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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-20710
PEOPLESOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
Delaware 68-0137069
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
4440 Rosewood Drive, Pleasanton, CA 94588
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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Registrant's telephone number, including area code: (925) 694-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
None 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. [X]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant, based upon the closing sale price of common
stock on March 20, 1998 as reported on the Nasdaq National Market, was
approximately $7.5 billion. Shares of common stock held by each officer and
director and by each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 20, 1998, Registrant had 226,330,688 outstanding shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders to be held May 26, 1998 are incorporated by reference in Part III
of this Form 10-K Report.
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References in this Report to the "Company" or "PeopleSoft" refer to PeopleSoft,
Inc. which was incorporated in Delaware in 1987 and its subsidiaries.
PeopleSoft, the PeopleSoft logo, PeopleTools, PS/nVision, PeopleCode,
ResponseAgent, and PeopleBooks are registered trademarks, and Red Pepper,
PeopleTalk, and "We work in your world." are trademarks of PeopleSoft, Inc. All
other company and product names may be trademarks of their respective owners.
References to beta versions of software products refer to software products
delivered to select customers for testing or evaluation prior to the general
commercial release of such software products.
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PART I
ITEM 1. BUSINESS
This Business section and other parts of this Form 10K contain
forward-looking statements that involve risk and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
GENERAL
PeopleSoft designs, develops, markets and supports a family of enterprise
client/server application software products for use throughout large and medium
sized organizations, including corporations worldwide, and higher education
institutions, and federal, state, provincial and local government agencies
primarily in North America. The Company designed its software products
specifically for the client/server model of computing and believes that its
architecture is among the most advanced and flexible available for enterprise
level applications software. The Company's strategy is to offer comprehensive
enterprise application software solutions to a variety of industries that desire
back office administrative applications integrated with core operational
applications. The Company's software products utilize the Microsoft Windows
family of operating systems on the desktop as well as Java based web clients,
and a wide variety of popular relational database management system ("RDBMS"),
operating system and hardware platform choices on the server, making its
software solutions among the most flexible, scaleable and portable in the
application software industry. Application software products have been developed
using PeopleTools, the Company's integrated rapid application development
toolset which is delivered to customers along with the application software
products to facilitate end user modification and customization.
PeopleSoft was incorporated in Delaware in August 1987 and initially
shipped its first software product suite, a Human Resource Management System
("HRMS") in December 1988. In 1992, PeopleSoft introduced the first of a series
of Financial Management and Accounting System software products, and in 1994,
introduced the first of a series of Distribution and Materials Management
products, rounding out a complete family of cross industry software products.
Since that time, PeopleSoft has introduced several industry specific software
product suites, including a suite of Manufacturing products for discrete
manufacturers, a suite of Public Sector Financial Management products, a suite
of Public Sector HRMS products, a suite of Student Administration products for
the higher education market, and a suite of HRMS products for the U.S. Federal
Government marketplace, and has introduced additional Human Resource and
Financial Management software products. In addition, in October 1996, the
Company acquired Red Pepper Software Company ("Red Pepper"), a leader in the
emerging supply chain management systems market. The acquisition furthers
PeopleSoft's best-in-class strategy by adding significant expertise in the area
of supply chain management, a key differentiator in the market for enterprise
manufacturing and distribution solutions.
SOFTWARE PRODUCT ARCHITECTURE
PeopleSoft's software products are based on a scaleable, multi-tiered,
client/server architecture. The Company believes that its architecture provides
the system performance required for intensive record keeping and high volume
OLTP business applications, and facilitates faster, easier and less expensive
implementations of the initial system as well as subsequent upgrades. In
addition to the advantage of a pure client/server architecture, the PeopleSoft
solution offers a number of other important features. PeopleSoft applications
are designed for ease of use, are integrated with the Microsoft Windows family
of products and are compatible with personal productivity applications such as
word processors and spreadsheets. PeopleSoft applications also operate over the
web using a Java client. PeopleSoft software products are designed specifically
for use with RDBMSs, which offer power and functionality superior to flat files,
hierarchical, or other non-relational databases that are generally used with
legacy software applications. The Company's software products are also
scaleable, permitting changes in network size, server platforms and other
architectural components with minimal disruption. Further, PeopleSoft software
products are portable across major RDBMS software and server hardware platforms.
The Company believes that the intuitive design of its software products reduce
end-user training requirements and allow end-users and decision makers increased
access to critical data not always readily available to them with legacy
systems.
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CLIENT/SERVER ARCHITECTURE
With the general availability of Release 7 the Company's application
software products support online transaction management in any of three
different modes. In two-tier transaction processing the presentation logic and
interactive application logic are performed on a Windows client, while data
intensive application logic and data management functions are carried out on the
database server. In three-tier transaction processing the presentation logic and
selected interactive application logic operate on a Windows client, while the
balance of interactive application logic and data intensive application logic
operates on an application server and data management functions are carried out
on a database server. In "three-tier for the Web" transaction processing, the
presentation logic operates on a Java based client in a browser ("Web client"),
while interactive application logic and data intensive application logic
operates on an application server. With the availability of Release 7 and
three-tier transaction processing, the Company's application software products
now take advantage of messaging using remote procedure calls which facilitate
real-time initiation of certain application logic routines on an application
server or database server machine. Customers may implement Release 7 application
software products using a single or any combination of the above processing
options in a single local area or wide area network environment.
PEOPLETOOLS
Today's users are demanding system solutions that address specific business
needs, facilitate the automation of workflow, are quickly adaptable to changing
information requirements and provide for ease of access to information.
PeopleSoft addresses this need by providing PeopleTools, a set of integrated
development and reporting tools including: (i) Development tools for use by
business process or system analysts to rapidly design and deploy custom
modifications; (ii) Administration tools for use by systems managers and support
staff to improve the efficiency of implementing, operating and upgrading
PeopleSoft's applications; (iii) Reporting and Analysis tools for use by
application users to easily access, summarize and analyze information; and (iv)
PeopleSoft Workflow for use by business process or system analysts and
application users to automate business processes in a paperless environment.
PeopleTools continues to be used by the Company to develop most of its
application software products, and is a runtime environment. Powerful features
and functions which PeopleTools supports include effective date capabilities,
extensive security at both a user and object level, and a tree editor for
managing hierarchical relationships among data elements. PeopleTools is used to
build and modify data tables, design and customize user interface windows,
modify user pull-down menus, define security privileges of individual users and
operator access to system objects, define and build workflow based processes,
process online transactions, and facilitate data importation from other systems
into PeopleSoft applications. PeopleTools simplifies system customization and
implementation and can help reduce the time and cost of implementing the system.
Upgrades to new releases are simplified with a tool which provides an automated
comparison of the customer's customized systems to base level systems, and helps
define how to install new releases. In addition, PeopleTools provides customers
with significant ongoing flexibility to modify their systems quickly and
inexpensively, so that internal maintenance costs can be reduced significantly.
RELATIONAL DATABASE MANAGEMENT SYSTEMS
By utilizing relational databases and designing the system from the ground
up, the Company has been able to develop integrated software products with fully
normalized data structures. A fully integrated system provides convenient access
to shared data such as department tables, tax rates and organization charts,
without requiring users to maintain this information redundantly. Collecting and
capturing information once ensures that all data is consistent, readily
available and easier to maintain. Through adherence to ANSI Structured Query
Language ("SQL"), the industry standard data manipulation language for RDBMSs,
and other relational database standards, the Company's software products are
available in a range of environments. PeopleSoft's software products can be
licensed for use with the following RDBMSs: IBM's DB2 (MVS/ESA using DDCS
connectivity products from IBM, and separately on AIX and OS/400), Informix
Corporation's ("Informix") INFORMIX-OnLine Dynamic Server (NT and multiple
versions of Unix), Microsoft Corporation's ("Microsoft") SQL Server, Oracle
Corporation's ("Oracle") Oracle 8 (NT and over 10 versions of Unix), and Sybase,
Inc.'s ("Sybase") System 11 (on multiple versions of Unix). If the customer
decides to switch to other PeopleSoft supported RDBMS or hardware platforms,
user disruption is usually minimized because only the "back-end" database
changes, while the "front-end" application remains the same. No assurance can be
given concerning the successful development of PeopleSoft software products on
additional platforms, the specific timing of the releases of any future software
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products, the performance characteristics of PeopleSoft applications on
additional platforms or their acceptance in the marketplace.
Not all software products or release versions of the Company's software
products are currently available on all of the above platforms. Presently,
releases or new software products are initially introduced on Oracle with a
subsequent release supporting other RDBMS versions. As a result of the
complexities inherent in the DB2 environment and the performance demanded by
customers in the DB2 environment, the DB2 version requires more lengthy
development and testing periods to achieve market acceptance. In addition, there
may be future or existing RDBMS platforms which achieve popularity within the
business application marketplace and which PeopleSoft may desire to offer its
applications thereon. Such future or existing RDBMS products may or may not be
architecturally compatible with PeopleSoft's software product design. No
assurance can be given concerning the successful porting to new platforms, the
specific timing of completion of any such ports or their acceptance in the
marketplace.
GRAPHICAL USER INTERFACE
All PeopleSoft software products share a common graphical user interface
("GUI") based on Microsoft's Windows family of products, which provides a
consistent "look and feel" to the Company's applications, including similar
pull-down menus, error handling, system navigation and point-and-click
mouse-driven functionality. PeopleSoft Release 7 operates either in a 32-bit
architecture on Windows 95 and NT or on browsers certified to run the Company's
Web client. The intuitive nature of GUI-based systems increases productivity and
reduces user training requirements. The GUI's ease of use encourages
non-technical users to utilize the information system capabilities more fully.
In addition, the GUI allows users to integrate enterprise applications and data
with other Microsoft Windows-based desktop applications. For example, customers
can easily query the system and download data into either a word processing
document or a spreadsheet. By leveraging the public's widespread familiarity
with personal computers ("PC"), previously difficult access to enterprise
information is readily available to the casual employee user, resulting in
potentially significant improvements in employee productivity. Web clients, in
particular, will enable widespread casual usage throughout organizations to
update information, initiate transactions, or obtain information. The Company
has introduced certain application functionality specifically designed for
access via its Java based Web client by the casual user.
APPLICATION SECURITY ARCHITECTURE
The Company's application software products incorporate extensive security
features designed to protect certain sensitive data managed by these
applications from unauthorized retrieval or modification. The Company has
developed a security architecture utilizing the capabilities of its own
applications, the client operating system software, some of the security
features contained in the RDBMS platforms on which the applications run, as well
as certain third party security products. To date, the Company is not aware of
any violations of its application security architecture within its installed
base.
ELECTRONIC COMMERCE
PeopleSoft's Web client runs applications over the World Wide Web, the
Internet, extranets and intranets. Electronic Data Interchange ("EDI") is
supported by the EDI Manager feature to handle transactions based on EDI
documents utilizing standard X-12 and EDIFACT formats. The transactions can be
passed over the Internet or private extranets. The Message Agent application
programming interface allows initiation of PeopleSoft transactions from sources
such as electronic forms, electronic mail, touch screen information kiosks and
Web browsers.
APPLICATION SOFTWARE PRODUCTS
At December 31, 1997, PeopleSoft's commercially available application
software products include PeopleSoft HRMS 7, PeopleSoft HRMS for Public Sector
7, PeopleSoft Financials 7, PeopleSoft Financials for Public Sector 6,
PeopleSoft Distribution 7, PeopleSoft Manufacturing 7, PeopleSoft HRMS for the
Federal Government 6 and PeopleTools 7. Listed below are the commercially
available and beta software products for the following software product lines:
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Cross Industry Application Software Products
HRMS FINANCIALS DISTRIBUTION
- ---------------------------- ----------------------- ----------------------
Human Resources General Ledger Purchasing
Benefits Administration Receivables Inventory
FSA Administration Payables Order Management
Payroll Asset Management Billing
Payroll Interface Projects Product Configurator
Pension Administration Budgets
Time and Labor Treasury *
European Payroll* Expenses *
Industry specific Application Software Products
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MANUFACTURING SUPPLY CHAIN PLANNING OPTIMIZATION HIGHER EDUCATION/STUDENT ADMINISTRATION
- ------------------------- ---------------------------------------- ---------------------------------------
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Bills and Routings Production Planning Campus Community
Production Management Enterprise Planning Student Records
Cost Management Order Promising Academic Advisement
Engineering Financial Aid
Quality* Admissions and Recruitment
Student Financials
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* in beta release
STATEMENT OF FUTURE DIRECTION: THIS DOCUMENT CONTAINS STATEMENTS OF FUTURE
DIRECTION CONCERNING POSSIBLE FUNCTIONALITY FOR PEOPLESOFT'S SOFTWARE PRODUCTS
AND TECHNOLOGY. ALL FUNCTIONALITY AND SOFTWARE PRODUCTS WILL BE AVAILABLE FOR
LICENSE AND SHIPMENT FROM PEOPLESOFT ONLY IF AND WHEN GENERALLY COMMERCIALLY
AVAILABLE. PEOPLESOFT DISCLAIMS ANY EXPRESS OR IMPLIED COMMITMENT TO DELIVER
FUNCTIONALITY OR SOFTWARE UNLESS OR UNTIL ACTUAL SHIPMENT OF THE FUNCTIONALITY
OR SOFTWARE OCCURS. THE STATEMENTS OF POSSIBLE FUTURE DIRECTION ARE FOR
INFORMATIONAL PURPOSES ONLY AND PEOPLESOFT MAKES NO EXPRESS OR IMPLIED
COMMITMENTS OR REPRESENTATIONS CONCERNING THE TIMING AND CONTENT OF ANY FUTURE
FUNCTIONALITY OR RELEASES.
Release 7 software products have been enhanced to include many global
features and functions and are commercially available in English, French,
German, Spanish, and Canadian French. The HRMS applications are also available
in Japanese. Release 7.5 will include translations into the above languages as
well as the following additional languages: Dutch, Portuguese (for the Brazilian
marketplace) and Japanese. The Company intends to continue to enhance its
software products through new releases, including extending global functionality
throughout its core software products and updating current country-specific and
non-English language releases of its applications.
Application software products currently under development and planned for
future release include Performance Measurement, an application suite which helps
organizations measure performance and support decision making throughout the
enterprise with activity-based costing, economic value-added calculations, and
the capability to determine profitability by customer, product and channel. The
following new enterprise software products are currently in beta release:
European Payroll, Expenses, Treasury and Quality. No assurance can be given
concerning the successful development of enhancements or new modules, the
specific timing of completing new releases or new features of software products
or the level of their acceptance in the marketplace.
The Company's software products are generally licensed to end-user
customers under non-exclusive, non-transferable, perpetual license agreements.
In most cases, the Company licenses its software products solely for the
customer's internal operations. License fees for the Company's software products
are a function of the particular combination of PeopleSoft software products
chosen and, the number of employees for HRMS software products, the number of
enrolled students for Higher Education software products or revenues of the
licensing entity for Financial, Distribution and Manufacturing software products
and the number of named users for third party workstation based software tools.
All RDBMS platforms are priced the same except for DB2 mainframe versions, which
have a higher price. The following range of individual software product license
fees includes a single copy of the software, system and user documentation, one
year of software product maintenance which includes a one-year software product
warranty, limited installation support and limited software product training.
Current list prices for license fees for a company with 1,500 employees and
revenues of $375 million, can range as follows:
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(IN THOUSANDS) HRMS FINANCIALS DISTRIBUTION MANUFACTURING STUDENT
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Mainframe $99-330 $123-568 $270-1,084 $103-627 $77-420
Other servers $90-300 $112-516 $245-985 $94-570 $70-280
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These prices are subject to upward adjustments on an annual basis in the
event the licensee's employee base or revenue base increase beyond certain
ranges.
