21 $ 22
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Nature of the Business
----------------------
Workgroup Technology Corporation (the "Company"), incorporated on May 11,
1992, provides collaborative product data management solutions through its
WTC ProductCenter family of products (formerly CMS). The Company's products
and services provide product development organizations with product content
management and process automation to optimize the product development
process throughout the extended enterprise, including customers, partners
and the supply chain.
B. Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany transactions
and balances have been eliminated.
Revenue Recognition
The Company's standard end user license agreement for the Company's
products provides for an initial fee to use the product in perpetuity up to
a maximum number of users. Fees from licenses are recognized as revenue
upon contract execution, provided all shipment obligations have been met,
fees are fixed or determinable, and collection is probable. Fees from
licenses sold together with consulting services are generally recognized
upon shipment provided that the above criteria have been met and payment of
the license fees is not dependent upon the performance of the consulting
services. Payments received in advance for services, development or product
are initially recorded as deferred revenue. Revenue from training and
consulting is recognized as the services are performed. Maintenance and
support revenue is recognized ratably over the contract term, typically one
year.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
currency. Assets and liabilities are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date and income and expense
items are translated at the average rates for the period. The effect of
such translations are included in net earnings for the year ended March 31,
2000, but were excluded from net earnings and accumulated as a separate
component of stockholders' equity for the years ended March 31, 1999 and
1998. Transaction gains and losses from foreign currency transactions have
not been material to date.
Cash Equivalents
Cash equivalents consist of commercial paper and money market mutual funds
with remaining maturities at acquisition of three months or less and are
carried at cost plus accrued interest which approximates market value.
The Company has approximately $155,000 of restricted cash included in the
March 31, 2000 and 1999 cash balances. This restricted cash serves as
collateral for a letter of credit obtained in fiscal year 1997 related to
the Company's property lease.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided under
the straight-line method based upon the following estimated useful lives:
Asset Classification Estimated Useful Life
-------------------- ---------------------
Computer software 3 years
Furniture and fixtures 3 years
Equipment 2 or 3 years
Leasehold improvements Estimated useful life of
and equipment under the asset or term of the
capital leases lease, whichever is
shorter
Major replacements of, or improvements to, property and equipment are
capitalized. Minor replacements, repairs and maintenance are charged to
expense as incurred. Upon retirement or sale, the cost of the assets
disposed and the related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recorded in operations.
Research and Development Costs
Research and development costs are charged to operations as incurred. The
Company capitalizes eligible software costs incurred after technological
feasibility of the product has been established. The Company believes it
has achieved technological feasibility when the working model has been
established, which is typically demonstrated by beta shipment. Qualifying
capitalized costs for the years ended March 31, 2000, 1999 and 1998 have
been immaterial and, therefore, the Company has not capitalized such costs.
Royalty Expense
Royalty expense with respect to sales of product under royalty agreements
is recorded as cost when the revenue is recognized.
Income Taxes
The Company uses the asset and liability approach in its method of
accounting for income taxes which requires the recognition of deferred tax
liabilities and assets for expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance against deferred tax assets is recorded
if, based upon weighted available evidence, it is
F-6
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
more likely than not that some or all of the deferred tax assets will not
be realized.
Basic and Diluted Net Loss Per Common Share
The Company's basic net loss per common share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding
and diluted net loss per common share is based on the same computation and
includes dilutive potential common shares. Potential common shares include
shares issuable upon the exercise of stock options or warrants, net of
shares assumed to have been purchased by the Company with the related
proceeds. Potential common shares, which consisted only of stock options,
were antidilutive for fiscal years 2000, 1999 and 1998 and therefore the
basic and diluted net loss per common share were the same for those
periods.
The following table sets forth for the periods indicated, the options to
purchase shares of the Company's common stock:
March 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
Number of shares 1,040,000 1,996,000 1,726,000
Weighted average
exercise price $3.69 $3.65 $3.95
Comprehensive Income
The Company adopted Statement of Financial Accounting Standard ("SFAS") No.
