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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 : 0-22350
MERCURY INTERACTIVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0224776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1325 Borregas Avenue, Sunnyvale, California 94089
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 822-5200
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 a 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
The number of shares of Registrant's Common Stock outstanding as of July 31,
2000 was 79,870,556.
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MERCURY INTERACTIVE CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 4. Submission of Matters to a Vote of Stockholders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 21
INDEX TO EXHIBITS 22
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PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
MERCURY INTERACTIVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited) (audited)
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $155,737 $113,346
Short-term investments 43,170 57,981
Trade accounts receivable, net 41,882 40,399
Other receivables 6,495 6,325
Prepaid expenses and other assets 19,302 16,702
-------- --------
Total current assets $266,586 234,753
Long-term investments 46,903 15,555
Property and equipment, net 54,302 46,910
-------- --------
$367,791 $297,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,577 $ 8,469
Accrued liabilities 38,934 33,433
Income taxes payable 24,943 19,945
Deferred revenue 60,117 35,840
-------- --------
Total current liabilities 133,571 97,687
-------- --------
Stockholders' equity:
Common stock 160 156
Capital in excess of par value 162,729 148,826
Notes receivable from issuance of stock (6,408) (5,090)
Accumulated other comprehensive loss (1,360) (1,242)
Retained earnings 79,099 56,881
-------- --------
Total stockholders' equity 234,220 199,531
-------- --------
$367,791 $297,218
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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MERCURY INTERACTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- -----------------------
2000 1999 2000 1999
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
License $ 48,500 $ 29,300 $ 90,500 $ 53,900
Service 21,100 13,200 39,500 26,200
--------- --------- --------- ---------
Total revenue 69,600 42,500 130,000 80,100
--------- --------- --------- ---------
Cost of revenue:
License 3,730 1,870 6,636 3,506
Service 6,590 4,441 12,058 8,513
--------- --------- --------- ---------
Total cost of revenue 10,320 6,311 18,694 12,019
--------- --------- --------- ---------
Gross profit 59,280 36,189 111,306 68,081
--------- --------- ---------- ---------
Operating expenses:
Research and development 8,460 5,866 15,560 11,102
Marketing and selling 34,674 20,380 66,732 39,511
General and administrative 3,840 2,797 7,077 5,127
--------- --------- --------- ---------
Total operating expenses 46,974 29,043 89,369 55,740
--------- --------- --------- ---------
Income from operations 12,306 7,146 21,937 12,341
Other income, net 3,228 1,406 5,836 2,559
--------- --------- ---------- ---------
Income before provision for income taxes 15,534 8,552 27,773 14,900
Provision for income taxes 3,107 1,840 5,555 3,238
---------- --------- --------- --------
Net income $ 12,427 $ 6,712 $ 22,218 $ 11,662
=========== ========== =========== ==========
Net income per share (basic) $ 0.16 $ 0.09 $ 0.28 $ 0.16
=========== ========== =========== ==========
Net income per share (diluted) $ 0.14 $ 0.08 $ 0.24 $ 0.14
========= ========= ========== =========
Weighted average common shares (basic) 79,507 75,394 79,225 74,914
========= ========= ========== =========
Weighted average common shares
and equivalents (diluted) 91,282 83,804 91,245 83,557
========= ========= ========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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MERCURY INTERACTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 22,218 $ 11,662
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,863 2,755
Changes in assets and liabilities:
Trade accounts receivable, net (1,483) 3,074
Other receivables (170) 393
Prepaid expenses and other assets (2,600) (272)
Accounts payable 1,108 124
Accrued liabilities 5,501 4,186
Income taxes payable 4,998 882
Deferred revenue 24,277 5,407
--------- ---------
Net cash provided by operating activities 57,712 28,211
--------- ---------
Cash flows from investing activities:
Purchases of investments, net (16,537) (26,520)
Acquisition of property and equipment, net (11,255) (5,858)
--------- ---------
Net cash used in investing activities (27,792) (32,378)
--------- ---------
Cash flows from financing activities:
Issuance of common stock, net of related notes receivable 12,589 8,088
--------- ---------
Net cash provided by financing activities 12,589 8,088
--------- ---------
Effect of exchange rate changes on cash (118) (285)
--------- ---------
Net increase in cash and cash equivalents 42,391 3,636
Cash and cash equivalents at beginning of period 113,346 96,836
--------- ---------
Cash and cash equivalents at end of period $ 155,737 $ 100,472
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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MERCURY INTERACTIVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, that in the
opinion of management are necessary to fairly state the Company's
consolidated financial position, the results of its operations, and its
cash flows for the periods presented. This Quarterly Report on Form 10-Q
should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1999, included in the 1999 Form
10-K. The condensed consolidated statements of operations for the three
and six months ended June 30, 2000 are not necessarily indicative of
results to be expected for the entire fiscal year ended December 31, 2000.
Certain prior quarter amounts have been reclassified to conform with the
current quarter presentation.
2. The effective tax rate for the three and six months ended June 30, 2000
differs from statutory tax rates principally because of special reduced
taxation programs sponsored by the government of Israel.
3. Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
("SFAS 128"). SFAS 128 requires the reporting of both basic earnings per
share, which is the weighted-average number of common shares outstanding,
and diluted earnings per share, which is the weighted-average number of
common shares outstanding and all dilutive potential common shares
outstanding. For the three and six months ended June 30, 2000 and 1999,
dilutive potential common shares outstanding reflects shares issuable under
the Company's stock option plans. The following table summarizes the
Company's earnings per share computations for the quarters ended June 30,
1999 and 2000 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Net Average Earnings
income shares per share
------- ------- ---------
<S> <C> <C> <C>
June 30, 1999:
Basic earnings per share..... $ 6,712 75,394 $0.09
Dilutive adjustments......... - 8,410
------- ------
Diluted earnings per share... $ 6,712 83,804 $0.08
======= ======
June 30, 2000:
Basic earnings per share..... $12,427 79,507 $0.16
Dilutive adjustments......... - 11,775
------- ------
Diluted earnings per share... $12,427 91,282 $0.14
======= ======
</TABLE>
At June 30, 2000 there were 123,500 options considered anti-dilutive. At
June 30, 1999 there were no options considered anti-dilutive.
4. The Company reports components of comprehensive income in its annual
consolidated statements of stockholders' equity. Comprehensive income
consists of net income and foreign currency translation adjustments. The
Company's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 12,427 $ 6,712 $ 22,218 $ 11,662
Other comprehensive loss (58) (34) (118) (285)
------------- ------------- ------------- -------------
Comprehensive income $ 12,369 $ 6,678 $ 22,100 $ 11,377
============= ============= ============= =============
</TABLE>
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5. The Company has three reportable operating segments including the Americas,
Europe, and the Rest of the World, which includes Israel. These segments
are organized, managed and analyzed geographically and operate in one
industry segment: the development, marketing, and selling of integrated
performance management solutions. The Company evaluates operating segment
performance based primarily on net revenues and certain operating expenses.
The Company's products are marketed and sold internationally through the
Company's subsidiaries and through indirect distribution channels such as
system integrators, distributors and value-added resellers. Financial
information for the Company's operating segments is summarized below for
the three and six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenue to third parties:
Americas......................................... $ 47,300 $ 28,800 $ 88,500 $ 53,200
Europe........................................... 17,000 10,700 30,900 21,100
Rest of the World................................ 5,300 3,000 10,600 5,800
------------- ------------- ------------- -------------
Consolidated.................................. $ 69,600 $ 42,500 $ 130,000 $ 80,100
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- ----------------
(unaudited) (audited)
<S> <C> <C>
Identifiable assets:
Americas........................................................................ $ 238,780 $ 200,854
Europe 22,035 25,389
Rest of the World............................................................... 106,976 70,975
============= =============
Consolidated................................................................... $ 367,791 $ 297,218
============= =============
</TABLE>
Sales through the United Kingdom subsidiary accounted for 11% and 10% of
the consolidated net revenue to unaffiliated customers for the three and
six months ended June 30, 2000, respectively, and accounted for 11% of the
consolidated net revenue to unaffiliated customers for both the three and
six months ended June 30, 1999. Operations located in Israel accounted for
27% and 22% of the consolidated identifiable assets at June 30, 2000 and
December 31, 1999, respectively. No other subsidiary represented 10% or
more of the related consolidated amounts for the periods presented.
6. In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133--an amendment of FASB Statement No. 133" ("SFAS 137").
SFAS 137 defers for one year the application of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") for the Company to the first quarter of
2001. SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. The adoption of SFAS 133 and
SFAS 137 is not expected to have a material effect on the Company's results
of operations, financial position or cash flows.
7. In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," ("SAB 101") which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with
the SEC. SAB 101 outlines the basic criteria that must be met to recognize
revenue and provides guidance for disclosures related to revenue
recognition policies. The adoption of SAB 101 has not had and is not
expected to have a material effect on the Company's results of operations,
financial position or cash flows.
8. In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of Accounting Practice Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") regarding (a) the
definition of employee for purposes of applying APB
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25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after
either December 15, 1998, or January 12, 2000. To the extent that FIN 44
covers events occurring during the period after December 15, 1998, or
January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective
basis from July 1, 2000. The adoption of FIN 44 is not expected to have a
material effect on the Company's results of operations, financial position
or cash flows.
9. In July 2000, the Company issued $500,000,000 in convertible subordinated
notes. The notes mature on July 1, 2007 and bear interest at a rate of
4.75% per annum, payable semiannually on January 1 and July 1 of each year.
The notes are convertible into shares of the Company's common stock at any
time prior to maturity at a conversion price of approximately $111.25 per
share, subject to adjustment under certain conditions. The notes may be
redeemed, in whole or in part, by the Company at any time on or after July
1, 2003. Accrued interest to the redemption date will be paid by the
Company in each redemption.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. In some cases, forward-looking
statements are identified by words such as "believes," "anticipates," "expects,"
"intends," "plans," "will," "may" and similar expressions. In addition, any
statements that refer to our plans, expectations, strategies or other
characterizations of future events or circumstances are forward-looking
statements. Our actual results could differ materially from those discussed in,
or implied by, these forward-looking statements. Factors that could cause actual
results or conditions to differ from those anticipated by these and other
forward-looking statements include those more fully described in "Risk Factors."
Our business may have changed since the date hereof, and we undertake no
obligation to update the forward-looking statements in this Quarterly Report on
Form 10-Q.
Results of Operations
Revenue
License revenue increased 66% to $48.5 million for the three months ended
June 30, 2000 from $29.3 million for the three months ended June 30, 1999.