Prices for PeopleSoft's Supply Chain Planning software products are based
on the revenues of the licensing entity, beginning at $485,000 for the first
server with additional servers priced at 30% of the first server.
The Company also offers PeopleTools to PeopleSoft customers who are
interested in developing their own custom, internal client/server business
applications. License fees for PeopleTools are a function of the number of
licensed users, and such fees start at $45,000. The contractual terms of
PeopleTools licenses are similar to those for other PeopleSoft applications and
generally do not restrict the customer's internal use of PeopleTools.
PEOPLESOFT APPLICATION PRODUCTS -- HUMAN RESOURCE MANAGEMENT SYSTEM (HRMS)
PeopleSoft HRMS 7 is a family of fully integrated human resource
management application software products available for a variety of industries.
Release 7 HRMS software products which are currently commercially available
include: Human Resources, Benefits Administration, FSA Administration, Payroll,
Payroll Interface, Time and Labor and Pension Administration. European Payroll
is in beta release. A brief summary of each software product follows:
PEOPLESOFT HUMAN RESOURCES. The base human resources software product
provides support for the human resource and certain base benefit functions,
including workforce administration (employee biographical and job-related
information), recruitment, position management, training and development, health
and safety monitoring, skills inventory, career and succession. This software
product also contains capabilities to perform discrimination testing, EEO and
ADA regulatory reporting, benefit plan setup and enrollment, COBRA
administration, benefits billing, Family Medical Leave Act administration,
multiple job eligibility and coverage calculations, and retroactive
benefit/deduction calculations. Additional features include: globalization for
managing operations and requirements specific to a country or region, tracking
and administering of temporary global assignments, salary planning and budgets,
competency management for identifying and analyzing job skills or competencies
associated with individuals, jobs, teams and positions, and variable
compensation to align the workforce with strategic business objectives,
including the administration and tracking of various types of incentive
compensation plans. This software product also includes the capability to set up
online review by employees of their own selected human resource and benefits
information. With this foundation as a building block, the following software
products can be added to expand the range of system capabilities.
PEOPLESOFT BENEFITS ADMINISTRATION. The benefits administration software
product provides companies with the capability to automate certain of their more
sophisticated benefits management processes, including flexible and non-flexible
benefits programs that require complex eligibility checking, open enrollment
processing, and other automatic enrollment processing capabilities. This
application provides for user-defined benefit eligibility criteria, enrollment
rules and flexible credit calculations. Companies also have the capability to
set up online review by employees of certain of their own benefits information
as well as voice-activated open enrollment and event maintenance.
PEOPLESOFT FSA ADMINISTRATION. The flexible spending account
administration ("FSA") software product provides the capability for companies to
manage employee flexible spending accounts for healthcare and dependent care
benefits plans. The FSA software product includes capabilities to track and
process FSA claims tracking and processing, verify that flexible spending
account funds are available and that duplicate claims are not processed, as well
as support check preparation for reimbursements.
PEOPLESOFT PAYROLL. The payroll software product provides a full in-house
payroll administration and production facility. This application includes
processes for payroll calculations, check printing, tax reporting, deduction and
benefit calculations, and has comprehensive audit trail and reporting
capabilities. Features include: Fair
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Labor Standards Act overtime calculations, retroactive pay calculations,
garnishment processing, online-interactive manual checks, prior period rates,
company transfers and complete payroll tax processing information.
PEOPLESOFT PAYROLL INTERFACE. The payroll interface software product
provides a bridge between the PeopleSoft HRMS data and third party payroll
systems for those companies that use their own payroll system or a payroll
service bureau. This interface provides a subset of the capabilities of
PeopleSoft Payroll along with enhanced with import facilities.
PEOPLESOFT PENSION ADMINISTRATION. The pension administration software
product provides the capability to automate pension administration functions for
qualified, non-qualified, contributory, final pay, career average and cash
balance defined benefit plans. This application also provides for flexible,
user-defined plan rules and implementation processes, comprehensive
calculations, and extensive retiree administration and tracking processes.
PEOPLESOFT TIME AND LABOR. The time and labor software product provides a
single repository for workforce time and labor tracking and reporting, including
exception-only and positive time tracking. This software product supports a
variety of time-related business processes, including earnings and tasks, and
labor distribution. It also enables recording of information relating to an
individual employee that can be expressed in hours.
EUROPEAN PAYROLL (BETA RELEASE). This software product provides
complete control over all aspects of the payroll operation in a multinational
environment. Features include unique rules-based processing (used to set up
many common payroll processes such as earnings, deductions, overrides,
retroactivity, and prorations), complete multi-language and multi-currency
capabilities, and comprehensive absence time tracking. Countries currently
targeted for support include the United Kingdom, France, and Germany. No
assurance can be given concerning the successful development of enhancements or
new software products, the specific timing of completing new releases or new
software products or the level of their acceptance in the marketplace. See
Statement of Future Direction above.
In addition to the above software products, the Company has extended the
functionality of PeopleSoft HRMS through the integration of numerous third party
software products including a resume reader from Restrac, tax reporting and
filing from Federal Liaison Services and interactive voice processing of
benefit, time and personal payroll-related information from TALX Corporation.
PEOPLESOFT APPLICATION PRODUCTS -- FINANCIAL MANAGEMENT SYSTEMS
PeopleSoft Financials is a family of fully integrated financial management
system products available for a variety of industries. Release 7 Financials
software products which are currently commercially available include: General
Ledger, Receivables, Payables, Asset Management, Projects and Budgets. Treasury
and Expenses are currently in beta release. No assurance can be given concerning
the successful development of enhancements or new software products, the
specific timing of completing new releases or new software products or the level
of their acceptance in the marketplace. A brief summary of each software product
follows:
PEOPLESOFT GENERAL LEDGER. The general ledger software product provides
financial analysis, flexible management reporting, general ledger accounting and
consolidations that enable the user to collect and report financial information
based on the organization's unique requirements. Features include: unlimited
charts of account (ChartFields) with alternate account codes available to
support multinational statutory requirements, unlimited ledger versions
(multibooks) allowing transaction level data capture in an unlimited number of
currencies, gross and net debit and credit balances, currency precision to 15.3
digits, automatic generation of cross-currency exchange rates, customer-defined
ledgers, graphical "tree" maintenance of ChartField elements, flexible
calendars, dynamic budgeting, automated journal entry, multi-currency
capabilities, automated allocations processing and intercompany journal entries.
PEOPLESOFT RECEIVABLES. The receivables software product manages the
receipt of customer payments, and is designed to improve the organization's
ability to collect payments in a timely fashion. Features include: automatic
assessment of a customer's payment habits, generation of dunning letters,
value-added tax ("VAT") processing, automatic tape lock box processing for
electronic processing of high-volume transactions and cash position projections.
PEOPLESOFT PAYABLES. The payables software product provides comprehensive
accounts payable and cash management functions. Features include: the support of
multiple currencies, flexible payment policies, VAT and
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Goods and Services Tax ("GST") processing, automated three-way matching of
receiving including evaluated receipt settlement ("ERS"), integration with
PeopleSoft Asset Management and Purchasing to track asset acquisitions, invoice
and purchase order data, recurring vendor contracts, express checks, workflow
approval for vouchers and cash requirements analysis and planning.
PEOPLESOFT ASSET MANAGEMENT. The asset management software product manages
the acquisition, maintenance, transfer, depreciation and retirement of fixed
assets and tax compliance. Features include: asset tracking, maintenance and
insurance tracking, flexible depreciation accounting for book and tax purposes,
what-if depreciation modeling, and integration with PeopleSoft Payables and
Purchasing.
PEOPLESOFT PROJECTS. The projects software product integrates operational
and financial functions, allowing users to perform a variety of tasks, from
managing complex capital projects to calculating revenue for billable projects.
This software product was developed with input from experts from a wide range of
industries including utilities, aerospace, health care, education, mining
and engineering.
PEOPLESOFT BUDGETS. The budgeting software product integrates all aspects
of the budgeting process, combining spreadsheets, workflow processing and
PeopleSoft reporting and query tools into a centralized budgeting solution.
Features include automatic routing, flexible levels of budget detail, access to
data from other applications, access to historical data, flexible time spans,
status monitoring and reports tailored to user requirements.
PEOPLESOFT TREASURY (BETA RELEASE). The treasury software product provides
a comprehensive and flexible toolset for control over corporate treasury
functions. Features include: flexible cash management and front office functions
such as deal capture, deal modeling, market monitoring and management reporting,
position management, and in-house bank administration. No assurance can be given
concerning the successful development of enhancements or new software products,
the specific timing of completing new releases or new software products or the
level of their acceptance in the marketplace. See Statement of Future Direction
above.
PEOPLESOFT EXPENSES (BETA RELEASE). The expenses software product
integrates all aspects of the travel and entertainment reimbursement process
providing tight control over expense management processing while enabling timely
and efficient employee reimbursement. Features include: the flexibility to
enable travelers to use their own PCs to enter expense reports outside of the
network and then submit them for approval and processing later, direct input
from credit card companies, or centralized input of employee receipts submitted
by travelers. This software can be integrated with the General Ledger and
Payables for reporting and disbursements and will contain workflow capabilities
for review and approval. No assurance can be given concerning the successful
development of enhancements or new software products, the specific timing of
completing new releases or new software products or the level of their
acceptance in the marketplace. See Statement of Future Direction above.
PEOPLESOFT APPLICATION PRODUCTS -- DISTRIBUTION
PeopleSoft Distribution is a family of fully integrated distribution
software products providing optimum materials and supply chain management. From
materials procurement through complex outbound logistics, PeopleSoft
Distribution uses the latest technology for the supply chain and to streamline
business processes. Release 7 Distribution software products which are currently
commercially available for the commercial sector are: Purchasing, Inventory,
Billing, Order Management, Enterprise Planning, and Product Configurator. A
brief summary of each software product follows:
PEOPLESOFT PURCHASING. The purchasing software product automates
requisitioning, purchasing and receiving of raw materials, supplies, services,
products and assets, streamlines purchasing functions through on-line
requisitioning, automated sourcing, and application integration and enables
buyers to manage vendor selection and ongoing contracts more efficiently and
cost effectively. Features include: simplified paperless receiving which also
supports advanced shipment notifications ("ASN") via EDI, payment generation
without invoices using evaluated receipt settlement, and automatic receipt
requisitions from third party form providers.
PEOPLESOFT INVENTORY. The inventory software product provides the ability
to efficiently store and issue stock in response to changing demands, accurately
track the movement of stock on a real-time basis, and automatically replenish
stock as needed. Features include inventory set up based on organizational
structures, costing and valuation management, warehousing space and stock
management, schedule replenishment and distribution, inventory time levels
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maintenance, material put away management, fulfillment of orders, item
identification, lot and serial number tracking, local planning and reporting on
inventory data.
PEOPLESOFT BILLING. The billing software product offers a flexible,
modular approach for managing billing and adjustments, processing sales taxes,
generating invoices, and creating account distributions. Organizations can
create an enterprise-wide billing information repository, streamline the billing
process, and customize billing requirements. The unique modular approach opens
PeopleSoft Billing to allow the billing process to be driven by any number of
PeopleSoft and non-PeopleSoft billing sources. Features include: integration
with PeopleSoft General Ledger and Order Management, ChartField combination
edits, support of Canadian sales and use taxes and automated RMA credit
generation.
PEOPLESOFT ORDER MANAGEMENT. The order management software product handles
the complete range of order processing requirements. Features include: rapid
online order entry, alternative order entry methods, workflow, EDI, electronic
forms, multimedia attachments, online ATP, quotation processing, alternate
product lists, credit card enabling that is integrated with PeopleSoft Billing,
flexible pricing and commissions, and contract management.
PEOPLESOFT PRODUCT CONFIGURATOR. The configurator software product is a
highly efficient solution to selling, producing, and tracking individually
configured products in a make-to-order or assemble-to-order environment.
Features include: built-in rules types to prompt and validate order entry, price
and cost items based on order data, calculation of ship dates, sales order to
workorder tracking, and creation and tracking inventory lots of configured
products.
PEOPLESOFT APPLICATION PRODUCTS - MANUFACTURING
PeopleSoft Manufacturing is a family of fully integrated software
products designed for discrete manufacturers. Release 7 Manufacturing software
products which are commercially available include: Bills and Routings,
Production Management, Cost Management and Engineering. PeopleSoft Quality is
currently in beta release. No assurance can be given concerning the successful
development of enhancements or new software products, the specific timing of
completing new releases or new software products or the level of their
acceptance in the marketplace. A brief summary of each software product
follows:
PEOPLESOFT BILLS AND ROUTINGS. The bills and routings software product
provides all the features and functionality required to dynamically maintain
complex bills of material ("BOM"), resources, work centers and routings.
Features include: tight integration with PeopleSoft Engineering enabling BOM
transfers, integration with engineering change orders ("ECO") as well as
interfaces to PeopleSoft Production Planning and Enterprise Planning software
products.
PEOPLESOFT PRODUCTION MANAGEMENT. The production management software
product synchronizes planning and execution throughout the enterprise. Features
include: ability to manage production using discrete orders or production
schedules, automatic conversion of planning orders to production, multiple
methods of issuing material to production, including automatic replenishing
using workflow, flexibility in recording assembly completions by operation or at
production completion, along with assignment of serial and lot numbers and full
support of configured production. Full production documentation includes
component lists, operation lists, and dispatch reports.
PEOPLESOFT COST MANAGEMENT. The Cost Management software product provides
control and flexibility to manage costs throughout the supply chain. This
software product focuses on determining, analyzing, and managing product costs
and on accounting transactions that affect inventory balances. Features include:
the ability to perform cost simulations, update production costs with a
corresponding revaluation of inventory, and flexible overhead applications
methods. An unlimited number of user-defined cost elements provide the option to
maintain item costs at a very detailed or summarized level. Once costs are
determined, they can be compared against actual performance for variance
analysis. All inventory transactions are captured and posted to the general
ledger as transactions occur, or at selected intervals, such as hourly, daily,
weekly or monthly.
PEOPLESOFT ENGINEERING. The engineering software product provides the
ability to manage product introduction and change processes throughout the
enterprise. Features include: creation of engineering change requests ("ECRs")
and ECOs with change process support, seamless document management integration,
integration with PeopleSoft Cost Management and Bills and Routings, and what-if
modeling in a non-production environment.
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PEOPLESOFT QUALITY (BETA RELEASE). The Quality software product,
currently in beta release, provides a structured quality environment, combining
online Statistical Process Control ("SPC") data collection with the power of a
relational database for unparalleled quality analysis and reporting. Features
include: easy-to-use interface for the collection of process and control data,
real-time feedback to analyze quality data using charts, graphs and statistics,
and fully customizable control chart formulas and tests. No assurance can be
given concerning the successful development of enhancements or new software
products, the specific timing of completing new releases or new software
products or the level of their acceptance in the marketplace. See Statement of
Future Direction above.