130 "Reporting Comprehensive Income" in fiscal 1999, which requires that
changes in comprehensive income be shown in a financial statement that is
displayed with the same prominence as other financial statements. The
Company has presented accumulated other comprehensive loss and
comprehensive loss on the Consolidated Statements of Stockholders' Equity
in accordance with this standard.
New Accounting Standards
In November 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 100, Restructuring and Impairment Charges, which
clarifies the accounting for and the disclosure of certain expenses
commonly reported in connection with exit activities and business
combinations, and the recognition of impairment charges for intangible
assets and other long-lived assets. In December 1999 the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, which among other guidance clarifies
certain conditions to be met in order to recognize revenue. These Staff
accounting Bulletins are not expected to have a material effect on the
Company's financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in
FIN 44 cover specific events that occurred after either December 15, 1998
or January 12, 2000. The Company does not expect the application of FIN 44
to have a material impact on the Company's financial position or results of
operations.
The Company will adopt SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" in fiscal 2002. This Statement provides
comprehensive guidance on accounting for derivative instruments, including
certain derivatives that are embedded in other contracts, and hedging
activities. The Company believes that adoption of this Statement will not
have a material effect on its financial statements.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates and would impact future results of operations and cash flows.
The Company invests its cash primarily in commercial paper and money market
mutual funds with a large commercial bank. The Company has not experienced
any losses to date on its invested cash.
The Company sells its products to a wide variety of customers in a variety
of industries. The Company performs ongoing credit evaluations of its
customers but does not require collateral or other security to support
customer receivables. The Company believes any credit losses will not be
material. The Company recorded write-offs of accounts receivable in fiscal
years 2000 and 1999 of $144,000 and $2,000, respectively.
F-7
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. Property and Equipment
----------------------
Property and equipment consisted of the following:
(in thousands) March 31,
----------------
2000 1999
------- -------
Computer software $ 529 $ 563
Furniture and fixtures 127 134
Equipment 1,647 2,535
Leasehold improvements 166 92
------- -------
2,469 3,324
Less accumulated
depreciation and amortization (1,773) (2,006)
------- -------
$ 696 $ 1,318
======= =======
D. Stockholders' Equity
--------------------
Preferred Stock
The Board of Directors was authorized upon the closing of the Initial
Public Offering, subject to certain limitations prescribed by law, without
further stockholder approval, to issue from time-to-time up to an aggregate
of 1,000,000 shares of preferred stock in one or more series and to fix or
alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares
constituting any series or designation of such series.
Treasury Stock
In October 1998 and May 1999, the Board of Directors authorized the
repurchase, at management's discretion, of up to 500,000 and 250,000
shares, respectively, of the Company's outstanding common stock, to be
purchased from time-to-time on the open market at prevailing prices. The
Company's repurchases of shares of Common Stock are recorded as Treasury
Stock and result in a reduction of Stockholders' Equity. At March 31, 2000,
the Company had repurchased approximately 600,000 of the 750,000 shares
authorized.
Stock Plans
At March 31, 2000, the Company had four stock-based compensation plans
which are described below. SFAS No. 123 "Accounting for Stock-Based
Compensation" requires that companies either recognize compensation expense
for grants of stock, stock options and other equity instruments based on
fair value or provide a pro forma basis disclosure of net income (loss) and
earnings (loss) per share which reflects such compensation expense in the
notes to the financial statements. The Company adopted the disclosure
provisions of SFAS No. 123 in fiscal year 1997 and has continued to apply
APB Opinion 25 and related Interpretations in accounting for its plans. The
Company recognized $73,000 of compensation cost for its fixed stock option
plans in fiscal year 1998, and no compensation cost in fiscal years 2000
and 1999. Had compensation cost for the Company's four stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No.