License revenue increased 68% to $90.5 million for the six months ended June 30,
2000 from $53.9 million for the six months ended June 30, 1999. Our growth in
license revenue is attributable primarily to growth in license fees from
LoadRunner, WinRunner and TestDirector products as well as revenues from our new
application performance management products.
Service revenue increased 60% to $21.1 million for the three months ended
June 30, 2000 from $13.2 million for the three months ended June 30, 1999.
Service revenue increased 51% to $39.5 million for the six months ended June 30,
2000 from $26.2 million for the six months ended June 30, 1999. The increase in
our service revenue was primarily due to the renewal of maintenance contracts.
We expect that service revenue will continue to increase in absolute dollars as
long as our customer base continues to grow.
Cost of revenue
License cost of revenue, as a percentage of license revenue, increased to
8% for the three months ended June 30, 2000 from 6% in the three months ended
June 30, 1999. License cost of revenue, as a percentage of license revenue, was
7% for both the three and six months ended June 30, 2000 and June 30, 1999. The
increased license cost of revenue as a percentage of license revenue for the
three months ended June 30, 2000 was primarily due to the investment in our
hosted e-service business infrastructure.
Service cost of revenue, as a percentage of service revenue, was 31% for
both the three and six months ended June 30, 2000, respectively, compared to 34%
and 32% for the three and six months ended June 30, 1999,
8
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respectively. Service cost of revenue consists primarily of costs of providing
customer technical support, training and consulting. Service cost of revenue as
a percentage of service revenue may vary based on the degree of outsourcing of
training and consulting and the profitability of individual consulting
engagements.
Research and development
Research and development, net was $8.5 million and $15.6 million, or 12% of
total revenue for both the three and six months ended June 30, 2000,
respectively, compared to $5.9 million and $11.1 million, or 14% of total
revenue for both the three and six months ended June 30, 1999, respectively. The
increase in absolute dollars in the three and six months ended June 30, 2000
reflected an increase in spending due to growth in research and development
headcount.
Research and development expense in 1999 includes royalty expense for
obligations to the government of Israel for sales of products developed under
government-funded research grants. We did not have royalty expense under these
agreements in the three and six months ended June 30, 2000. Royalty expense
amounted to approximately $850,000 and $1.6 million for the three and six months
ended June 30, 1999, respectively. As of June 30, 2000, we had no outstanding
royalty obligations. We have not applied for, nor do we anticipate applying for,
any additional grants from the government of Israel.
Marketing and selling
Marketing and selling expenses were $34.7 million, or 50% of total revenue,
and $66.7 million, or 51% of total revenue, for the three and six months ended
June 30, 2000, respectively, compared to $20.4 million, or 48% of total revenue,
and $39.5 million, or 49% of total revenue, for the three and six months ended
June 30, 1999, respectively. The absolute dollar increase in marketing and
selling expenses was primarily due to increased commission expense attributable
to the higher revenue level, an increase in personnel-related costs reflecting
the growth in sales and marketing headcount, and increased spending on marketing
programs. We expect marketing and selling expenses to increase in absolute
dollars as total revenue increases, but these expenses may vary as a percentage
of revenue.
General and administrative
General and administrative expenses were $3.8 million, or 6% of total
revenue, and $7.1 million, or 5% of total revenue, for the three and six months
ended June 30, 2000, respectively, compared to $2.8 million, or 7% of total
revenue, and $5.1 million, or 6% of total revenue, for the three and six months
ended June 30, 1999, respectively. The increase in absolute dollar spending
reflected increased staffing and related spending necessary to manage and
support our growth.
Other income, net
Other income, net consists primarily of interest income and foreign
exchange gains and losses. The increase in other income, net to $3.2 million and
$5.8 million for the three and six months ended June 30, 2000, respectively,
from $1.4 million and $2.6 million for the three and six months ended June 30,
1999, respectively, reflected increased interest income on higher average cash
and investment balances and higher interest rates for the three and six months
ended June 30, 2000.
We expect our interest expense to increase in future periods as a result of
our recent issuance of convertible subordinated notes.
9
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Provision for income taxes
We have structured our operations in a manner designed to maximize income
in Israel where tax rate incentives have been extended to encourage foreign
investments. The tax holidays and rate reductions which we will be able to
realize under programs currently in effect expire at various dates through 2007.
Future provisions for taxes will depend upon the mix of worldwide income and the
tax rates in effect for various tax jurisdictions. See "--Risk Factors--We are
subject to the risk of increased taxes."
Net income
We reported net income of $12.4 million and $22.2 million for the three and
six months ended June 30, 2000, respectively, compared to net income of $6.7
million and $11.7 million for the three and six months ended June 30, 1999,
respectively.
Liquidity and Capital Resources
At June 30, 2000, our short-term and long-term investments consisted of
investments in high-quality financial, government and corporate securities.
Cash, cash equivalents and investments increased to $245.8 million at June 30,
2000, from $186.9 million at December 31, 1999. During the six months ended June
30, 2000, we generated approximately $57.7 million from operations due primarily
to profits from operations and an increase in deferred revenue.
Our primary investing activities were net purchases of investments for the
six months ended June 30, 2000 of $16.5 million compared to $26.5 million for
the six months ended June 30,1999. We also purchased property and equipment, net
of disposals, in the amount of $11.3 million during the six months ended June
30, 2000 compared to $5.9 million for the six months ended June 30, 1999. During
the six months ended June 30, 2000 we spent $2.3 million for construction on an
existing as well as a second research and development facility in Israel. We
expect to spend an additional $11.0 to $12.0 million to complete the
construction of the second Israel facility. We also plan to spend $2.7 million
to complete the renovation of our second headquarters building in Sunnyvale,
California.