PEOPLESOFT APPLICATION PRODUCTS -- SUPPLY CHAIN PLANNING
PeopleSoft Supply Chain is a family of intelligent planning and
optimization solutions, powered by Red Pepper technology, for supply chain
planning, sales order promising and plant level operations. Supply Chain
optimization technology is embedded in certain PeopleSoft Manufacturing and
Distribution software products and is also sold separately for integration into
customer environments that incorporate enterprise resource planning ("ERP"),
material requirement planning ("MRP") and distribution requirement planning
("DRP") products from other vendors. The Supply Chain software products which
are commercially available include: Production Planning, Enterprise Planning,
and Order Promising. A brief summary of each software product follows:
PEOPLESOFT PRODUCTION PLANNING. This interactive factory planning system
enables planners to optimize their manufacturing operations. The in-memory model
considers material and capacity constraints. It can also create multiple plans
for investigation of alternative scenarios, support real-time planning using
capable-to-promise functionality, and display material and capacity information
at both a summary and detailed level. Interactive Gantt charts provide the
ability to manually adjust schedules or have the system automatically repair
material and capacity problems.
PEOPLESOFT ENTERPRISE PLANNING. This intelligent supply chain optimization
application creates a total view of the enterprise. Beyond just manufacturing
planning, it includes true constraint-based replenishment planning, featuring
sourcing rules, inventory stocking policies, transfer options, and plan
requirements for each location in the supply chain. Enterprise Planning uses
in-memory models and simultaneous constraint-based optimization technology and
automatically recommends replenishment via make, buy, or transfer and alerts the
user to any problems. Multiple what-if scenarios may be created to assist the
planner in effectively selecting the best plan to execute.
PEOPLESOFT ORDER PROMISING. This event-driven, real-time order promising
application works in concert with an ERP system to evaluate production
capability to meet customer demand. It evaluates both material and capacity at
multiple levels of the enterprise. Order Promising maintains connectivity with
ERP order management systems for real-time confirmation of promise dates.
PEOPLESOFT HIGHER EDUCATION/STUDENT ADMINISTRATION
PeopleSoft's Higher Education/Student Administration is a suite of six
software applications tailored to meet the specific needs of higher education
institutions and includes the advanced technology and features available in
PeopleSoft 7. PeopleSoft Student Administration software products which are
currently commercially available include: Campus Community, Student Records,
Academic Advisement, Financial Aid, Admissions and Recruitment, and Student
Financials. A brief summary of each software product follows:
CAMPUS COMMUNITY. The campus community application captures and unifies
prospect, applicant, student, alumni and employee records by allowing for a
common database across the institution. This application streamlines internal
communications management and provides complex global searches and tracking of
all individuals and organizations associated with the college or university.
STUDENT RECORDS. The student records application expedites complex
academic administrative tasks such as catalog and class schedule maintenance,
enrollment requisite and conflict checking, multiple grading systems, multiple
concurrent academic careers and academic programs, wait list management and
tracking, and automated transfer credit evaluation.
ACADEMIC ADVISEMENT. The academic advisement application provides
automated analysis of student progress toward completion of academic
requirements. This application allows students and advisors to easily
understand, navigate and track degree progress. The academic advisement
application also provides what-if analysis and tailored academic programs for
each student.
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FINANCIAL AID. The financial aid application integrates workflow to
streamline applications processing, assignment of student budgets, needs
analysis, fund disbursement, and compliance with federal regulations and grant
applications. This application also allows automated Direct and FFELP Loan
processing and automated aid packaging.
ADMISSIONS AND RECRUITMENT. The admissions and recruitment application
captures all information relating to specific candidates, admitted students,
recruiter management, event management, concurrent prospect and applications
records, and automated admissions decisions.
STUDENT FINANCIALS. The student financials application unifies all the
rules a college or university has regarding fees and tuition, making possible
innovative tuition calculation, cashiering, third party processing, collections
and profitability tracking.
PEOPLESOFT APPLICATION DEVELOPMENT AND PRODUCTIVITY TOOLS -- PEOPLETOOLS
The Company includes a restricted use license to PeopleTools with each
PeopleSoft application software product licensed. PeopleTools 7 includes the
following application development tools:
DEVELOPMENT TOOLS: Business process analysts use the following tools to
design, prototype and deliver custom modifications and system extensions:
APPLICATION DESIGNER. Application Designer is an integrated development
environment which allows users to view and edit a list of applications
objects through an MDI interface. It also allows modified objects to be
moved into production through PeopleSoft's upgrade process. The
Application Designer integrates the following tools:
DATA DESIGNER. Data Designer is used to build new table
definitions, to add, drop or modify fields in existing tables
and to facilitate field editing. In addition, Data Designer
includes PeopleCode, a programming language similar to Visual
Basic which is used for custom field-level calculations,
edits, defaults and programming routines which minimizes
complex coding inherent with standard computer languages.
PANEL DESIGNER. Panel Designer is used to build or modify
GUI-based query and data entry screens.
MENU DESIGNER. Menu Designer is used to build or modify
application windows and pull-down menus in a graphical user
interface environment.
BUSINESS PROCESS DESIGNER. Business Process Designer comprises
the tools used to design and build business processes,
including workflow rules and routings.
APPLICATION UPGRADER. Application Upgrader facilitates
customer upgrades to successive releases of the applications
with retention of the function and feature modifications made
by the customer.
OBJECT SECURITY. Object Security allows read or modification access to
individual objects and groups of objects, including tables, panels, menus
or tree structures.
APPLICATION REVIEWER. Application Reviewer works as a debugger to help
systems analysts perform problem identification and resolution prior to
placing a modified system into production.
APPLICATION PROCESSOR. Application Processor builds panels from stored
application objects. An image of the objects in memory is written to local
storage for reuse, but is automatically updated if changed on the server.
EDI MANAGER. EDI Manager is used to define the data mappings for
electronic data interchange.
ADMINISTRATION TOOLS: Information systems managers and support staff use
the following tools to improve the efficiency of implementing and operating
PeopleSoft's software applications:
APPLICATION INSTALLER. Application Installer automates the application
installation process in various client/server network environments,
facilitating easier navigation through the many hardware, database, and
connectivity variables that affect PeopleSoft applications.
DATA MOVER. Data Mover archives and retrieves archived data stored in
PeopleSoft application databases.
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OPERATOR SECURITY. Operator Security controls the scope and level of data
accessibility provided to individuals and classes of users.
MASS CHANGE. Mass Change is a SQL generator used to develop and perform
custom applications. Through Mass Change, a developer can set up a series
of insert, update or delete SQL statements that the end user can execute
to perform business functions.
IMPORT MANAGER. Import Manager speeds the loading of data generated by
other systems into the RDBMS server for access by the Company's
application software products.
PROCESS SCHEDULER. Process Scheduler streamlines the execution of routine
tasks and controls time-based events from distributed clients by running,
on the client or server, batch processes or programs such as journal
creation, payroll processing, voucher posting and other reports without
requiring additional user interaction.
REPORTING AND ANALYSIS TOOLS: The following tools are used by application
users to easily access, analyze and report information:
PS/nVISION. PS/nVision integrates PeopleSoft applications with Microsoft
Excel in the production of financial statements, responsibility reports
and other ad hoc financial reports and analyses.
TREE MANAGER. Tree Manager builds hierarchical relationships between
different data elements within a given table, such as among departments or
accounts.
PEOPLESOFT QUERY. PeopleSoft Query builds SQL queries which extract and
summarize information from an application's database.
QUERY LINK. Query Link provides a PeopleSoft Query interface to Crystal
Reports Pro, a versatile report designer and formatter from Crystal
Services. Through Query Link, data can be quickly and easily formatted
with a variety of fonts, borders and other special effects or imported
into a spreadsheet such as Microsoft Excel for further analysis.
CUBE MANAGER. Cube Manager is used to map data between PeopleSoft
databases and hyperdimensional cubes using online analytical processing
("OLAP").
PEOPLESOFT WORKFLOW TOOLS: PeopleSoft Workflow is a suite of tools that
significantly extends the range of business tasks that can be automated. The
following are PeopleSoft Workflow tools:
WORKFLOW PROCESSOR. Workflow Processor is a suite of online agents that
run and control the workflow in business processes. Once business
processes are defined, agents are created which perform the business
process tasks.
PEOPLESOFT NAVIGATOR. The Navigator is a graphical browser which
provides application users with a graphical map of the business processes
they participate in and enables them to navigate, or select, application
panels by clicking on activities they need to perform.
DATABASE AGENT. The Database Agent monitors the PeopleSoft database to
identify items that need to enter workflow for processing.
MESSAGE AGENT. The Message Agent processes messages sent to PeopleSoft by
external systems such as IVR, E-mail such as Lotus Notes or Microsoft
CC-Mail, Internet, intranet, extranet and kiosks. It provides an
Application Program Interface ("API") that enables third party systems to
integrate with PeopleSoft.
WORKLISTS. Worklists are ordered lists of work a person or department has
to process. The list is sent to the correct person in priority order as
defined using the Business Process Designer.
WORKFLOW ADMINISTRATOR. The Workflow Administrator provides capability to
access, monitor, analyze and control workflow applications.
SALES AND MARKETING
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The Company markets and licenses its software products in most major
world markets primarily through a direct sales organization of 1,006 employees
as of December 31, 1997. The direct sales organization is based over 20 field
sales offices located in major metropolitan areas throughout the United States
with international sales activities performed out of the Company's offices in
Toronto, Vancouver, Ottawa, and Montreal, Canada; Amsterdam, the Netherlands;
Paris, France; Reading, England; Munich, Germany; Mexico City, Mexico; Sydney,
Perth and Melbourne, Australia; Auckland, New Zealand; Buenos Aires, Argentina;
Sao Paulo, Brazil; Tokyo, Japan; Madrid, Spain; Johannesburg, South Africa; and
Singapore. Most of the Company's licenses for PeopleSoft software products to
date have been in the U.S. and Canada, and a significant portion of
international sales have been to overseas affiliates of a customer's U.S. based
enterprise. To augment its direct sales channel, the Company has or had: (i) a
teaming agreement with Andersen Consulting to address the PeopleSoft HRMS and
PeopleSoft Financials requirements of state and local government agencies; (ii)
entered into a systems integration agreement with Shared Medical Systems
Corporation ("SMS"); and (iii) utilized third party distributors and system
integrators in various countries where it does not have a direct sales force.
Further details concerning the Anderson Consulting agreement and the SMS
agreement are set forth below.
In support of its sales force, the Company conducts comprehensive
marketing programs which include telemarketing, direct mail, public relations,
advertising, seminars, trade shows and ongoing customer communication programs.
The sales cycle begins with the generation of a sales lead, or often the receipt
of a request for proposal ("RFP") from a prospect, which is followed by
qualification of the lead, an analysis of the customer's needs, response to an
RFP (if solicited by the customer), one or more presentations to the customer,
customer internal sign-off activities, and contract negotiation and
finalization. While the sales cycle from customer to customer varies
substantially, the sales cycle has historically required six to twelve months.
Generally, customers obtain separate licenses for the underlying database
management systems directly from the RDBMS vendors, however, the Company may
also sublicense runtime versions of Oracle's, Sybase's or Informix's RDBMSs and
certain connectivity software products to its customers, and in come cases, has
made royalty prepayments under these agreements. In addition, the Company
incorporates SQRIBE Technology Corporations's ("SQRIBE") SQR, ReportMate,
Seagate's Crystal Report Writer, BEA's Tuxedo and Jolt Middleware, Cognos'
Powerplay, Select Software's data modeling and process modeling tools, and
Rational's SQA Robot with all of its software products. The Company has
sublicensing arrangements with Microsoft, Oracle, Informix, SQRIBE, Seagate,
BEA, Cognos, Select Software, Folio Corporation and Rational and accordingly,
the Company must rely on the strength of such companies' trademarks, trade
secrets, contractual arrangements, copyrights and patents for protection and
continued usage of such intellectual property by the Company. Termination of the
relationship with any of these companies could adversely effect the Company's
software product offerings and ability to generate revenue software application
license sales.
A key aspect of the Company's sales and marketing strategy is to build and
maintain strong working relationships with businesses the Company believes play
an important role in the successful marketing of its software products. The
Company's customers and potential customers often rely on third party system
integrators to develop, deploy and manage client/server applications. These
include: (i) RDBMS software vendors (such as Informix, Microsoft, Oracle and
Sybase); (ii) hardware vendors (such as Digital Equipment Corporation, Compaq
Computer Corporation, Hewlett Packard Corporation, IBM, Sequent Computer
Systems, Inc. and Sun Microsystems, Inc.) which offer both hardware platforms
and, in the case of IBM, proprietary RDBMS products on which the Company's
software products run; (iii) technology consulting firms and systems integrators
(such as Andersen Consulting, IBM's ISSC, Deloitte and Touche LLP, Coopers and
Lybrand LLP, KPMG Peat Marwick LLP, and Price Waterhouse LLP) some of which are
active in the selection and implementation of large information systems for the
information-intensive organizations that comprise the Company's principal
customer base; and (iv) benefits consulting firms (such as Towers Perrin, Wyatt
Co. and William M. Mercer & Co.) that are active in the implementation of human
resource management systems. The Company believes that its marketing and sales
efforts are enhanced by the worldwide presence of these companies. PeopleSoft
has conducted several joint marketing and sales programs with these vendors and
other technology and software partners, including seminars,
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direct mail campaigns and trade show appearances. However, there can be no
assurance that these companies, most of which have significantly greater
financial and marketing resources than PeopleSoft, will not start, or in some
cases increase, the marketing of business application software in competition
with PeopleSoft, or will not otherwise discontinue their relationships with or
support of PeopleSoft. If the Company or its partners are unable to adequately
train a sufficient number of consulting personnel to support the implementation
of the Company's software products, demand for these products could be
adversely affected. In addition, PeopleSoft's software application
architecture, including PeopleTools, may facilitate reduced implementation costs
for customers compared to the competitive alternatives from Oracle and SAP.
Therefore, systems integrators may actually generate lower integration fees when
implementing PeopleSoft applications when compared to competitive offerings.
Due to the foregoing factors, it is possible that in a future quarter or
quarters, the Company's operating results could not meet the published
expectations of certain public market financial analysts. In such an event, the
price of the Company's common stock would very likely be materially adversely
affected.
RELATIONSHIP WITH ADP
In order to broaden the overall distribution of its PeopleSoft HRMS
software products and PeopleTools technology, in 1992 the Company signed a
Software License and Support Agreement with ADP Inc. ("ADP"). This agreement
provides ADP with a perpetual license to use internally, to modify and to
sublicense to its clients and prospects Release 3 of PeopleSoft HRMS and
PeopleTools on the Centura SQLBase (OS/2) and Oracle database environments. ADP
does, however, have the option to sublicense PeopleSoft HRMS for operation with
several other RDBMS platforms under certain circumstances. This license also
permits ADP to provide service bureau functions to its clients and prospects
using these software products. The service bureau and sublicense rights are
limited to: (i) ADP clients and prospects which have a majority of their
employees located in the United States, Canada, Mexico, the United Kingdom,
Belgium, the Netherlands and Luxembourg (for such clients' and prospects'
employees wherever located) ("ADP Marketing Area"); and (ii) ADP clients and
prospects for such clients' and prospects' employees who are located in the ADP
Marketing Area, even if such clients and prospects have a majority of their
employees outside of such countries. Under the agreement, the Company provided
ADP with certain training, consulting and support services and product
modifications. The agreement was amended in 1995 to provide ADP with license
rights to use and distribute PeopleSoft Workflow Release 5 and the Company
agreed to provide ADP with defined product maintenance services for all updates,
improvements, additions, modifications and/or enhancements to such PeopleSoft
Workflow licensed only up to but not including Release 6 of PeopleSoft Workflow.