123, the Company's loss and loss per share would have been on a pro forma
basis:
(in thousands, except per share amounts)
2000 1999 1998
---- ---- ----
Net loss
As reported $ (9,619) $ (8,936) $(8,075)
Pro forma $(10,388) $(10,537) $(9,487)
Net loss per share
As reported $ (1.20) $ (1.07) $ (0.98)
Pro forma $ (1.30) $ (1.26) $ (1.15)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
2000 1999 1998
---- ---- ----
Expected volatility 97.74% 79.7% 80.3%
Risk-free interest rates 6.1% 5.0% 6.0%
Dividend rate 0% 0% 0%
Expected life 5 years 5 years 5 years
The weighted-average fair value of options granted during fiscal year 2000,
1999 and 1998 is estimated as $1.14, $2.10 and $2.82, respectively. The
effects of applying SFAS No. 123 in this pro forma disclosure are not an
indication of future amounts.
Stock Option Plans
The Company has three fixed stock option plans. The 1992 and 1996 Stock
Option Plans provide for the granting of incentive stock options to
employees to purchase common stock at not less than the fair market value
per share of common stock on the date of the grant. The Plans also provide
for the granting of nonqualified stock options, stock awards and purchase
rights to employees, consultants, directors and officers of the Company.
The options generally become exercisable ratably over four or five years
from the date of grant and expire ten years from the date of grant. In
January 1996, the Board of Directors terminated the granting of options
under the 1992 plan. At March 31, 2000, 2,071,527 shares were available for
grant under the 1996 Plan.
The Company's 1996 Non-Employee Director Stock Option Plan (the "Director
Option Plan") provides for the granting of options to purchase a maximum of
100,000 shares of Common Stock of the Company to non-employee directors.
Under the Director Option Plan, each non-employee director
F-8
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shall receive an option to purchase 15,000 shares of the Company's Common
Stock upon the later of (i) the effective date of an IPO, or (ii) the date
on which the director first is elected to the Board of Directors. Each non-
employee director who is still a member of the Board of Directors upon the
full vesting of this most recently granted option under the Director Option
Plan shall receive additional options to purchase 15,000 shares of Common
Stock. All options granted under the Director Option Plan vest in twelve
equal quarterly installments beginning three months from the date of grant.
All options granted under the Director Option Plan will have an exercise
price equal to the fair market value of the Common Stock on the date of
grant. The term of each option will be for a period of ten years from the
date of grant. At March 31, 2000, 55,000 shares were available for grant
under the Director Option Plan.
The following is a summary of the Company's stock option plans as of March
31, 1998, 1999 and 2000 and changes during the years ending on those dates:
(in thousands, except per share amounts)
Weighted
Number Average
of Shares Exercise Price
--------- --------------
Options outstanding
at March 31, 1997 1,292 $3.08
Granted 1,180 4.13
Exercised (228) 0.43
Canceled (518) 3.74
------
Options outstanding
at March 31, 1998 1,726 3.95
Granted 786 3.11
Exercised (116) 0.42
Canceled (400) 4.79
------
Options outstanding
at March 31, 1999 1,996 3.65
Granted 429 1.49
Exercised (127) 0.35
Canceled (1,258) 3.22
------
Options outstanding
at March 31, 2000 1,040 3.69
Weighted
Number Average
of Shares Exercise Price
--------- --------------
Price range $0.15 - $0.94
(remaining contractual life of 4.6 years)
Outstanding 47 $ 0.35
Exercisable 40 0.26
Price range $1.03 - $2.00
(remaining contractual life of 7.6 years)
Outstanding 226 1.55
Exercisable 41 1.81
Price range $2.03 - $4.00
(remaining contractual life of 2.3 years)
Outstanding 345 3.63
Exercisable 280 3.77
Price range $4.06 - $8.50
(remaining contractual life of 1.9 years)
Outstanding 405 4.83
Exercisable 356 4.81
Price range $15.00 - $25.75
(remaining contractual life of 5.4 years)
Outstanding 17 16.00
Exercisable 17 16.00
Options exercisable, March 31
1998 285 $ 3.27
1999 616 3.72
2000 733 4.25
Employee Stock Purchase Plan
The 1996 Employee Stock Purchase Plan provides for the issuance of up to
350,000 shares of Common Stock to eligible employees. The shares are
issuable at the lesser of 85% of the average market price on the first or
last business day of each semiannual period.