Our primary financing activity consisted of issuances of common stock under
our employee stock option plans. During the six months ended June 30, 2000, we
received $12.6 million from the issuance of common stock, net of notes
receivable issued and collected from issuance of common stock.
Assuming there is no significant change in our business, we believe that
our current cash and investment balances and cash flow from operations will be
sufficient to fund our cash needs for at least the next twelve months. We also
expect to satisfy our financing requirements through the incurrence of debt from
time to time. As of June 30, 2000, we did not have any debt outstanding.
In July 2000, we raised net debt proceeds of $486.3 million from our
issuance of $500 million of 4.75% Convertible Subordinated Notes which are
convertible at any time and due in July 2007. We anticipate using these net
proceeds for working capital and other general corporate purposes, including
financing growth, product development and capital expenditures. Should the
opportunity arise, we may also use a portion of the net proceeds to fund
acquisitions of, or investments in, businesses, partnerships, products or
technologies that complement or expand our businesses.
Risk Factors
In addition to the other information included in this Quarterly Report on
Form 10-Q, the following risk factors should be considered carefully in
evaluating us and our business.
Our future success depends on our ability to respond to rapid market and
technological changes by introducing new products and to continually improve the
performance, features and reliability of our existing
10
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products and respond to competitive offerings. Our business will suffer if we do
not successfully respond to rapid technological changes. The market for our
software products is characterized by:
. rapidly changing technology;
. frequent introduction of new products and enhancements to existing
products by our competitors;
. increasing complexity and interdependence of Internet related
applications;
. changes in industry standards and practices; and
. changes in customer requirements and demands.
To maintain our competitive position, we must continue to enhance our
existing software testing and application performance management products and to
develop new products and services, functionality and technology that address the
increasingly sophisticated and varied needs of our prospective customers. The
development of new products and services, and enhancement of existing products
and services, entail significant technical and business risks and require
substantial lead-time and significant investments in product development. If we
fail to anticipate new technology developments, customer requirements or
industry standards, or if we are unable to develop new products and services
that adequately address these new developments, requirements and standards in a
timely manner, our products may become obsolete, our ability to compete may be
impaired and our revenues could decline.
We expect our quarterly revenues and operating results to fluctuate, which
may cause the price of our stock and therefore any outstanding notes, to
decline. Our revenues and operating results have varied in the past and are
likely to vary significantly from quarter to quarter in the future. These
fluctuations are due to a number of factors, many of which are outside of our
control, including:
. fluctuations in demand for and sales of our products and services;
. our success in developing and introducing new products and the timing of
new product introductions;
. our ability to introduce enhancements to our existing products in a timely
manner;
. the introduction of new or enhanced products by our competitors and
changes in the pricing policies of these competitors;
. the discretionary nature of our customers' purchase and budget cycles;
. the amount and timing of operating costs and capital expenditures relating
to the expansion of our business;
. deferrals by our customers of orders in anticipation of new products or
product enhancements; and
. the mix of our domestic and international sales, together with fluctuations
in foreign currency exchange rates.
In addition, the timing of our license revenues is difficult to predict
because our sales cycles are typically short and can vary substantially from
product to product and customer to customer. We base our operating expenses on
our expectations regarding future revenue levels. As a result, if total revenues
for a particular quarter are below our expectations, we could not
proportionately reduce operating expenses for that quarter.
We have experienced seasonality in our revenues and earnings, with the
fourth quarter of the year typically having the highest revenue and earnings for
the year and higher revenue and earnings than the first quarter of the following
year. We believe that this seasonality results primarily from the budgeting
cycles of our customers and from the structure of our sales commission program.
We believe this seasonality may or may not continue in the future.
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Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. If our operating
results are below the expectations of investors or securities analysts, the
price of our common stock, and therefore any outstanding notes, could decline.
We expect to face increasing competition in the future, which could cause
reduced sales levels and result in price reductions, reduced gross margins or
loss of market share. The market for our testing and application performance
management products and services is extremely competitive, dynamic and subject
to frequent technological changes. There are few substantial barriers to entry
in our market. In addition, the rapid growth and use of Internet for e-business
is a recent and emerging phenomenon. The Internet lowers the barriers to entry
for other companies to compete with us in the testing and application
performance management markets. As a result of the increased competition, our
success will depend, in large part, on our ability to identify and respond to
the needs of potential customers, and to new technological and market
opportunities, before our competitors identify and respond to these needs and
opportunities. We may fail to respond quickly enough to these needs and
opportunities.
In the market for solutions for testing of applications, our principal
competitors include Compuware, Radview, Rational Software, RSW (a division of
Teradyne) and Segue Software. In the new and rapidly changing market for
application performance management solutions, our competitors include providers
of hosted services such as BMC Software, Keynote Systems and Service Metrics (a
division of Exodus Communications), and emerging application service providers
("ASPs") such as Freshwater Software. In addition, we face potential competition
in this market from existing providers of testing solutions such as Segue.
Finally, in both the market for testing solutions and the market for application
performance management solutions, we face potential competition from established
providers of systems and network management software such as Computer
Associates.