The Company also agreed that, prior to 1998, it would not act as a service
bureau or grant a license to use or modify PeopleSoft HRMS to parties in the
United States, Canada and Mexico that could be considered "remarketers" of the
PeopleSoft HRMS software product (excluding PeopleTools), such as consulting and
facility management firms and payroll service bureaus. On September 21, 1995,
the Company and ADP amended the agreement to permit their properly licensed
customers to have a broad right to implement and enter into outsourcing
arrangements with third parties. Pursuant to the agreement, as of December 31,
1997 certain provisions of the agreement expired.
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Through December 31, 1997, the Company has received payments from ADP
totaling $4.1 million for license fees and the fulfillment of certain
customization and training obligations, and $18.3 million in minimum royalties
for sublicenses granted by ADP including $4.2 million in minimum royalties in
1997. As of December 31, 1997, ADP has fulfilled all of its minimum royalty
obligations under this agreement, as amended, and the Company may receive $0.5
million upon completion of certain customization obligations.
RELATIONSHIP WITH ANDERSEN CONSULTING
Under an exclusive five year teaming agreement executed in October 1993,
PeopleSoft and Andersen Consulting are developing extensions to PeopleSoft's
software products and jointly marketing and delivering financial and human
resource client/server enterprise software solutions to state and local
government and public sector organizations in North America. Under the terms of
the agreement, PeopleSoft licenses its software application products directly to
the customer, refers consulting services exceeding certain amounts to Andersen
Consulting, and, will pay Andersen Consulting a royalty based on the amount of
the license fee. PeopleSoft's 1996 and 1997 contracting activity included
approximately $32.7 million and $111.9 million respectively in contracts which
were subject to this agreement.
In June 1997, PeopleSoft and Andersen Consulting announced a new strategic
alliance to develop an integrated financial management system designed
specifically to address the unique needs of the U.S. Federal Government. Under
the terms of the agreement, Andersen Consulting will contribute certain
resources to the joint development effort, both parties will team together on
certain sales opportunities, PeopleSoft will license its software application
products directly to the customer, and PeopleSoft will pay Andersen Consulting a
royalty based on the amount of the license fee. As of December 31, 1997, the
software product was under development and there were no license agreements
which would be subject to this agreement. Subsequent to completing the
development of the initial version of this software product suite, the Company
will be required to obtain General Services Administration ("GSA") certification
that the software products meet certain minimal functional requirements in order
to market these products to agencies of the U.S. Federal Government. No
assurance can be given that this software product development effort will be
successfully completed or such certification will be obtained.
RELATIONSHIP WITH SMS
In August 1995, PeopleSoft and SMS entered into a systems integrator
agreement whereby PeopleSoft appointed SMS as a distributor of certain
PeopleSoft HRMS and Financials software products. The term of the agreement is
ten years, with the possibility of annual renewals thereafter. SMS has the right
to market/sublicense such software products in the United States and Puerto Rico
to a defined base of SMS existing end users, and in conjunction with the
distribution of SMS' software products, to other entities in the health care
industry. Except in certain situations, SMS has exclusive distribution rights to
SMS' end users. SMS also obtained the right to use certain software products of
PeopleSoft HRMS and Financials software products and PeopleTools for general
development in support of SMS' internal operations. Pursuant to the terms of the
agreement, PeopleSoft has provided termination notice to SMS on March 19, 1998.
As of March 27, 1998, SMS has contested the notice of termination.
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INTERNATIONAL OPERATIONS
During the years ended December 31, 1995, 1996 and 1997, the Company's
international revenues were approximately 16%, 16% and 15% of total revenues,
respectively. International revenues from each geographic region were less than
10% of total revenues. The Company operates in one industry segment, the
development and marketing of computer software products and related services,
and markets certain of its software products to a variety of industries through
branches and foreign subsidiaries located in Canada, the United Kingdom, the
Netherlands, Germany, France, Spain, South Africa, Mexico, Argentina, Brazil,
Australia, Singapore, Japan and New Zealand. The Company established the sales
office in South Africa during 1997. In addition, the Company also markets
through distributors in the Asia/Pacific region. The international revenue
percentages above understate the relative size of the Company's international
installed base because U.S. based companies frequently acquire the rights to
utilize the Company's software products in locations outside of the United
States, although the Company does not generally report any portion of the
revenues associated with these agreements as international revenues.
SERVICES AND CUSTOMER SUPPORT
The Company believes that a high level of customer service is required to
be successful in the client/server marketplace due to the number of different
hardware and software vendors involved in an implementation and the inherent
complexity of the architecture. The Company also believes that the opportunity
exists to differentiate itself from competitors on a service level due to the
demanding service requirements of this market. The Company's customer service
staff consisted of 2,114 employees as of December 31, 1997.
Service revenue consists primarily of software support (maintenance) fees,
customer training fees, consulting fees, and other miscellaneous fees. Services
revenues constituted 41%, 44% and 47% of the Company's total revenues during the
years ended December 31, 1995, 1996 and 1997, respectively. Service revenue may
fluctuate due to, but not limited to, changes in levels of consulting activity,
the related satisfaction of significant agreement milestones, and satisfaction
of the Company's revenue recognition criteria. In addition, seasonality impacts
training and installation revenue, both of which tend to follow license fees by
approximately one quarter.
The Company's service and support for each customer is coordinated by at
least one account manager. The account manager is responsible for working with
the customer in areas such as implementation and upgrade project
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planning and management, and providing information and advice on PeopleSoft
software products, services and partnerships. Additionally, the account manager
coordinates ongoing training, consulting and support services. Such services
include the following categories:
SOFTWARE MAINTENANCE AND SUPPORT
The Company provides 24-hour hot-line telephone support, staffed with a
group of experienced professionals and supported by a computerized call tracking
and problem reporting system. PeopleSoft has provided internet access to this
hotline as an alternative to telephone bound service since August of 1995. The
Company supports worldwide operations with hubs in North America, Europe and the
Asia/Pacific region. This service provides subscribing customers with company
news, direct access to other PeopleSoft subscribing customers, the ability to
download and apply software product fixes and access to an online
troubleshooting database.
Initial software product license fees include the first year of
maintenance support. Thereafter, ongoing maintenance contracts are offered to
customers, and are renewable on an annual basis. The maintenance agreement
entitles the customer to software product enhancements or upgrades released
during the term of the maintenance agreement, an assigned account manager, and
24-hour hot-line telephone support. Annual maintenance fees are generally based
on 17% of the then current list price of the software products under license by
a customer. To date, well over 90% of all customers have renewed their
maintenance contracts.
CUSTOMER EDUCATION AND TRAINING
The Company offers comprehensive education for key groups affected by the
implementation of PeopleSoft technology (executives, the project team and
application users) with the goal of ensuring each customer's success with the
Company's software products. Training is also available for third party
consultants. The Company's educational programs include instructor-led classes,
computer-based training, and extensive end user training that also serves as an
electronic performance support system.
Instructor-led training is provided in training facilities leased by the
Company in several major metropolitan areas around the world and can also be
delivered on the customer's site for a fee plus travel expenses. The Company's
fees for instructor-led, project team training are generally priced at $450 per
training unit (representing one student day of training). The Company offers
price reductions for volume advanced purchases of training units. The Company's
pricing for end user training varies based on the number of employees at the
customer company and the number of training modules purchased.
CONSULTING SERVICES
The Company offers a variety of consulting services to its customers
including system product implementation assistance and planning, project
planning and strategy, upgrade implementation, electronic commerce, workflow or
OLAP deployment, and minor software product enhancements. The Company has
several technology labs which currently concentrate on upgrading customers from
one PeopleSoft release to the next. Additionally, the Company has a Year 2000
lab which specializes in rapid customer implementations and the development of
tools, templates and methodologies to assist our customers and partners in
similar efforts. The Company frequently works closely with third party
consulting and systems integration firms such as Andersen Consulting, Deloitte
and Touche LLP, KPMG Peat Marwick LLP and Price Waterhouse LLP who provide the
customer with a full range of reengineering, customization and project
management services. These third party consulting firms have also licensed
PeopleSoft applications to develop programs to support customers implementing
the Company's software products. During the past year PeopleSoft significantly
expanded its consulting services group to meet growing customer demands for such
services. There can be no assurance that PeopleSoft will be successful in
further expanding its consulting services group, or that revenues from
consulting services will in fact increase, or be profitable.
COMPETITION
The market for business application software is intensely competitive. The
Company faces competition from a variety of vendors who provide products in one
or more of the following areas: enterprise application software, financial
management and accounting application software, HRMS application software,
supply chain management application software, manufacturing application
software, higher education application software, other industry specific
software, and application development software tools. In addition to existing
competitors, other
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software vendors may broaden their product offerings by internally developing,
or by acquiring or partnering with independent developers of, products that
compete with the Company's products; and most of the customers in the Company's
market could internally develop their own solutions using third party
consultants or their own corporate information technology departments. Although
PeopleSoft believes its success has been due in part to its early emphasis on
the client/server architecture, virtually all of the Company's competitors now
offer software products based on a client/server architecture. Consequently,
competitive differentiators now include more subtle architectural and
technological factors, such as Web enablement, enterprise product breadth and
individual software product features, service reputation, software product
flexibility, ease of implementation, international software product version
availability and support, and price.
In the enterprise application software market, PeopleSoft faces
significant competition from SAP, Oracle and Baan and to a lesser degree, Dun &
Bradstreet Software (now operating as two separate divisions of Geac Computer
Systems, Inc.), Computer Associates International, Inc. and other companies such
as System Software Associates who previously focused primarily on the AS/400
marketplace. In this market, the chief competitive factors include the breadth
and completeness of the enterprise solution offered by each vendor, the extent
of product integration across the enterprise solution and the availability of
localized software products and technical support in key markets outside the
United States. Primarily due to their significant worldwide presence and longer
operating and product development history, both SAP and Oracle have certain
competitive advantages over PeopleSoft in each of these areas. In addition, both
SAP and Oracle have substantially greater financial, technical and marketing
resources, and a larger installed base than PeopleSoft. Furthermore, Oracle's
RDBMS is a supported platform underlying a significant share of PeopleSoft's
installed applications, and Oracle has in the past demonstrated significant
account control over many of these RDBMS customers
PeopleSoft also faces competition from providers of HRMS software products
including Cyborg Systems ("Cyborg"), Lawson Associates ("Lawson"), Integral
Systems, Inc. ("Integral"), InPower, Inc. ("InPower") and Ceridian ("Ceridian"),
and from providers of financial management systems software products including
Computron Software, Inc., Flexiware International ("Flexiware"), Hyperion
Software ("Hyperion"), Lawson, and other smaller companies. In addition, SMS has
the right to sublicense selected PeopleSoft software products in competition
with PeopleSoft's marketing efforts in selected markets.
As the Company increases its offerings of industry specific applications,
the Company expects to encounter additional competitors who have traditionally
focused only on specific vertical markets. In addition to the specific markets
mentioned below, the Company expects to compete with vendors offering
application software products specifically in the Higher Education market,
Healthcare market, Financial Services market, Utilities market and possibly
others.
In the manufacturing software application markets, in which PeopleSoft
recently began competing, PeopleSoft faces competition from several of its
existing competitors including those listed immediately above and others such as
QAD, Ross Systems and J.D. Edwards, and a large number of niche competitors
already in the manufacturing markets.
In the emerging supply chain planning and optimization software solutions
market, in which the Company now competes since its acquisition of Red Pepper
Software Company in 1996, PeopleSoft faces several current and potential
competitors including: (i) companies such as i2 Technologies, Manugistics, and
Numetrix Software which have developed or are attempting to develop advanced
planning and scheduling software products which complement or compete with MRP
solutions; (ii) other companies that provide specialized planning and scheduling
software for niche markets, including Chesapeake Systems, Waterloo Manufacturing
Software, MAPICS, Inc. (formerly Marcam Corporation), Marcam Solutions, Inc. and
Cap Logistics; and (iii) other enterprise application software vendors such as
SAP and Baan.
In addition, as the Year 2000 approaches, enterprises may consider
outsourcing options including data center outsourcing and service bureaus as
viable alternatives to purchasing the Company's software products which may
result in increased competition from outsource services including Computer
Science Corporation, Electronic Data Systems Corporation, IBM, ADP, Ceridian,
and other smaller companies.
17
<PAGE> 20
Intense competition could potentially lead to increased price competition
in the market, forcing the Company to reduce prices which may result in reduced
gross margins and loss of market share by the Company which therefore, could
materially adversely affect the Company's business, operating results and
financial condition. In recent quarters, the Company has observed increasingly
aggressive pricing practices on the part of its major competitors, in particular
SAP and Oracle. There can be no assurance that the Company will continue to
compete successfully with its existing competitors or will be able to compete
successfully with new competitors.
SOFTWARE PRODUCT DEVELOPMENT
Since inception, the Company has made substantial investments in research
and software product development. Through the end of 1994, substantially all of
the Company's software products have been developed by its internal development
staff. Beginning in 1995, the Company increased the purchasing and licensing of
third party software products. The Company believes that timely development of
new software products, enhancements to existing software products and the
acquisition of rights to sell or incorporate complimentary technologies and
products into its software product offerings, is essential to maintain its
competitive position in the market. The applications software market is
characterized by rapid technological change, frequent introductions of new
products, changes in customer demands and rapidly evolving industry standards.
For example, in order to gain broad market acceptance, the Company maintains
product availability across a number of RDBMS platforms. The Company believes
that software product development is most effectively and expeditiously
accomplished by small teams comprised of relatively senior people who are
focused on certain software product areas. Accordingly, the Company's
development organization is comprised of small, focused development groups
assigned to each of the software products within the primary software product
areas: PeopleSoft HRMS, PeopleSoft Financials, PeopleSoft Financials for the
Public Sector, PeopleSoft Human Resources for the Federal Government, PeopleSoft
Distribution, PeopleSoft Manufacturing, Supply Chain Planning, PeopleSoft
Student Administration and PeopleTools. This development is typically undertaken
in a single RDBMS environment on a workstation-based LAN. In addition, the
Company utilizes a platforms group which is responsible for porting and testing
the Company's software products on other RDBMS and hardware server environments.
The Company's documentation group develops the user and system administration
documentation for each software product. The Company utilizes a common
technology and technical approach in the development of all application
products. Significant application development is performed using PeopleTools.
The Company released version 7 of PeopleSoft HRMS, PeopleSoft Financials,
PeopleSoft Distribution and PeopleSoft Manufacturing in the third quarter of
1997, with each including significant technological enhancements to the existing
software products. Version 7 of PeopleSoft's Student Administration/Higher
Education software applications became generally available in December 1997. The
Company's current focus in application development is to expand the
functionality and breadth of the Company's software product offerings by (i)
enhancing workflow capabilities; (ii) developing new software products and
adding new functionality to existing software products including global product
requirements and translated releases of global products, and industry specific
functionality; (iii) supporting joint development arrangements under which
certain vertical market applications may be developed; and (iv) adding certain
architectural extensions. PeopleTools development activities have emphasized the
continued evolution of a distributed processing architecture, graphical user
interface and navigation enhancements, increased OLAP and electronic commerce
capabilities, and functionality and utilities to support the application
development activities in PeopleTools. There can be no assurance that such
development efforts will result in its products, features or functionality or
that software products, features or functionality that are developed will be
accepted by the market.
The Company's research and development staff consisted of 918 employees as
of December 31, 1997. The Company's total research and development expenses were
approximately $38.6 million, $70.7 million, and $129.6 million for the years
ended December 31, 1995, 1996 and 1997, respectively. In addition, the Company
capitalized software development costs of $2.4 million, $3.7 million and $2.5
million for the years ended December 31, 1995, 1996 and 1997, respectively.