The following is a summary of shares issued under this plan:
2000 1999 1998
---- ---- ----
Shares 31,246 28,411 25,996
Weighted average fair
value $ 0.48 $ 0.74 $ 1.16
F-9
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E. Benefit Plan
------------
The Company maintains the Workgroup Technology Corporation 401(k) Plan (the
"401(k) Plan") for all eligible employees which provides for matching
employer contributions determined annually by the Board of Directors. There
have been no matching employer contributions made to the 401(k) Plan as of
March 31, 2000.
F. Income Taxes
------------
In fiscal years 2000 and 1999, no provision for taxes was reflected in the
Consolidated Statements of Operations since the Company was in a loss
position. In fiscal year 1998, the provision for income taxes reflects
foreign and state income taxes.
Deferred income taxes represent the tax effects of transactions which are
reported in different periods for financial and tax reporting purposes.
The components of deferred tax assets and liabilities are as follows:
(in thousands)
March 31,
--------------
2000 1999
---- ----
Deferred tax assets:
Net operating
loss carryforwards $ 12,438 $ 8,513
Research & development
credit carryforwards 1,577 1,187
Depreciation & amortization 156 153
Vacation accrual 33 104
Other 30 -
Rent 29 35
-------- --------
Gross deferred tax assets 14,263 9,992
Valuation allowance (14,263) (9,992)
-------- --------
Net deferred tax assets $ - $ -
======== ========
At March 31, 2000, the Company has available net operating loss
carryforwards of approximately $30,900,000 which it may use to offset
future federal taxable income. The net operating loss carryforwards, if not
utilized, will begin to expire in 2008 for federal purposes and 2002 for
state tax purposes. The utilization of the net operating loss and credit
carryforwards for income tax purposes may be restricted due to limitations
which arise because of a change of ownership. The Company also has
available research and development credits of $999,000 and $876,000 for
federal and state purposes, respectively. The research and development
credits, if not utilized, will expire from 2008 through 2015. Due to the
uncertainty of the realization of deferred tax assets, a full valuation
allowance has been recorded.
G. Commitments
-----------
Lease Commitments
The Company leases the facility it occupies under a noncancelable operating
lease agreement which expires September 30, 2001. Total rent expense for
the years ended March 31, 2000, 1999 and 1998 was $718,000, $748,000 and
$682,000, respectively. The future minimum payments under such commitments
as of March 31, 2000 are as follows:
(in thousands)
Fiscal Year Future Minimum Payments
----------- -----------------------
2001 $ 668
2002 341
H. Segment Information
-------------------
The Company operates in one segment. Export sales for the years ended March
31, 2000, 1999 and 1998 were approximately $90,000, $126,000 and $414,000,
respectively (including $75,000, $46,000 and $39,000 of sales into Japan,
respectively).
I. Restructuring
-------------
Restructuring expenses were $1,303,000 for the fiscal year ended March 31,
2000. These costs are associated with the discontinuance of the WTC
OpCenter product line and the resulting restructuring of the Company which
occurred in the third quarter of fiscal 2000. These charges include
severance costs, costs related to discontinuing the WTC OpCenter product
line, asset disposition and write-down costs, and other restructuring
costs.
In October 1999, the Board of Directors authorized management actions that
resulted in the discontinuance of development and selling and marketing
efforts related to the WTC OpCenter product and the related restructuring
of the Company. The Company's actions resulted in the elimination of 33
positions, a workforce reduction of approximately 35%, during the third
quarter of fiscal 2000, of which six were from Services, which are
typically reported in Total cost of revenue, eleven from Research and
development, fourteen from Selling and marketing, and two from General and
administrative.
Revenue from the license of WTC OpCenter products and related professional
services and maintenance were immaterial for fiscal year 2000. The Company
does not expect to have any further revenue related to the WTC OpCenter
product line.