The software industry is increasingly experiencing consolidation, and this
could increase the resources available to our competitors and the scope of their
product offerings. For example, Keynote Systems recently acquired Velogic, Inc.,
a provider of load testing services and BMC Software recently acquired Evity,
Inc., a provider of Internet management services. Our competitors and potential
competitors may undertake more extensive marketing campaigns, adopt more
aggressive pricing policies or make more attractive offers to distribution
partners and to employees.
If we fail to maintain our existing distribution channels and develop
additional channels in the future, our revenues will decline. We derive a
substantial portion of our revenues from sales of our products through
distribution channels such as system integrators and value-added resellers. We
expect that sales of our products through these channels will continue to
account for a substantial portion of our revenues for the foreseeable future. We
have also entered into private labeling arrangements with ASPs and an enterprise
software company who incorporate our products and services into their offerings.
We may not experience increased revenues from these new channels, which could
harm our business.
The loss of one or more of our system integrators, value-added resellers or
ASPs, or any reduction or delay in their sales of our products and services
could result in reductions in our revenue in future periods. In addition, our
ability to increase our revenue in the future depends on our ability to expand
our indirect distribution channels. Our dependence on indirect distribution
channels presents a number of risks, including:
. many of our system integrators, value-added resellers and partner ASPs can
cease marketing our products and services with limited or no notice and
with little or no penalty;
. our existing system integrators, value-added resellers and ASPs may not be
able to effectively sell any new products and services that we may introdu
ce;
. we may not be able to replace existing or recruit additional system
integrators, value-added resellers and ASPs if we lose any of our existing
ones;
. our system integrators, value-added resellers and ASPs may also offer
competitive products and services from third parties;
12
<PAGE>
. we may face conflicts between the activities of our indirect channels and
our direct sales and marketing activities; and
. our system integrators, value-added resellers and ASPs may not give
priority to the marketing of our products and services as compared to our
competitors' products.
In March 1999, we entered into an agreement with Tivoli Systems, a
subsidiary of IBM, for the joint development and marketing of a family of
products for enterprise application performance management, incorporating
elements of our technology, which would be marketed and sold only by Tivoli.
Under this agreement, we agreed that until October 2002, we would not license
this technology to any other party for purposes of developing a product similar
to any developed under this agreement. In addition, we agreed that until October
2002, we would not enter into technology relationships to create similar
products with specified competitors of Tivoli as long as Tivoli continues to
agree to pay annual minimum royalties. These restrictions may limit our ability
to enter into new private labelling relationships. In addition, Tivoli may not
succeed in developing and selling these new products.
We depend on strategic relationships and business alliances for continued
growth of our business. Our development, marketing and distribution strategies
rely increasingly on our ability to form strategic relationships with software
and other technology companies. These business relationships often consist of
cooperative marketing programs, joint customer seminars, lead referrals and
cooperation in product development. Many of these relationships are not
contractual and depend on the continued voluntary cooperation of each party with
us. Divergence in strategy or change in focus by, or competitive product
offerings by, any of these companies may interfere with our ability to develop,
market, sell or support our products, which in turn could harm our business.
Further, if these companies enter into strategic alliances with other companies
or are acquired, they could reduce their support of our products. Our existing
relationships may be jeopardized if we enter into alliances with competitors of
our strategic partners. In addition, one or more of these companies may use the
information they gain from their relationship with us to develop or market
competing products.
If we are unable to manage our growth, our business may be harmed. Since
1991, we have experienced significant annual increases in revenue, employees and
number of product and service offerings. This growth has placed and, if it
continues, will place a significant strain on our management and our financial,
operational, marketing and sales systems. If we cannot manage our growth
effectively, our business, competitive position, operating results and financial
condition could suffer. Although we are implementing a variety of new or
expanded business and financial systems, procedures and controls, including the
improvement of our sales and customer support systems, the implementation of
these systems, procedures and controls may not be completed successfully, or may
disrupt our operations. Any failure by us to properly manage these transitions
could impair our ability to attract and service customers and could cause us to
incur higher operating costs and experience delays in the execution of our
business plan.
The success of our business depends on the efforts and abilities of our
senior key personnel. We depend on the continued services and performance of our
senior management and other key personnel. We do not have long term employment
agreements with any of our key personnel. The loss of any of our executive
officers or other key employees could hurt our business.
If we cannot hire qualified personnel, our ability to manage our business,
develop new products and increase our revenues will suffer. We believe that our
ability to attract and retain qualified personnel at all levels in our
organization is essential to the successful management of our growth. In
particular, our ability to achieve revenue growth in the future will depend in
large part on our success in expanding our direct sales force and in maintaining
a high level of technical consulting, training and customer support. There is
substantial competition for experienced personnel in the software and technology
industry. If we are unable to retain our existing key personnel or attract and
retain additional qualified individuals, we may from time to time experience
inadequate levels of staffing to perform services for our customers. As a
result, our growth could be limited due to our lack of capacity to develop and
market our products to our customers.
We depend on our international operations for a substantial portion of our
revenues. Sales to customers located outside the United States have historically
accounted for a significant percentage of our revenue and we anticipate that
such sales will continue to be a significant percentage of our revenue. As a
percentage of our total
13
<PAGE>
revenues, sales to customers outside the United States were approximately 32%
for both the three and six months ended June 30, 2000 and 1999, respectively. In
addition, we have substantial research and development operations in Israel. We
face risks associated with our international operations, including:
. changes in taxes and regulatory requirements;
. difficulties in staffing and managing foreign operations;
. reduced protection for intellectual property rights in some countries;
. the need to localize products for sale in international markets;
. longer payment cycles to collect accounts receivable in some countries;
. seasonal reductions in business activity in other parts of the world in
which we operate;
. political and economic instability; and
. economic downturns in international markets.