Capitalized software development costs are amortized over the estimated useful
life of the software product beginning with general availability for a period
not to exceed five years. Total capitalized software development amortization,
which is charged to cost of license fees, amounted to $1.7 million in 1995, $1.6
million in 1996 and $4.0 million in 1997. In addition, in November 1996, the
Company recorded a one time charge of $22.5 million for in-process research and
development related to the purchase of PeopleSoft Manufacturing, Inc. ("PMI").
18
<PAGE> 21
PeopleSoft entered into development arrangements in 1995 and 1997 for the
purpose of developing the Student Administration software applications which
were commercially released in December 1997 (See Note 6 of the Notes to
Consolidated Financial Statements). Under these agreements, PeopleSoft is the
exclusive remarketer of the Student Administration software products, and pays a
royalty to the third parties based on license fees received from end user
licenses of these software products. All ownership rights and interests in the
software will transfer to the Company, upon the later of five years from the
commercial release of the applications or when $17 million in cumulative
royalties have been paid to the third parties.
In January 1997, PeopleSoft entered into a development and marketing
agreement with Intrepid Systems, Inc. ("Intrepid") a leading supplier of
integrated software solutions for retailers. Under the arrangement, Intrepid
will port its merchandise management system software product suite for retail
management ("Evolution") to PeopleTools and integrate these applications with
PeopleSoft's general ledger and accounts payable software products. The
companies will jointly market a retail enterprise solution including PeopleSoft
HRMS and Financial software applications and Intrepid's Evolution and decision
support software product suites. Concurrent with the execution of the agreement,
PeopleSoft separately acquired a minority equity interest in Intrepid. While the
intent of the agreement is to develop business applications which are integrated
with PeopleSoft's software products, there can be no assurance that such
software products will in fact be integrated or that an integrated enterprise
solution will be accepted by the retail industry.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, LICENSES AND PRODUCT LIABILITY
The Company regards certain aspects of its internal operations, software
and documentation as proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
its proprietary information. The Company received its first patent in June 1995
and its second patent in August 1995. In July 1995, the Company received title
to a third patent as part of a teaming and development agreement. The Company
also has four additional patent applications pending. There can be no assurance
that any issued patents will result from such applications or that, if issued,
such patents will provide any meaningful competitive advantage. Existing
copyright laws afford only limited protection. The Company believes that,
because of the rapid pace of technological change in the computer software
industry, patent, trade secret and copyright protection are less significant
than factors such as the knowledge, ability and experience of the Company's
employees, frequent software product enhancements and the timeliness and quality
of support services. There can be no assurance that these protections will be
adequate or that PeopleSoft's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Many customers of PeopleSoft are beneficiaries of a source code
escrow account arrangement to enable the customer to acquire a future limited
right to use the Company's source code solely for their internal provision of
maintenance services. This possible access to the Company's source code may
increase the likelihood of misappropriation or other misuse of the Company's
intellectual property. In addition, the laws of certain countries in which the
Company's software products are or may be licensed do not protect the Company's
software products and intellectual property rights to the same extent as the
laws of the United States.
The Company does not believe its software products, third party software
products the Company offers under sublicense agreements, Company trademarks or
other Company proprietary rights infringe the property rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future software products or that any such assertion may not require the Company
to enter into royalty arrangements or result in costly litigation.
The Company's license agreements with its customers contain provisions
designed to limit the exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in such
license agreements may not be valid as a result of future federal, state or
local laws or ordinances or unfavorable judicial decisions. Although the Company
has not experienced any product liability claims to date, the license and
support of its software for use in mission critical applications creates the
risk of a claim being successfully pursued against the Company. Damage or
injunctive relief resulting under such a successful claim could cause a
materially adverse impact on the Company's business, operating results and
financial condition. In addition, as PeopleSoft begins to compete in the
manufacturing software application market, the mission critical nature of such
software products may increase PeopleSoft's exposure to product liability claims
against the Company.
19
<PAGE> 22
PERSONNEL
As of December 31, 1997, the Company employed 4,452 people, including
1,006 in sales and marketing, 918 in product development, 2,114 in customer
services, and 414 in administration. None of the Company's employees in the
United States are represented by a labor union or are subject to a collective
bargaining agreement. Certain of the international employees are covered by the
customary employment contracts and agreements of the countries in which they are
employed. The Company believes that relations with its employees are good.
The executive officers of the Company as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Duffield 57 Chairman of the Board, Chief Executive Officer,
and President
Albert W. Duffield 54 Senior Vice President of Worldwide Operations,
and Director
Kenneth R. Morris 47 Senior Vice President and Chief Technology
Officer
Ronald E. F. Codd 42 Senior Vice President of Finance and Administration,
Chief Financial Officer, and Secretary
Margaret L. Taylor 46 Senior Vice President of Corporate Operations
Aneel Bhusri 32 Senior Vice President of Product Strategy,
Business Development and Marketing
James J. Bozzini 31 Senior Vice President of Service Operations
</TABLE>
Mr. David A. Duffield is a founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and President since the Company's
incorporation in August 1987. Prior to that time, he was a founder and Chairman
of the Board of Integral, a vendor of human resource and financial applications
software, from April 1972 through April 1987. During a portion of that time, Mr.
Duffield also served as Integral's Chief Executive Officer. Mr. Duffield is also
the co-founder of Information Associates (now a subsidiary of Systems and
Computer Technology), where he was employed between 1968 and 1972. From 1964 to
1968, Mr. Duffield worked at IBM as a marketing representative and systems
engineer. He holds a B.Sc. in Electrical Engineering and an M.B.A. from Cornell
University.
Mr. Albert W. Duffield joined the Company in June 1990 as Vice President
of Sales. Mr. Duffield was appointed Vice President of Operations in September
1991, and was appointed Vice President of Sales and Marketing in February 1993.
In November 1993, he was appointed Senior Vice President of Sales and Marketing,
and, effective January 1994, he was appointed Senior Vice President of Worldwide
Operations. He was elected to the Board of Directors in April 1991. Prior to
joining the Company, Mr. Duffield served as Chief Operating Officer of Data
Design Associates, a division of Integral Systems, from June 1989 through June
1990. Prior to the acquisition of Data Design Associates by Integral Systems in
September 1989, he served as its Senior Vice President of Sales and Marketing
from October 1981 through June 1989. From 1970 to 1981, Mr. Duffield worked at
IBM in various sales, sales management and staff management positions. He holds
a B.Sc. in Hotel/Business Administration from Cornell University and an M.B.A.
from Rutgers University. Mr. David Duffield and Mr. Albert Duffield are
brothers.
Mr. Kenneth R. Morris is a founder of the Company and was appointed Vice
President of Product Development at the Company's incorporation in August 1987.
In November 1993, he was appointed Senior Vice President of Product Development,
and, effective January 1994, he was appointed Senior Vice President and Chief
Technology Officer. From March 1982 to July 1987, Mr. Morris held various
product development and customer service positions with Integral. Prior to March
1982, Mr. Morris held various positions, including as a Principal, with American
Management Systems, Inc., a supplier of application software. He holds a B.B.A.
from Southern Methodist University and an M.B.A. from Harvard University.
Mr. Ronald E. F. Codd joined the Company in September 1991 as Vice
President of Finance and Chief Financial Officer. In November 1993, he was
appointed Senior Vice President of Finance and Administration and Chief
Financial Officer. He was appointed Secretary of the Company in March 1992.
Prior to joining the Company, Mr. Codd was Corporate Controller of MIPS Computer
Systems, Inc., a microprocessor designer and
20
<PAGE> 23
computer manufacturer, from March 1989 through September 1991. From March 1984
through March 1989, he was Corporate Controller and Chief Accounting Officer for
Wyse Technology, Inc., a computer and peripheral manufacturer. Mr. Codd is a
Certified Public Accountant, a Certified Managerial Accountant, and holds a
Certified Production and Inventory Management credential. He received a B.Sc. in
Business Administration from the University of California, Berkeley and an M.M.
degree from the J.L. Kellogg Graduate School of Management (Northwestern
University). Mr. Codd's father, Dr. Edgar F. Codd, is a director of the Company.
Ms. Margaret L. Taylor joined the Company in January 1989 as Vice
President of Customer Services, and was appointed Vice President of Customer
Services and International in February 1993. In November 1993, she was appointed
Senior Vice President of Customer Services, and, effective January 1994, she was
appointed Senior Vice President of Application Development and Customer
Services. In the third quarter of 1995, Ms. Taylor also assumed responsibility
for PeopleTools development. In January 1998, she was appointed Senior Vice
President of Corporate Operations and assumed responsibility for MIS and
Facilities in addition to her existing responsibilities. From May 1986 to
October 1988, Ms. Taylor was Vice President of Trust and Investment Management
at The Hibernia Bank. From August 1978 to August 1985, she held various
positions with the Bank of California, N.A., including Vice President and
Director of Human Resources. Ms. Taylor holds a B.A. in Psychology and
Communications from Lone Mountain College.
Mr. Aneel Bhusri joined PeopleSoft in August 1993 as Director of Strategic
Planning. In April of 1995, he was appointed Vice President of Product Strategy.
In November of 1995, Mr. Bhusri was appointed Senior Vice President of Product
Strategy. In April 1997, he was appointed Senior Vice President of Product
Strategy, Business Development and Marketing. Prior to joining PeopleSoft, Mr.
Bhusri was an associate at Norwest Venture Capital from June 1992 to March 1993.
From 1988 to 1991 he was a financial analyst in Morgan Stanley's Corporate
Finance Department. Mr. Bhusri holds an M.B.A. from Stanford University and a
B.Sc. in Electrical Engineering with a B.A. in Economics from Brown University.
Mr. James J. Bozzini joined the Company in August 1991 as an account
manager, and was appointed Director of European Operations in December 1992. In
January 1994, he was appointed Director of International Services and in
February 1994 assumed responsibility for the Professional Services group in
North America, in addition to his international responsibilities. In January
1995, he was appointed Vice President of Professional Services, and in January
1997 he was appointed Vice President of Customer Service Operations and assumed
responsibility for Education Services, Product Support, and Customer Service
Strategy, in addition to Professional Services. In January 1998, Mr. Bozzini was
appointed Senior Vice President of Service Operations and his responsibilities
increased to include MIS, Facilities, and Communication Services. From August
1988 to July 1991, he held various positions at Andersen Consulting. Mr. Bozzini
holds a B.S. in Business from California State University, Chico.
The Company has experienced an extended period of significant revenue
growth, a significant expansion in the number of its employees, increased
pressure on the viability and scope of its operating and financial systems and
expansion in the geographic scope of its operations. This growth has resulted in
new and increased responsibilities for management personnel and has placed a
significant strain upon the Company's management, operating and financial
controls and resources. To accommodate recent growth, compete effectively and
manage potential future growth, the Company must continue to implement and
improve the speed and quality of its information decision systems, business
processes, reporting systems, procedures and controls and further expand, train
and motivate its workforce. There can be no assurance that the Company's
personnel, procedures, systems and controls will be adequate to support the
Company's future operations.
PeopleSoft believes that its continued success will depend in large part
upon its ability to attract and retain highly-skilled technical, managerial and
marketing personnel. The loss of services of one or more of the Company's key
employees could have a materially adverse effect on the Company's business,
operating results and financial condition. The Company intends to hire a
significant number of additional sales, service and technical personnel in 1998.
Competition for the hiring of such personnel in the software industry is
intense, and the Company from time to time experiences difficulty in locating
candidates with appropriate qualifications, particularly within the desired
geographic location. It is widely believed that the technology sector is at or
over a state of full employment. There can be no assurance that the Company will
be successful in attracting and retaining the personnel it requires to develop,
market and support new or existing software. The growth in the Company's
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<PAGE> 24
customer base and expansion of its product lines and supported platforms have
placed, and are expected to continue to place, a significant strain on the
Company's management and operations, including its services and development
organizations.
Any failure to implement and improve the Company's operational, control,
reporting, and management systems or to retain, expand, train, motivate or
manage employees could have a materially adverse effect on the Company's
business, operating results and financial condition.
ITEM 2. PROPERTIES
FACILITIES
As of December 31, 1997, the Company leased the majority of its facilities
and its principal locations are in or near the following cities:
<TABLE>
<CAPTION>
Approximate Lease
Location Square Feet Expiration Date Principal Activities
- -------- ----------- --------------- --------------------
<S> <C> <C> <C>
Irvine, CA 11,000 November 2000 Sales, Marketing and Customer
Mission Hills, CA 6,000 January 1998 Development
Pleasanton, CA 216,000 February 2002 Corporate HQ, Development and Technical Support
Pleasanton, CA 35,000 January 1999 Corporate HQ, Development and Technical Support
Pleasanton, CA 66,000 July 2006 Sales, Marketing and Customer Service
San Mateo, CA 29,000 July 2000 Development, Sales, Marketing and Customer Service
Coral Gables, FL 10,000 July 2002 Sales, Marketing and Customer Service
Atlanta, GA 59,000 June 2000 Sales, Marketing and Customer Service
Chicago, IL 53,000 December 2001 Sales, Marketing and Customer Service
Boston, MA 21,000 November 1999 Sales, Marketing and Customer Service
Bethesda, MD 46,000 August 2000 Sales, Marketing and Customer Service
Detroit, MI 14,000 June 2003 Sales, Marketing and Customer Service
Minneapolis, MN 13,000 July 2002 Sales, Marketing and Customer Service
Teaneck, NJ 47,000 May 2003 Sales, Marketing and Customer Service
Philadelphia, PA 13,000 September 2001 Sales, Marketing and Customer Service
Dallas, TX 18,000 July 2000 Sales, Marketing and Customer Service
Melbourne, Australia 10,000 February 1999 Sales, Marketing and Customer Service
Sydney, Australia 21,000 September 2001 Sales, Marketing and Customer Service
Montreal, Canada 9,000 July 2002 Sales, Marketing and Customer Service
Toronto, Canada 12,000 September 1999 Sales, Marketing and Customer Service
Vancouver, Canada 16,000 April 2002 Sales, Marketing and Customer Service
Reading, England 15,000 March 1998 Sales, Marketing, Customer Service and Administration
Paris, France 22,000 March 1999 Sales, Marketing and Customer Service
Munich, Germany 9,000 June 1999 Sales, Marketing and Customer Service
Amsterdam, the Netherlands 18,000 June 2001 Sales, Marketing, Customer Service and Administration
Madrid, Spain 7,000 June 1999 Sales, Marketing and Customer Service
Singapore 13,000 December 2001 Sales, Marketing and Customer Service
Johannesburg, South Africa 2,000 November 1998 Sales, Marketing and Customer Service
</TABLE>
The Company also leases smaller facilities (generally under execusuite
arrangements) for sales, marketing and customer service activities in or near
Phoenix, Arizona; Sacramento, California; Denver, Colorado; Orlando, Florida;
Indianapolis, Indiana; St. Louis, Missouri; Cincinnati and Columbus, Ohio;
Pittsburgh, Pennsylvania; Austin and Houston Texas; Bellevue, Washington;
Milwaukee, Wisconsin; and outside of the United States in
22
<PAGE> 25
Calgary, Ottawa and Edmonton, Canada; Mexico City and Monterey, Mexico; Buenos
Aires, Argentina; Rio De Janeiro and Sao Paulo, Brazil; Adelaide, Brisbane,
Canberra and Perth, Australia; Tokyo, Japan; Wellington and Auckland, New
Zealand; and Brussels, Belgium. In 1998, the Company anticipates expanding
existing facilities, depending upon the availability of suitable additional
space. Commercial building vacancy rates have significantly dropped in many of
the markets where the Company has significant operations. As a consequence, the
Company expects to experience increasing difficulty in obtaining additional
space within which to expand its operations. Failure to either obtain space, or
obtain it on reasonably attractive commercial terms, may inhibit the Company's
ability to grow, or otherwise adversely effect the Company's operations and
financial results.