F-10
<PAGE>
During fiscal 2000, the Company recorded restructuring charges of
$1,303,000 and charges of $288,000 for the write-off of prepaid royalties
associated with the WTC OpCenter product line. Charges applied or paid
during the fiscal year were approximately $1,582,000. At March 31, 2000 the
Company had an accrual for restructuring charges of $9,000 related to the
pending closing of its Germany-based subsidiary, Workgroup Technology GmbH,
which is expected to be paid during fiscal year 2001.
The $1,591,000 of restructuring and other charges recorded in fiscal year
2000 include a write-off of prepaid third party royalties of $288,000 and
an asset write-down of $270,000, which are non-cash items. The remaining
$1,033,000 of restructuring and other charges required, or will require,
the use of cash.
The restructuring charges were determined based on formal plans approved by
the Company's management using information available to it at the time. The
Company does not expect to record any additional amounts related to this
restructuring.
The activity impacting the accrual for the discontinuance of the WTC
OpCenter product line and the related restructuring charges during fiscal
year 2000 is summarized below:
--------------------------------------------------------------------------------
Charges Charges Balance at
to Cost of Charges to Applied March 31,
Revenue Operations or Paid 2000
--------------------------------------------------------------------------------
Workforce reductions $ - $ 618,000 $ 618,000 $ -
--------------------------------------------------------------------------------
WTC OpCenter contract - 280,000 280,000 -
settlements
--------------------------------------------------------------------------------
Third-party royalty costs 288,000 - 288,000 -
--------------------------------------------------------------------------------
Asset write-downs - 270,000 270,000 -
--------------------------------------------------------------------------------
Other restructuring costs - 135,000 126,000 9,000
--------------------------------------------------------------------------------
Totals $288,000 $1,303,000 $1,582,000 $ 9,000
--------------------------------------------------------------------------------
J. Subsequent Event
----------------
On May 31, 2000, the Board of Directors authorized the repurchase, at
management's discretion, of up to 1,000,000 shares of the Company's
outstanding common stock, to be purchased from time-to-time on the open
market at prevailing prices. Subsequent to March 31, 2000 and as of May 31,
2000, no additional shares have been repurchased.
F-11
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
INDEX TO EXHIBITS FILED WITH FORM 10-K
YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of the Company
3.2(1) Amended and Restated By-Laws of the Company
4.1(1) Specimen certificate representing the Common Stock
10.1(1) 1996 Stock Plan
10.2(2) Form of Incentive Stock Option Agreement under the 1996 Stock Plan
10.3(2) Form of Non-Qualified Stock Option Agreement under the 1996 Stock Plan
10.4(1) 1996 Employee Stock Purchase Plan
10.5(2) 1996 Employee Stock Purchase Plan Enrollment Authorization Form
10.6(1) 1996 Non-Employee Director Stock Option Plan
10.7(2) Form of Non-Qualified Stock Option Agreement under the 1996 Non-Employee
Director Stock Option Plan of the Registrant
10.8(1) Registration Rights Agreement between the Company and the Preferred Stockholders,
James Carney and James Simmons, as amended as of November 27, 1995
10.9(3) Master Lease Agreement between the Company and Mortimer B. Zuckerman and
Edward H. Linde, Trustees of 91 Hartwell Avenue Trust dated July 30, 1996
10.10(1) Form of Executive Management Incentive Compensation Plan of the Company
10.11(1) Form of Non-Competition Agreement between the Company, its executive officers
and founders
10.13(4) Employment Agreement between the Company and John P. McDonough
10.14(5) Form of Severance Agreement between the Company and certain executive officers
10.15* Employment Agreement between the Company and Patrick H. Kareiva
21.1(5) Subsidiaries of the Company
23.1* Consent of Independent Accountants (PricewaterhouseCoopers LLP)
24.1* Power of Attorney (see page 18)
27.1* Financial Data Schedule
</TABLE>
__________________
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 333-00810).
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
(5) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1999.
* Filed herewith.