Any of these risks could harm our international operations and cause lower
international sales. For example, some European countries already have laws and
regulations related to technologies used on the Internet that are more strict
than those currently in force in the United States. Any or all of these factors
could cause our business to be harmed.
Because our research and development operations are primarily located in
Israel, we may be affected by volatile economic, political and military
conditions in that country and by restrictions imposed by that country on the
transfer of technology. Our operations depend on the availability of highly-
skilled scientific and technical personnel in Israel. Our business also depends
on trading relationships between Israel and other countries. In addition to the
risks associated with international sales and operations generally, our
operations could be adversely affected if major hostilities involving Israel
should occur or if trade between Israel and its current trading partners were
interrupted or curtailed.
These risks are compounded due to the restrictions on our ability to
manufacture or transfer outside of Israel any technology developed under
research and development grants from the government of Israel, without the prior
written consent of the government of Israel. If we are unable to obtain the
consent of the government of Israel, we may not be able to take advantage of
strategic manufacturing and other opportunities outside of Israel. We have, in
the past, obtained royalty-bearing grants from various Israeli government
agencies. In addition, we participate in special Israeli government programs
that provide significant tax advantages. The loss of or any material decrease in
these tax benefits could negatively affect our financial results.
We are subject to the risk of increased taxes. We have structured our
operations in a manner designed to maximize income in Israel where tax rate
incentives have been extended to encourage foreign investment. Our taxes could
increase if these tax rate incentives are not renewed upon expiration or tax
rates applicable to us are increased. Tax authorities could challenge the manner
in which profits are allocated among us and our subsidiaries, and we may not
prevail in any such challenge. If the profits recognized by our subsidiaries in
jurisdictions where taxes are lower became subject to income taxes in other
jurisdictions, our worldwide effective tax rate would increase.
Our financial results may be negatively impacted by foreign currency
fluctuations. Our foreign operations are generally transacted through our
international sales subsidiaries. As a result, these sales and related expenses
are denominated in currencies other than the U.S. Dollar. Because our financial
results are reported in U.S. Dollars, our results of operations may be harmed by
fluctuations in the rates of exchange between the U.S. Dollar and other
currencies, including:
14
<PAGE>
. a decrease in the value of Pacific Rim or European currencies relative to
the U.S. Dollar, which would decrease our reported U.S. Dollar revenue,
as we generate revenues in these local currencies and report the related
revenues in U.S. Dollars; and
. an increase in the value of Pacific Rim, European or Israeli currencies
relative to the U.S. Dollar, which would increase our sales and marketing
costs in these countries and would increase research and development costs
in Israel.
We attempt to limit foreign exchange exposure through operational
strategies and by using forward contracts to offset the effects of exchange rate
changes on intercompany trade balances. This requires us to estimate the volume
of transactions in various currencies. We may not be successful in making these
estimates. If these estimates are overstated or understated during periods of
currency volatility, we could experience material currency gains or losses.
Our ability to successfully implement our business strategy depends on the
continued growth of the Internet. In order for our business to be successful,
the Internet must continue to grow as a medium for conducting business. However,
as the Internet continues to experience significant growth in the number of
users and the complexity of Web-based applications, the Internet infrastructure
may not be able to support the demands placed on it or the performance or
reliability of the Internet might be adversely affected. Security and privacy
concerns may also slow the growth of the Internet. Because our revenues
ultimately depend upon the Internet generally, our business may suffer as a
result of limited or reduced growth.
Our recent acquisition and any future acquisitions may be difficult to
integrate, disrupt our business, dilute stockholder value or divert the
attention of our management. We have acquired, and in the future we may acquire
or make investments in other companies with similar products and technologies.
For example, in November 1999, we completed our acquisition of Conduct Ltd. In
the event of any future acquisitions or investments, we could:
. issue stock that would dilute the ownership of our then-existing
stockholders;
. incur debt;
. assume liabilities;
. incur amortization expense related to goodwill and other intangible
assets; or
. incur large write-offs.
If we fail to achieve the financial and strategic benefits of past and
future acquisitions, our operating results will suffer. Acquisitions and
investments involve numerous other risks, including:
. difficulties integrating the acquired operations, technologies or products
with ours;
. failure to achieve targeted synergies;
. unanticipated costs and liabilities;
. diversion of management's attention from our core business;
. adverse effects on our existing business relationships with suppliers and
customers or those of the acquired organization;
. difficulties entering markets in which we have no or limited prior
experience; and
. potential loss of key employees, particularly those of the acquired
organizations.
The price of our common stock and therefore the price of our notes may
fluctuate significantly, which may result in losses for investors and possible
lawsuits. The market price for our common stock has been and may continue to be
volatile. For example, during the 52-week period ended July 31, 2000, the
closing prices of our
15
<PAGE>
common stock as reported on the Nasdaq National Market ranged from a high of
$132.13 to a low of $18.25. We expect our stock price to be subject to
fluctuations as a result of a variety of factors, including factors beyond our
control. These factors include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new products or services by
us or our competitors;
. announcements relating to strategic relationships or acquisitions;
. changes in financial estimates or other statements by securities analysts;
. changes in general economic conditions;
. conditions or trends affecting the software industry and the Internet; and
. changes in the economic performance and/or market valuations of other
software and high-technology companies.