The Company acquired an office building in Pleasanton, California in a
cash transaction in December of 1995. The total cost was approximately $25
million, including all related transaction costs, for approximately 275,000
square feet of office space. As of December 31, 1997, approximately 180,000
square feet or approximately 65.5% was occupied by the Company and 95,000 square
feet was occupied by existing tenants.
In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. The lessor has committed to fund up
to a maximum of $70 million for construction of the facility. This lease is
structured as an operating lease, however, the accounting treatment will
ultimately be determined upon inception of the lease term when the Company
occupies the facility. Construction on the facility is anticipated to be
completed in the third quarter of 1998 and payments under this lease will be
based on LIBOR rates applied to amounts funded and will begin at that time. The
Company has an option to renew the lease for an additional three years, subject
to certain conditions. If at the end of the lease term the Company does not
purchase the property, the Company would guarantee a residual value to the
lessor equal to a specified percentage of the lessor's cost of the facility.
Under this lease, the Company is required to maintain compliance with certain
financial covenants.
Subsequent to 1997, the Company negotiated an amendment to this lease
which extends the term of the lease until February 2003, with an option to renew
for an additional three years. Additionally, the Company negotiated a fixed rate
funding option under which the Company may elect that any or all of the amounts
funded to date be charged a fixed interest rate. The Company has the option of
setting the fixed rate expiration date for any date through the end of the lease
term.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal disputes and proceedings arising
from the ordinary course of general business activities. In the opinion of
management, resolution of these matters is not expected to have a material
adverse effect on the financial position, results of operations and cash flows
of the Company. However, depending on the amount and timing, an unfavorable
resolution of some or all these matters could materially affect the Company's
future results of operations or cash flows in a particular period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol PSFT. In December 1997, the Company effected a two-for-one split of
its common stock. All share and per share data applicable to prior periods have
been restated to reflect the split. The following table lists the high and low
sales for the last two years:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fourth quarter of 1997 $39.50 $27.19
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C> <C>
Third quarter of 1997 $33.19 $26.00
Second quarter of 1997 $28.44 $15.31
First quarter of 1997 $28.38 $18.88
Fourth quarter of 1996 $26.13 $20.13
Third quarter of 1996 $21.19 $14.09
Second quarter of 1996 $18.25 $11.94
First quarter of 1996 $14.81 $ 8.69
</TABLE>
The trading price of the Company's common stock is subject to wide
fluctuations in response to quarterly variations in contracting activity and
operating results, announcements of technological innovations or new software
products by the Company or its competitors, as well as other events or factors.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations which have particularly effected the market price of
many high technology companies and which often have been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of the Company's common stock.
As of March 20, 1998, the approximate number of common stockholders of
record was 2,430, representing approximately 86,000 shareholder accounts.
The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's facility lease prohibits the payment of cash dividends
without the other's consent.
Certain provisions of the Company's Certificate of Incorporation and
Bylaws could delay the removal of incumbent directors and could make a merger,
tender offer or proxy contest involving the Company more difficult, even if such
events would be beneficial to the interests of the stockholders. In addition,
the Company has 2,000,000 shares of authorized Preferred Stock. The Company may
issue shares of such Preferred Stock in the future without further stockholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as the Board of Directors may determine. 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 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, or of
discouraging a third party from acquiring, a majority of the outstanding voting
stock of the Company. In addition, the staggered terms of the Company's Board of
Directors could have the effect of delaying or deferring a change in control of
the Company.
Under a stockholder rights plan adopted in 1995, each share of the
Company's common stock carries the right ("Right"), under certain circumstances,
to purchase equity securities of the Company or an acquirer. Ten days after a
tender offer or acquisition of 20% or more of the Company's common stock,
each Right may be exercised for $190 ("Exercise Price") to purchase one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock. Each one one-thousandth of each share of Series A Participating Preferred
Stock will generally be afforded economic rights similar to one share of the
Company's common stock. In addition after such rights are triggered, each Right
entitles the holder to purchase common stock of the Company with a fair value of
twice the Exercise Price or, in certain circumstances, securities of the
acquiring company for the Exercise Price. Each Right expires in February 2005,
and, during specified periods, the Company may redeem or exchange each Right for
$.01 or one share of common stock, respectively.
Based on the number of shares of common stock outstanding at March 20,
1998, officers and directors of the Company and persons who may be deemed to be
affiliates, as a group, beneficially owned approximately 33% of PeopleSoft's
outstanding common stock. As a result, officers and directors and their
affiliates may have influence over the election of the Board of Directors and
any matters requiring approval by the stockholders of the Company. In addition,
the Company has entered into agreements with its officers and directors
indemnifying them against losses they may incur in legal proceedings resulting
from their service to the Company.
24
<PAGE> 27
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, (b)
--------------------------------------------------------
1993 (a) 1994 (a) 1995 (a) 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(in thousands except per share amounts)
STATEMENTS OF INCOME DATA:
Revenues:
License fees $ 37,656 $ 68,580 $137,808 $252,799 $433,195
Services 20,565 44,503 94,331 197,253 382,456
-------- -------- -------- -------- --------
Total revenues 58,221 113,083 232,139 450,052 815,651
Costs and expenses:
Cost of license fees 3,123 6,817 8,503 12,357 21,635
Cost of services 12,270 26,740 56,789 118,906 229,178
Sales and marketing 17,909 35,844 70,052 135,757 225,498
Product development 8,688 15,318 38,625 70,653 129,553
General and administrative 4,317 8,167 16,182 27,162 43,611
In-process research and
development and merger
related costs -- -- -- 29,393 --
-------- -------- -------- -------- --------
Total costs and expenses 46,307 92,886 190,151 394,228 649,475
-------- -------- -------- -------- --------
Operating income 11,914 20,197 41,988 55,824 166,176
Other income, interest expense and 1,167 2,192 4,149 5,888 9,862
other
-------- -------- -------- -------- --------
Income before income taxes 13,081 22,389 46,137 61,712 176,038
Provision for income taxes 5,265 9,308 18,799 25,851 67,775
-------- -------- -------- -------- --------
Net income $ 7,816 $ 13,081 $ 27,338 $ 35,861 $108,263
======== ======== ======== ======== ========
Basic income per share $ 0.04 $ 0.07 $ 0.13 $ 0.17 $ 0.49
======== ======== ======== ======== ========
Shares used in basic per
share computation 183,553 194,156 203,689 211,248 219,302
======== ======== ======== ======== ========
Diluted income per share $ 0.04 $ 0.06 $ 0.12 $ 0.15 $ 0.44
======== ======== ======== ======== ========
Shares used in diluted per
share computation 203,592 213,644 228,987 239,452 248,321
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $ 61,784 $ 72,290 $ 89,437 $109,806 $245,014
Total assets $108,584 $173,987 $322,241 $540,080 $898,336
Long-term obligations $ 989 $ 958 -- -- --
Stockholders' equity $ 72,054 $ 94,580 $161,094 $253,248 $417,304
</TABLE>
(a) Historical financial information has been restated to reflect the
combination of PeopleSoft and Red Pepper, accounted for as a
pooling-of-interests.
(b) Historical results of operations are not necessarily indicative of future
results. Refer to the Results of Operations - Risk Factors under Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the discussion of factors which may impact future results. Note:
Per share information for all periods presented reflects restatement for the
two-for-one stock split in December 1997. No cash dividends have been declared
or paid in any period presented.
25
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Discussion and Analysis of Financial Condition and Results of
Operations contains descriptions of the Company's expectations regarding future
trends affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The following discussion sets forth certain factors the Company believes
could cause actual results to differ materially from those contemplated by the
forward-looking statements. Forward-looking statements include but are not
limited to those identified with a footnote(1) symbol. The Company undertakes no
obligation to update the information contained in this Item 7.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenues and the percentage of period over period growth
represented by certain line items in the Company's consolidated statements of
income:
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage of
Percentage of Dollar Increase
Total Revenues Year Over Year
- ---------------------------------------- --------------------------
1995 1996 1997 96/95 97/96
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
59% 56% 53% License fees 83% 71%
41 44 47 Services 109 94
- ---------- ---------- ---------- ---------- ----------
100 100 100 Total revenues 94 81
Costs and expenses:
4 3 3 Cost of license fees 45 75
24 26 28 Cost of services 109 93
30 30 28 Sales and marketing 94 66
17 16 16 Product development 83 83
7 6 5 General and administrative development 68 61
In-process research and development
development and non-recurring
-- 6 -- acquisition costs N/A N/A
- ---------- ---------- ---------- ---------- ----------
82 87 80 Total costs and expenses 107 65
- ---------- ---------- ---------- ---------- ----------
18 13 20 Operating income 33 198
2 1 1 Other income, interest expense and other 42 67
- ---------- ---------- ---------- ---------- ----------
20 14 21 Income before income taxes 34 185
8 6 8 Provision for income taxes 38 162
- ---------- ---------- ---------- Net income ---------- ----------
12% 8% 13% 31% 202%
========== ========== ========== ========== ==========
</TABLE>
REVENUES
The Company recognizes revenue when a non-cancelable license agreement has
been signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, there are no significant vendor obligations, the
fees are fixed and determinable, and collection is considered probable. For
customer license agreements which meet the Company's revenue recognition policy,
the portion allocated to software license fees will generally be recognized in
the current period, while the portion allocated to services is recognized as the
services are performed. When the Company enters into a license agreement with a
customer requiring significant customization of the software products, the
Company recognizes revenue related to the license agreement using contract
accounting. The total dollar amount of customer license agreements executed
("contracting activity") for software license fees and services increased from
$218.6 million in 1995, to $407.6 million in 1996, and to $706.4 in 1997.
26
<PAGE> 29
Contracting activity with new customers which numbered 628 comprised
approximately 68% of the total contracting activity executed for the year ended
December 31, 1997, compared with 539 new customers and 75% for the year ended
December 31, 1996, and 316 new customers and 70% for the year ended December 31,
1995. Average contract size, computed by dividing the number of new customers
into total contracting activity, increased from approximately $0.7 million in
1995, to $0.8 million in 1996, and to $1.1 million in 1997 due primarily to the
Company's expanded software product offerings.
Revenues from licensing fees increased by 83% from $137.8 million in 1995
to $252.8 million in 1996 and increased by 71% to $433.2 million in 1997 . The
increase in license fee revenues was attributable to continued increased market
acceptance of, and expanded breadth of, the Company's software product offerings
and the increased capacity created by continued growth in the Company's sales,
marketing and customer service organizations. Major new product releases in 1997
included a multi-language version of PeopleSoft 6 released in July; including
financials, HRMS, and supply chain solutions; PeopleSoft 7 in September offering
a three tier processing architecture, Web client, Universal Applications for
self service transactions on the World Wide Web, Application Designer, a new
integrated development tool, two new applications for distribution and
manufacturing, and expanded functionality for the Supply Chain Optimization
software product; HRMS for U.S. Federal Government 7 in November; HRMS for
Public Sector 7 in December; and Student Administration/Higher Education 7 in
December.
Revenues from services increased by 109% from $94.3 million in 1995 to
$197.3 million in 1996 and increased by 94% to $382.5 million in 1997. The
Company's customer license agreements provide for initial maintenance, training,
and installation services for specified periods or amounts. Therefore increases
in customer licensing agreements have resulted in increases in revenues from
these services. Service revenues as a percentage of total revenues were 41%,
44%, and 47% for the years ended December 31, 1995, 1996, and 1997 respectively.
The increase in the relative percentage of service revenues to total revenues in
these periods was attributable to two primary factors: increases in the
installed base of customers receiving ongoing maintenance, training and other
support services; and a significant increase in consulting revenue as a result
of expanded demand for PeopleSoft's direct assistance during enterprise
implementation projects.
Total revenues increased by 94% from $232.1 million in 1995 to $450.1
million in 1996 and increased by 81% to $815.7 million in 1997. During the years
ended December 31, 1995, 1996, and 1997, the Company's international revenues
were approximately 16%, 16% and 15% of total revenues, respectively. The dollar
increase in international revenues resulted from expanded international
operations and the introduction of Release 6 which incorporated additional
global features and functionality . The Company expects international revenues
to continue to grow in absolute dollars during 1998, and accordingly, continues
to invest heavily in international infrastructure, global product functionality
and translated versions of financial and other software products(1). In the
event international expansion and/or product globalization efforts are not
successful, the Company's business operating results and financial condition may
be adversely affected.
COSTS AND EXPENSES
Cost of license fees consists principally of royalties, technology access
fees for certain third party software products and amortization of capitalized
software costs. Cost of license fees increased from $8.5 million in 1995 to
$12.4 million in 1996, and $21.6 million in 1997, representing 4%, 3% and 3% of
total revenues and 6%, 5% and 5% of license fee revenues in those years,
respectively. The Company's system solutions are based on a combination of
internally developed technology and application products, as well as bundled
third party products and technology. Cost of license fees as a percentage of
license fee revenues may fluctuate from period to period due principally to the
mix of sales of royalty-bearing software products in each period and seasonal
fluctuations in revenues contrasted with certain fixed expenses such as the
amortization of capitalized software. Royalties associated with certain software
products currently under development by joint business arrangements and charges
- ----------
(1) Forward-Looking Statement
27
<PAGE> 30
associated with software products and technologies acquired from various third
party vendors may cause the cost of license fees as a percentage of license fee
revenues to increase in future periods.
Cost of services consists principally of account management field support,
training, consulting and product support. These costs increased from $56.8
million in 1995, to $118.9 million in 1996, and $229.2 million in 1997,
representing 24%, 26%, and 28% of total revenues and 60% of service revenues in
those years, respectively. These increases are due to the significant expansion
of the Company's customer service resources across all categories, including
consulting, telephone support, training, and account management staff. In
particular, the Company has made a significant investment in its professional
consulting services organization which has grown substantially over the past two
years in response to customer demand. The Company anticipates cost of services
will increase in dollar amount, and may increase as a percentage of total
revenues, in future periods.
Sales and marketing expenses increased from $70.1 million in 1995, to
$135.8 million in 1996, and $225.5 million in 1997, representing 30%, 30%, and
28% of total revenues. The increase in sales and marketing expenses is
attributable to the Company's continued expansion of its direct sales force,
increased commission expense associated with higher revenue, increased
depreciation from related equipment and facility expenditures, continued
investment in building an international direct sales force and increased
marketing expenses for the Company's expanded software product offerings. The
Company continues to increase its direct sales and marketing expenditures to
address certain international markets, establish an industry focused enterprise
sales force structure and fund both cross industry and industry specific
marketing and sales activities. Consequently, such expenses may increase as a
percentage of total revenues in future periods.
Software product development expenses increased from $38.6 million in
1995, to $70.7 million in 1996, and to $129.6 million in 1997, representing 17%,
16%, and 16% of total revenues, respectively. In addition, capitalization of
internal software development costs were $2.4 million in 1995, $3.7 million in
1996, and $2.5 million in 1997. Software product development expenditure
increases are directly attributable to increases in the Company's staff of
software engineers and consultants, and the associated infrastructure costs
required to support software product development initiatives in the following
areas: (i) software releases described in the revenue section above; (ii)
expansion and enhancement of the Company's core software product offerings in
the areas of HRMS, Financial Management Systems, and Distribution/Materials
Management Systems and Supply Chain Management software; (iii) the enhancement
of the Company's platform development, certification, software product testing
and overall release management capabilities; (iv) the continued enhancement of
the Company's client/server architecture including its software development
tools and the integration of these tools with various third party purchased or
licensed technologies; (v) the localization and translation of certain versions
of the Company's software products for specific foreign markets; and (vi) the
development of certain vertical market products and versions of its core
products suitable to the unique needs of customers within certain industries. In
particular, the Company's development expenditure increases during 1997 were
driven by: (i) the acquisition in 1996 of PeopleSoft Manufacturing, Inc. and
PeopleMan L.P. (collectively referred to as PMI) and the ongoing associated
expansion of the Company's manufacturing application development activities;
(ii) the release in the second quarter of 1997 of a Japanese language based
version of its HRMS and Financial software products; (iii) the release of
Student Administration software products for the Higher Education marketplace in
December 1997, and the associated merger in July of 1997 of Campus Solutions,
the company primarily responsible for building the Student Administration
product family; and (iv) expenditures associated with the Company's next major
enterprise application release (PeopleSoft 7.5), expected to available in the
first half of 1998(1) (see the Statement of Future Direction in Item 1 -
Application Software Products). The Company intends to continue to invest
significant resources in upcoming releases, and anticipates software product
development expenditures will significantly increase in future periods due to
continued incremental investment in all of the above areas, and overall
development expenditures may increase as a percentage of revenues.
General and administrative expenses increased from $16.2 million in 1995
to $27.2 million in 1996, and to $43.6 million in 1997, representing 7%, 6%, and
5% of total revenues, respectively. The dollar increase in general and
administrative expenses resulted primarily from increases in staffing and
related infrastructure to support the Company's growth, and increases in
administrative expenses associated with the operation of foreign subsidiaries.
- --------------
(1) Forward-Looking Statement
28
<PAGE> 31
Other income, consisting primarily of interest, increased from $4.1
million in 1995 to $5.9 million in 1996, and $9.9 million in 1997 primarily due
to a higher balance of cash, cash equivalents and investments.
PROVISION FOR INCOME TAXES
The Company's income tax provision increased from $18.8 million in 1995 to
$25.9 million in 1996 and to $67.8 million in 1997. The 1997 effective tax rate
decreased to 38.5% as compared to 41.9% in 1996 and 40.8% in 1995. The 1997
effective tax rate is lower than the 1996 rate mainly due to: the extension of
the federal research tax credit as well as recent favorable changes in
California's research tax credit rules; a reduction in the Company's overall
state income tax rate; and the absence of major one time nondeductible charges.
As permitted by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", the Company has recorded $32.7 million in net deferred tax
assets at December 31, 1997. The realization of these deferred tax assets is
based on historical tax positions and expectations about future taxable income.
The Company anticipates that its 1998 effective tax rate will not exceed
38.5%(1).
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $230.1 million during
1997, compared to $130.9 million in 1996, and $67.0 million in 1995. Operating
cash flows increased primarily due to increases in income before non-cash items,
deferred revenue, accrued compensation and related expenses, the tax benefit of
employee stock transactions, and income taxes payable, the sum of which were
partially offset by increases in accounts receivable and other assets. Net
accounts receivable increased from $100.2 million to $163.7 million and to
$299.2 million as of December 31, 1995, 1996 and 1997, respectively, and
deferred revenues increased from $98.1 million to $183.3 million and to $327.7
million over the same period. The increase in net accounts receivable resulted
from the growth in customer licensing activity partially offset by increased
cash collections. Deferred revenue has increased as a result of the growth in
customer contracting activity and the associated deferrals of license fees and
revenues related to services to be provided to new licensees. In addition, the
Company's expanded installed base has resulted in increased deferred revenues
related to ongoing maintenance and other services.
The Company calculates accounts receivable days sales outstanding ("DSO")
as the ratio of quarter-end accounts receivable to the sum of quarterly revenues
and the net change in quarter-end deferred revenues, multiplied by 90. The
Company believes this calculation is appropriate because license fees are
typically billable regardless of whether revenue has been recognized or
deferred. Under this method, accounts receivable days outstanding was 83 days as
of December 31, 1996 as compared to 88 days as of December 31, 1997. The
increase in DSO over the prior year is within the range of historical variation
attributable to the timing of cash collections, variations in the terms of
individual license agreements, and business linearity within the quarters. Since
billing terms of the Company's agreements typically are spread out over a
sequence of events (including contract execution through standard acceptance) or
dates that generally span four to nine months, and contracting activity is
concentrated at the end of each quarter, the Company anticipates that its DSO
will continue to be substantial in future periods.
The exercise of common stock options and issuance of stock under employee
stock purchase plans have represented a significant source of cash, contributing
$5.1 million, $15.1 million, and $33.3 million in the years ending December 31,
1995, 1996, and 1997, respectively. In addition, the Company believes granting
stock options is essential in attracting and retaining key employees who are
critical to the Company's success. In 1995, 1996 and 1997, the Company granted
options aggregating 6.1%, 5.4% and 5.0%, respectively, of the common stock
issued and outstanding at the beginning of each year. The Company anticipates
that it will continue to grant a significant number of options each year. The
actual number of options granted each year is based on a variety of factors
including the Company's historical and anticipated employee count, the level of
hiring activity, competitive factors associated with the labor market, and
comparison of the Company's compensation philosophy and practice to other
similar technology companies. There can be no assurance that employee stock
activity will continue to generate substantial funds in the future.
- ---------------
(1) Forward-Looking Statement
29
<PAGE> 32
In November 1995, the Company received $21.8 million through the private
placement of warrants to purchase an aggregate of 8,000,000 shares of the
Company's common stock. These warrants carry the right to purchase the Company's
common stock at prices ranging from $13.75 to $19.375 per share of common stock.
Upon notice of exercise by the holders of the warrants, the Company, at its
option, may settle such exercise by either issuing the full amount of shares and
receiving cash proceeds, issuing a net amount of shares with no cash proceeds,
or purchasing the warrants for an amount equal to the difference between the
then fair market value of the common stock and the warrant exercise price. In
November 1997, the Company issued 942,880 shares of common stock pursuant to the
net exercise of warrants to purchase 1,600,000 shares of common stock at $13.75
per share. While the Company has not determined how the warrants will be
satisfied in the future, they represent a significant source of potential
liquidity and may provide the Company with cash up to $48 million in 1998 and
$58 million in 1999(1).
During the years ended December 31, 1996 and 1997, the Company's principal
use of cash for investing activities included investments and the purchase of
property and equipment comprised of purchases of computer and networking
equipment to accommodate employee and facility expansions and to support the
Company's growing training capacity requirements.
As of December 31, 1997, the Company had $245.0 million in working
capital, including $267.9 million in cash and cash equivalents and $124.6
million in short-term investments, consisting primarily of high quality
municipal bonds and tax-advantaged money market funds. The Company believes that
existing cash and short term investment balances, proceeds from sale of stock
under the employee purchase plan and stock option exercises, potential proceeds
from issuance of stock for warrants, and potential cash flow from operations
will be sufficient to meet its operating cash requirements at least through 1998
(1).
FINANCIAL RISK MANAGEMENT
FOREIGN EXCHANGE
PeopleSoft's revenue originating outside the United States was 15% of
total revenues in 1997. International revenues from each geographic region was
less than 10% of total revenues. International sales are made mostly from the
Company's foreign sales subsidiaries in the local countries and are typically
denominated in the local currency of each country. These subsidiaries also incur
most of their expenses in the local currency. Accordingly, all foreign
subsidiaries use the local currency as their functional currency.
The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arise in part
from intercompany accounts in which cost of software, including certain
development costs, incurred in the United States is charged to the Company's
foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
The Company is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability.
The effect of foreign exchange rate fluctuations on the Company in 1997
was not material. However, subsequent to 1997, due to foreign exchange exposure
to these fluctuations increasing as sales and intercompany balances grow, the
Company initiated a hedging program designed to mitigate the potential for
future adverse impact due to changes in foreign exchange rates. The program uses
forward foreign exchange contracts as the vehicle for hedging these intercompany
balances. In general, these forward foreign exchange contracts have three
months or less to maturity. Gains and losses on these hedges will be recorded
in Other income. Management of
- ----------------
(1) Forward-Looking Statement
30
<PAGE> 33
the foreign exchange hedging program is done in accordance with a corporate
policy approved by the Company's Board of Directors.
INTEREST RATES
The Company invests its cash in a variety of financial instruments,
including bank time deposits, and taxable and tax-advantaged variable rate and
fixed rate obligations of corporations, municipalities, and local, state and
national governmental entities and agencies. These investments are denominated
in US Dollars. Cash balances in foreign currencies overseas are operating
balances are and only invested in short term time deposits of the local
operating bank.
Interest income on the Company's investments is carried in Other Income.
The Company accounts for its investment instruments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). All of the cash equivalent, short
term, and long term investments are treated as available-for-sale" under SFAS
115.
Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.
The Company's investments are made in accordance with an investment policy
approved by the Board of Directors. At year end 1997, the average maturity of
the Company's investment securities was roughly four months. No investment
securities had maturities exceeding two years. The following table presents
certain information about the Company's financial instruments held by the
Company at December 31, 1997 that are sensitive to changes in interest rates.
These instruments are not leveraged and are held for purposes other than
trading. For available-for-sale investment securities, the table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. The Company believes its available-for-sale securities,
comprised of highly liquid debt securities of corporations, municipalities, and
the U.S. Government, are similar enough to aggregate. Because of the Company's
effective tax rate, the Company finds it advantageous to invest largely in tax-
advantaged securities, therefore the average interest rates below are most
comparable to tax-exempt interest rates. Below is a tabular presentation of the
maturity profile of the available-for-sale investment securities held by the
Company at December 31, 1997:
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
WEIGHTED AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
Fair Value
(dollars in millions) 1998 1999 Total 12/31/97
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities $253.3 $26.8 $280.1 $280.3
Weighted average interest rate 4.0% 4.0%
</TABLE>
The Company is not an issuer of any corporate debt nor does it have any
bank borrowings outstanding.
FACTORS THAT MAY EFFECT FUTURE RESULTS
The Company has identified certain forward-looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations with a footnote(1) symbol. The Company may also make oral
forward-looking statements from time to time. Actual results may differ
materially from those projected in any such forward-looking statements due to a
number of factors, including those set forth below and elsewhere in this Form
10-K.
31
<PAGE> 34
The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some, but
not all, of these risks and uncertainties which may have a material adverse
effect on the Company's business, financial condition or results of operations.
This section should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the years ended December
31, 1995, 1996, and 1997 contained elsewhere in this Form 10-K.
Fluctuations in Quarterly Operating Results. The Company's revenues and
operating results can vary substantially from quarter to quarter. License
revenues in any quarter are substantially dependent on aggregate contracting
activity and the Company's ability to recognize revenue in that quarter in
accordance with its revenue recognition policies.
Contracting activity is difficult to forecast for a variety of reasons
including: (i) a significant portion of the Company's license agreements are
completed within the last few weeks of each quarter; (ii) the duration of the
Company's sales cycle is relatively long and increasingly variable because the
Company has broadened its marketing emphasis to encompass software product
solutions for the customer's overall enterprise, thereby increasing the
financial value of individual transactions and the complexity of the customer
selection, negotiation and approval process; (iii) the size of license
transactions can vary significantly; (iv) system replacement projects and new
system evaluations may be postponed or canceled at any time due to changes in a
customer's project, company management, budgetary constraints or strategic
priorities; (v) customer evaluations and procurement processes vary
significantly from company to company, and a customer's internal approval and
expenditure authorization process can be arduous, even subsequent to actual
vendor selection; (vi) the number, timing and significance of software product
enhancements and new software product announcements by the Company and its
competitors; (vii) as the Year 2000 approaches, many potential customers are
evaluating their legacy systems and must decide whether to repair or replace
existing applications which have Year 2000 operability issues. While the Company
believes that such evaluations are favorably impacting demand for its
applications, such demand is subject to change as the Year 2000 draws closer
since lead times required to complete systems implementations preclude system
replacement as a timely solution to the Year 2000 issue. Given the lack of
precedent for an issue of this magnitude, the Company's ability to accurately
forecast the impact of the issue on quarter to quarter revenue achievement is
limited; (viii) changes in the Company's sales incentive plans have had and may
continue to have an unpredictable impact on seasonal business patterns; and (ix)
changes in economic, political and market conditions can adversely impact
business opportunities without any notice.
The correlation between license fee revenues recognized and contracting
activity can vary significantly because of factors which may cause revenue to be
initially deferred including: (i) the license agreement may be entirely related
to then currently undeliverable software products; (ii) enterprise transactions
which include software products that are then currently deliverable, as well as
software products that are still under development. To the extent the Company
enters into a license agreement for the provision of both software product
categories, the Company must have established separate values for all elements
under the license agreement, and the license agreement and supporting schedules
to the license agreement must contain very precise contractual provisions
consistent with generally accepted accounting principals to permit any revenue
recognition under the license agreement; (iii) the customer may demand services
that include significant modifications, customizations or complex interfaces;
(iv) the license agreement may include non-standard acceptance criteria which
may preclude revenue recognition; (v) the license agreement may include fees
with extended payment terms or fees that are dependent upon acceptance of
services or other contingencies; and (vi) all of the above factors, as well as
other specific requirements under recently published generally accepted
accounting standards for software revenue recognition create circumstances under
which the Company must have very precise contractual agreements in order to
recognize revenue upon initial software product delivery. Although the Company
has a standard license agreement which meets the demanding criteria under
generally accepted accounting principles, the Company must often negotiate and
revise certain terms and conditions in large enterprise transactions.
Negotiation of mutually acceptable language can extend the sales cycle, and in
certain situations, the Company does not always obtain terms and conditions
which permit recognition of revenue at the time of delivery or even under a
percentage-of-completion method under contract accounting rules.
32
<PAGE> 35
Services revenues may vary from quarter to quarter due to variances in
prior quarter contracting activity which impacts consulting services revenue on
a lag. The Company's ability to increase services revenue is dependent on its
ability to grow licensing activity which provides opportunities for consulting,
training, and subsequent maintenance revenues. Additionally the Company may not
be able to recruit, hire, and train sufficient numbers of qualified consultants
to perform such services.
Due to the foregoing, it is likely that in one or more future quarters the
Company's operating results will be below the expectations of public securities
market analysts. In such event, the price of the Company's common stock would
likely be materially adversely affected.
Possible Adverse Impact of Recent Accounting Pronouncement. Statement of
Position ("SOP") 97-2, "Software Revenue Recognition" was issued in October 1997
and addresses software revenue recognition matters. The SOP supersedes SOP 91-1
and is effective for transactions entered into for fiscal years beginning after
December 15, 1997. Based upon its reading and interpretation of SOP 97-2 the
Company believes its current revenue recognition policies and practices are
materially consistent with the SOP. However, implementation guidelines for this
standard have not yet been issued and a wide range of potential interpretations
are being discussed by the accounting profession. Once available, such
implementation guidance could lead to unanticipated changes in the Company's
current revenue accounting practices, and such changes could materially
adversely affect the Company's future revenue and earnings.
Such implementation guidance may necessitate substantial changes in the
Company's business practices in order for the Company to continue to recognize a
substantial portion of its license fee revenue upon delivery of its software
products. Such changes may reduce demand, extend sales cycles, increase
administrative costs and otherwise adversely affect operations. In addition, the
Company may be put at a competitive disadvantage relative to foreign based
competitors not subject to U.S. generally accepted accounting principles.