Because of this volatility, we may fail to meet the expectations of our
stockholders or of securities analysts at some time in the future, and our stock
price could decline as a result.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many high technology companies. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of software or Internet software
companies could depress our stock price regardless of our operating results.
If we fail to adequately protect our proprietary rights and intellectual
property, we may lose a valuable asset, experience reduced revenues and incur
costly litigation to protect our rights. We rely on a combination of patents,
copyrights, trademarks, service marks and trade secret laws and contractual
restrictions to establish and protect our proprietary rights in our products and
services. We will not be able to protect our intellectual property if we are
unable to enforce our rights or if we do not detect unauthorized use of our
intellectual property. Despite our precautions, it may be possible for
unauthorized third parties to copy our products and use information that we
regard as proprietary to create products that compete with ours. Some license
provisions protecting against unauthorized use, copying, transfer and disclosure
of our licensed programs may be unenforceable under the laws of certain
jurisdictions and foreign countries. Further, the laws of some countries do not
protect proprietary rights to the same extent as the laws of the United States.
To the extent that we increase our international activities, our exposure to
unauthorized copying and use of our products and proprietary information will
increase.
In many cases, we enter into confidentiality or license agreements with our
employees and consultants and with the customers and corporations with whom we
have strategic relationships and business alliances. No assurance can be given
that these agreements will be effective in controlling access to and
distribution of our products and proprietary information. Further, these
agreements do not prevent our competitors from independently developing
technologies that are substantially equivalent or superior to our products.
Litigation may be necessary in the future to enforce our intellectual
property rights and to protect our trade secrets. Litigation like this, whether
successful or unsuccessful, could result in substantial costs and diversions of
our management resources, either of which could seriously harm our business.
Third parties could assert that our products and services infringe their
intellectual property rights, which could expose us to litigation that, with or
without merit, could be costly to defend. We may from time to time be subject to
claims of infringement of other parties' proprietary rights. We could incur
substantial costs in defending ourselves and our customers against these claims.
Parties making these claims may be able to obtain injunctive or other equitable
relief that could effectively block our ability to sell our products in the
United States and
16
<PAGE>
internationally and could result in an award of substantial damages against us.
In the event of a claim of infringement, we may be required to obtain licenses
from third parties, develop alternative technology or to alter our products or
processes or cease activities that infringe the intellectual property rights of
third parties. If we are required to obtain licenses, we cannot be sure that we
will be able to do so at a commercially reasonable cost, or at all. Defense of
any lawsuit or failure to obtain required licenses could delay shipment of our
products and increase our costs. In addition, any such lawsuit could result in
our incurring significant costs or the diversion of the attention of our
management.
Defects in our products may subject us to product liability claims and make
it more difficult for us to achieve market acceptance for these products, which
could harm our operating results. Our products may contain errors or "bugs" that
may be detected at any point in the life of the product. Any future product
defects discovered after shipment of our products could result in loss of
revenues and a delay in the market acceptance of these products that could
adversely impact our future operating results.
In selling our products, we frequently rely on "shrink wrap" or "click
wrap" licenses that are not signed by licensees. Under the laws of various
jurisdictions, the provisions in these licenses limiting our exposure to
potential product liability claims may be unenforceable. We currently carry
errors and omissions insurance against such claims, however, we cannot provide
assurance that this insurance will continue to be available on commercially
reasonable terms, or at all, or that this insurance will provide us with
adequate protection against product liability and other claims. In the event of
a products liability claim, we may be found liable and required to pay damages
which would seriously harm our business.
We have adopted anti-takeover defenses that could delay or prevent an
acquisition of our company, including an acquisition that would be beneficial to
our stockholders. Our Board of Directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of common stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock. We have no
present plans to issue shares of preferred stock. Furthermore, certain
provisions of our Certificate of Incorporation and of Delaware law may have the
effect of delaying or preventing changes in our control or management, which
could adversely affect the market price of our common stock.
Substantial leverage and debt service obligations may adversely affect our
cash flow. In July 2000, we completed an offering of convertible subordinated
notes with a principal amount of $500 million. We now have a substantial amount
of outstanding indebtedness, primarily the notes. There is the possibility that
we may be unable to generate cash sufficient to pay the principal of, interest
on and other amounts due in respect of our indebtedness when due. Our leverage
could have significant negative consequences, including:
. increasing our vulnerability to general adverse economic and industry
conditions;
. requiring the dedication of a substantial portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for other purposes, including
capital expenditures; and
. limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk. Our exposure to market rate risk for changes in
interest rates is limited to our investment portfolio. Derivative financial
instruments are not a part of our investment policy. We place our investments
with high quality issuers and, by policy, limit the amount of credit exposure to
any one issuer or issue. In addition, we have classified all of our investments
as "held to maturity." This classification does not expose the consolidated
17
<PAGE>
statements of income or balance sheet to fluctuation in interest rates. At June
30, 2000, $155.7 million, or 63%, of our cash, cash equivalents and investment
portfolio carried a maturity of less than 90 days, and $198.9 million, or 81%,
carried a maturity of less than one year. All investments mature, by policy, in
less than two years. The effect of a 10% rate decline would not be material on
the portfolio.
Foreign currency risk. A portion of our business is conducted in currencies
other than the U.S. Dollar. Our operating expenses in each of these countries
are in the local currencies, which mitigates a significant portion of the
exposure related to local currency revenues.
We have entered into forward foreign exchange contracts to hedge amounts
denominated in foreign currencies due from certain subsidiaries, mainly Europe
and the Pacific Rim, against fluctuations in exchange rates. We have not entered
into forward foreign exchange contracts for speculative or trading purposes. Our
accounting policies for these contracts are based on our designation of the
contracts as hedging transactions. The criteria we use for designating a
contract as a hedge considers the contract's effectiveness in reducing risk by
matching hedging instruments to underlying transactions. Gains and losses on
forward foreign exchange contracts are recognized in income in the same period
as gains and losses on the underlying transactions. The effect of an immediate
10% change in exchange rates would not have a material impact on our operating
results or cash flows.
PART II. OTHER INFORMATION
--------------------------
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities.
1. On November 30, 1999 and in connection with the acquisition of all of
the outstanding capital stock of Conduct Ltd., Mercury issued 387,892
shares of common stock to the former shareholders of Conduct Ltd.
The foregoing transaction was made in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions be an
issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.
2. In July 2000, we issued $500 million in aggregate principal amount of
our 4.75% convertible subordinated debentures, due July 2007. Net proceeds
to Mercury of this offering were approximately $486,250,000. The debentures
are convertible into the Company's common stock at $111.25 per share,
subject to certain adjustments. The initial purchasers of our debentures
were Goldman, Sachs & Co., Chase Securities Inc. and Deutsche Bank
Securities Inc. The debentures were issued pursuant to the exemption from
registration provided for by Section 4(2) of the Securities Act of 1933, as
amended.
Item 4. Submission of Matters to a Vote of Stockholders
(a) The 2000 Annual Meeting of the Stockholders of Mercury Interactive
Corporation was held at the Company's offices at 1325 Borregas Avenue,
Sunnyvale, California 94089 on May 24, 2000 at 10:00 a.m.
(b) At the Annual Meeting, the following four persons were elected to the
Company's Board of Directors, constituting all members of the Board of
Directors.
<TABLE>
<CAPTION>
Nominee For Withheld
-------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Igal Kohavi 71,968,856 557,318
Amnon Landan 71,969,755 556,419
Yair Shamir 71,969,173 557,001
Giora Yaron 71,969,014 557,160
</TABLE>
18
<PAGE>
(c) The following additional proposals were considered at the Annual
Meeting with their results according to the respective vote of the
stockholders:
PROPOSAL 2 - Ratification and approval to increase the authorized number of
shares of common stock of the Company to 240,000,000.
For Against Abstentions Broker Non-Vote
--- ------- ----------- ----------------
67,539,666 4,901,598 84,910 6,812,073
PROPOSAL 3 - Ratification and approval to increase the grant limit under
the 1999 Stock Option Plan.
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
43,327,682 28,359,761 838,731 6,812,073
PROPOSAL 4 - Ratification and approval to increase the authorized number of
shares reserved for the 1998 Employee Stock Purchase Plan by an additional
500,000 shares of common stock for issuance under the 1998 Employee Stock
Purchase Plan.
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
70,238,798 2,195,437 91,939 6,812,073
PROPOSAL 5 - Ratification and approval to provide for the full and
immediate vesting of stock options granted to a director under the 1994
Director's Stock Option Plan, in event of the termination of the director
other than upon a voluntary resignation, upon the merger or acquisition of
the Company by a successor corporation.
For Against Abstentions Broker Non-votes
--- ------- ----------- ----------------
45,480,908 26,937,227 108,039 6,812,073
PROPOSAL 6 - Ratification and approval of the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company for
the year ending December 31, 2000.
For Against Abstentions Broker Non-Votes
---- ------- ----------- ----------------
71,978,045 471,519 76,610 6,812,073
Item 5. Other Information
Effective July 25, 2000 Kenneth Klein, our Chief Operating Officer,
became a member of our Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a)
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ------------------------------------------------------------------------------------
<S> <C>
4.1 Form of Note for Registrant's 4.75% Convertible Subordinated Note, due July 1, 2007
4.2 Indenture, dated as of July 3, 2000, between Registrant and State Street Bank and
Trust Company of California, N.A, as trustee
4.3 Registration Rights Agreement, dated July 3, 2000, among Registrant and Goldman,
Sachs & Co., Chase Securities Inc., Deutsche Bank Securities Inc.
27.1 Financial Data Schedule
</TABLE>
_____________
19
<PAGE>
(b) Reports on Form 8-K
On July 3, 2000, we filed a Current Report on Form 8-K relating to our
completion of our offering of up to $500,000,000 in principal amount in
convertible promissory notes.
20
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCURY INTERACTIVE CORPORATION
(Registrant)
Dated: August 15, 2000 By: /s/ Sharlene Abrams
--------------------------------
Sharlene Abrams,
Chief Financial Officer, Vice President of
Finance and Administration
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
21
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
------------- ----------------------------------------------------------------- ----------------
<S> <C> <C>
4.1 Form of Note for Registrant's 4.75% Convertible Subordinated Note, due July 23
1, 2007
4.2 Indenture, dated as of July 3, 2000, between Registrant and State Street 37
Bank and Trust Company of California, N.A, as trustee
4.3 Registration Rights Agreement, dated July 3, 2000, among Registrant and 151
Goldman, Sachs & Co., Chase Securities Inc., Deutsche Bank Securities Inc.
27.1 Financial Data Schedule 176
</TABLE>
22