Operating Leverage. Consistent with many companies in the software
industry, the Company's business model is characterized by a very high degree of
operating leverage. Employee and facility related expenditures comprise a
significant portion of the Company's operating costs and expenses, and over the
short term are relatively fixed. In addition, the Company's expense levels and
hiring plans are based, in significant part, on the Company's projections of
future revenue levels. If revenue levels fall below expectations, net income is
likely to be disproportionately adversely affected. There can be no assurance
that the Company will be able to increase or even maintain its current level of
profitability on a quarterly or annual basis in the future.
Future Operating Results Uncertain. Segments of the software industry have
experienced significant economic downturns characterized by decreased product
demand, price erosion, technological shifts, work slowdowns and layoffs. The
Company's operations may, in the future, experience substantial fluctuations
from period to period as a consequence of such industry patterns, general
economic conditions affecting the timing of orders from customers, and other
factors affecting capital spending. There can be no assurance that such factors
will not have a materially adverse effect on the Company's business, operating
results or financial condition. Although the Company's 1998 operating budget is
based on projections of a material increase in total revenues over the
corresponding actual results for 1997, the Company does not believe that the
percentage increases in revenues achieved in prior periods should be anticipated
in future periods.
The operating results of many software companies reflect seasonal trends,
and the Company has been, and expects to continue to be, affected by such trends
in the future. The Company's seasonal patterns of revenue achievement, which are
typically characterized by relatively weaker first and second quarters and
relatively stronger third and fourth quarters, can be caused by a variety of
factors, including sales incentives, customer demand based on available capital
budgets and release of new technologies.
International Operations. The Company has utilized, and will continue to
utilize substantial resources and funding to build its international service and
support infrastructure. Operating costs in many countries, including many of
those in which the Company operates, are higher than in the United States. In
order to increase international sales in 1998 and subsequent periods, the
Company must continue to globalize its software product
33
<PAGE> 36
lines, expand existing and establish additional foreign operations, hire
additional personnel, identify suitable locations for sales, marketing, customer
service and development, and recruit international distributors and resellers in
selected territories. In the event international expansion and/or product
globalization are not successful, it is likely to have a negative impact on the
Company's operating results.
The Company's sales through its foreign operations are generally
denominated in each respective subsidiary's functional currency. Unexpected
changes in the exchange rates for these foreign currencies could result in
significant fluctuations in the foreign currency transaction and translation
gains and losses in future periods. The Company expects to have an increased
amount of non-U.S. dollar denominated license agreements and implemented a
hedging program designed to mitigate the potential impact of exchange rate
fluctuations in January 1998. In addition to hedging existing transaction
exposures, the Company's foreign exchange management policy allows for the
hedging of anticipated transactions, and exposure resulting from the translation
of foreign subsidiary financial results into U.S. Dollars. Such hedges can only
be undertaken to the extent that the exposures are highly certain, reasonably
estimable, and significant in amount. These hedges will only be undertaken
should the Company deem them necessary to protect the U.S. Dollar value of the
underlying exposure. The Company foresees that hedges of such anticipated
transactions and translation exposures will be done in the future using forward
and option contracts(1), however in the event the Company is unable to hedge
potential significant exposures due to lack of certainty or ability to
reasonably estimate the foreign exchange exposure, there could be a material
adverse impact to the Company's operating results.
Competition. The market for business application software is intensely
competitive. The Company faces competition from a variety of software vendors
including enterprise application software vendors, manufacturing application
software vendors, enterprise resource optimization application software vendors,
financial management systems and HRMS application software vendors and software
tools vendors. Although the Company believes its success has been due in part to
its early emphasis on the client/server architecture, virtually all of the
Company's competitors now offer software products based on a client/server
architecture. Consequently, competitive differentiators now include more subtle
architectural and technological factors, such as web enablement, enterprise
software product breadth and individual product features, service reputation,
product flexibility, ease of implementation, international software product
version availability and support, and price.
In the enterprise application software market, PeopleSoft faces
significant competition from SAP AG, Oracle Corporation and Baan Company N. V.
and to a lesser degree, Dun & Bradstreet Software (now operating as two separate
divisions of Geac Computer Systems, Inc.), Computer Associates International,
Inc. and other companies such as System Software Associates who previously
focused primarily on the AS/400 marketplace. In this market, the chief
competitive factors include the breadth and completeness of the enterprise
solution offered by each vendor, the extent of software product integration
across the enterprise solution and the availability of localized software
products and technical support in key markets outside the United States.
Primarily due to their significant worldwide presence and longer operating and
product development history, both SAP and Oracle have certain competitive
advantages over PeopleSoft in each of these areas. In addition, both SAP and
Oracle have substantially greater financial, technical and marketing resources,
and a larger installed base than PeopleSoft. Furthermore, Oracle's RDBMS
(relational database management system) is a supported platform underlying a
significant share of PeopleSoft's installed applications.
In the manufacturing software application markets, in which PeopleSoft
recently began competing, PeopleSoft faces competition from several of its
existing competitors including those listed immediately above and others such as
QAD, Ross Systems and J.D. Edwards and a large number of niche competitors
already in the manufacturing market.
In the emerging enterprise resource optimization software solutions
market, in which the Company now competes since its acquisition of Red Pepper
Software during the fourth quarter of 1996, PeopleSoft faces several current and
potential competitors including: (i) companies such as i2 Technologies,
Manugistics and Numetrix Software which have developed or are attempting to
develop advanced planning and scheduling software products which complement or
compete with MRP (material requirements planning) solutions; (ii) other
companies that provide specialized planning and scheduling software for niche
markets, including Chesapeake Systems, Waterloo
- ------------------
(1) Forward Looking-Statement
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<PAGE> 37
Manufacturing Software, MAPICS, Inc. (formerly Marcam Corporation), Marcam
Solutions, Inc. and Cap Logistics; (iii) other business application software
vendors that may broaden their product offerings by internally developing (such
as SAP's recently announced initiatives in this area), or by acquiring (such as
Baan's recent acquisitions of Berclain Group, Inc. and Antalys, Inc.) or
partnering with independent developers of advanced planning and scheduling
software; (iv) internal development efforts by corporate information technology
departments; and (v) companies offering standardized or customized products on
mainframe and/or mid-range computer systems.
PeopleSoft also faces competition from providers of HRMS software products
including Cyborg, Lawson, Integral Systems, Inc., InPower and Ceridian, and from
providers of financial management systems software products including Hyperion,
Computron Software, Inc., Lawson Associates and other smaller companies. In
addition, ADP, Inc. and Shared Medical Systems, Inc. ("SMS") have the right to
sublicense selected PeopleSoft software products in competition with
PeopleSoft's marketing efforts in selected markets.
In addition, as the Year 2000 approaches, enterprises may consider
outsourcing options including data center outsourcing and service bureaus as
viable alternatives to purchasing the Company's software products which may
result in increased competition from outsource services including Computer
Science Corporation (CSC), Electronic Data Systems Corporation (EDS), IBM, ADP,
Ceridian, and other smaller companies.
Intense competition could potentially lead to increased price competition
in the market, forcing the Company to reduce prices which may result in reduced
gross margins and loss of market share by the Company which therefore, could
materially adversely affect the Company's business, operating results and
financial condition. In recent quarters the Company has observed increasingly
aggressive pricing practices on the part of its competitors. There can be no
assurance that the Company will continue to compete successfully with its
existing competitors or will be able to compete successfully with new
competitors.
Certain Risks Associated With Acquisitions. As part of its overall
strategy, the Company plans to continue to acquire or invest in complementary
companies, products, or technologies and to enter into joint ventures and
strategic alliances with other companies. Risks commonly encountered in such
transactions include the difficulty of assimilating the operations and personnel
of the combined companies, the potential disruption of the Company's ongoing
business, the inability to retain key technical and managerial personnel, the
inability of management to maximize the financial and strategic position of the
Company through the successful integration of acquired businesses, decreases in
reported earnings as a result of charges for in-process research and development
and amortization of acquired intangible assets, adverse impact on the Company's
annual effective tax rate, dilution of existing equity holders, difficulty in
maintaining controls, procedures, and policies, and the impairment of
relationships with employees and customers as a result of any integration of new
personnel. There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered in connection with such
business combinations, investments, or joint ventures, or that such transactions
will not materially adversely affect the Company's business, financial
condition, or operating results.
Reliance on Proprietary Software Development Tools. The Company's software
products include a suite of proprietary software development tools known as
"PeopleTools," which are fundamental to the effective use of the Company's
software products. While no industry standard exists for software development
tools, several companies are focused specifically on providing software
development tools and are attempting to establish their software development
tools as accepted industry standards. In the event that a software product other
than the Company's PeopleTools software product becomes the clearly established
and widely accepted industry standard, the Company may need to abandon or modify
PeopleTools in favor of such an established standard, may be forced to redesign
its software products to operate with such third party's software development
tools, or may be faced with the potential sales obstacle of marketing a
proprietary software product against other vendors' software products
incorporating a standardized software development toolset or components.
Accordingly, in any of these cases, the Company's results of operations could be
materially adversely affected.
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Reliance on Third Parties for Sales and Marketing. A key aspect of the
sales and marketing strategy for the Company is to build and maintain strong
working relationships with businesses the Company believes play an important
role in the successful marketing of its software products. The Company's
customers and potential customers often rely on third party system integrators
to develop, deploy and manage client/server applications. These include: (i)
RDBMS software vendors; (ii) hardware vendors which offer both hardware
platforms and, in the case of IBM, proprietary RDBMS products on which the
Company's software products run; (iii) technology consulting firms and systems
integrators, some of which are active in the selection and implementation of
large information systems for the information-intensive organizations that
comprise the Company's principal customer base; and (iv) benefits consulting
firms that are active in the implementation of HRMS. The Company believes that
its marketing and sales efforts are enhanced by the worldwide presence of these
companies. However, there can be no assurance that these companies, most of
which have significantly greater financial and marketing resources than
PeopleSoft, will not start, or in some cases increase, the marketing of business
application software in competition with PeopleSoft, or will not otherwise
discontinue their relationships with or support of PeopleSoft. If the Company or
its partners are unable to recruit and adequately train a sufficient number of
consulting personnel to support the implementation of the Company's software
products, demand for these software products could subsequently be materially
adversely affected. In addition, PeopleSoft's software application architecture,
including PeopleTools, may facilitate reduced implementation efforts for
customers compared to the competitive alternatives. Consequently, PeopleSoft's
software products may be a less desirable recommendation alternative for
integrators who both provide selection advice and generate consulting fees from
customers by providing implementation services. If PeopleSoft's relationship
with its partners were to deteriorate, the Company's business and operating
results could be materially adversely impacted
Complexity of Software Products and Product Development. The market for
the Company's software products is characterized by rapid technological change,
evolving industry standards, changes in customer requirements and frequent new
product introductions and enhancements. The Company's future success will depend
in part upon its ability to continue to enhance and expand its core
applications, to continue to provide enterprise solutions, to enter new markets
and to develop and introduce new products that keep pace with technological
developments, satisfy increasingly sophisticated customer requirements and
achieve market acceptance. If the Company is unable to enhance existing products
or develop and introduce new products in a timely manner, the Company's business
and results of operations could be materially adversely affected.
PeopleSoft's software products can be licensed for use with a variety of
popular industry standard RDBMSs. There may be future or existing RDBMS
platforms which achieve popularity within the business application marketplace
and on which PeopleSoft may desire to offer its applications. Such future or
existing RDBMS products may or may not be architecturally compatible with
PeopleSoft's software product design. No assurance can be given concerning the
successful development of PeopleSoft software products on additional platforms,
the specific timing of the releases of any future software products, the
performance characteristics of PeopleSoft applications on additional platforms
or their acceptance in the marketplace.
Beginning with Release 6, the Company integrated certain features of BEA's
Tuxedo product into its applications. Over the next several releases, additional
Tuxedo features will be integrated to allow applications to run on a distributed
basis using a multi-tiered client/server architecture(1). Cognos' Powerplay
product and Arbor's Essbase product will be bundled to incorporate desktop
on-line analytical processing ("OLAP") capabilities(1). Such enhancements may be
critical to the competitiveness of the Company's software products in the
future. Integration of these and other products is complex and no assurance can
be made that these efforts will be successful or result in significant software
product enhancements (see Statement of Future Direction in Item 1 - Application
Software Products).
Software programs as complex as those offered by the Company are likely to
contain a number of undetected errors or "bugs" when they are first introduced
or as new releases are thereafter released. Despite testing by the Company and
by third-parties, errors or system performance issues may arise with the
possible result of
- ----------
(1) Forward-Looking Statement
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<PAGE> 39
reduced acceptance of the Company's software products in the marketplace. Due to
the increasing number of possible combinations of vendor hardware platforms,
operating systems and updated versions, PeopleSoft application software products
and updated versions, and RDBMS platforms and updated versions, the effort and
expense of developing, testing and maintaining these software product lines in
an increasing number of combinations will increase, and the ability to develop
consistent software product performance characteristics across all of these
combinations could place a significant strain on the Company's development
resources and software product release schedules.
Reliance on Client Platforms. At the present time, the Company supports
client platforms utilizing browsers certified to run our Java based Web client,
or Microsoft's Windows family of software products, including Windows 3.1
(PeopleSoft releases prior to Release 6 only), Windows NT and Windows 95. If
Microsoft were to fundamentally change the architecture of its software product
such that users of PeopleSoft's software applications experienced significant
performance degradation or were rendered incompatible with future versions of
Microsoft's Windows Operating System, the Company's results of operations could
be materially adversely affected. The use of a Web browser (running on either a
PC or network computer) to access client/server systems is emerging as an
alternative client to the traditional desktop access through Microsoft Windows
based personal computers. Such client access via the Internet will be subject to
numerous risks inherent in utilizing the Internet including security,
availability and reliability. There may be future or existing client platforms
which achieve popularity within the business application marketplace and on
which PeopleSoft may desire to offer its applications. Such future or existing
client platforms may or may not be architecturally compatible with PeopleSoft's
software product design. No assurance can be given concerning the Company's
successful support for new client platforms, the specific timing of their
availability or their acceptance in the marketplace.
Reliance on Joint Business Arrangements. The Company has, and may in the
future, enter into various development or joint business arrangements for the
purpose of developing new software products or extensions to existing software
products. Under these development arrangements, the Company is generally the
exclusive remarketer of the developed software products and pays a royalty to
the funding entities based on license fees received from end user licenses of
these software products. Under joint business arrangements, the Company may
distribute or jointly sell with its business partner an integrated software
product offering. While the intent of such arrangements is to develop business
applications which are integrated with the Company's software products, there
can be no assurance that such software products will in fact be integrated or
that an integrated enterprise solution will be accepted by the market. In
addition, should such arrangements require additional investments from third
parties or business partners to complete development or enhance the software
product, there can be no assurance that investments will be available on terms
mutually acceptable to the Company and the business partner, or the existing or
other potential third party funding source(s). Should PeopleSoft acquire title
to the software products or technology from the third party entity, such an
acquisition might be accounted for using the purchase method which is likely to
result in either or both of the following accounting treatments: (i) a charge to
earnings for in-process research and development which would be recorded in the
Statement of Income in the period such acquisition was completed; or (ii) the
creation of significant intangible assets by virtue of an allocation of a
substantial portion of the purchase price to the acquired technology or other
intangible assets. Such intangible assets would be amortized in future periods
as a cost of operations. Should either of these scenarios occur, the results of
operations of one or more future periods could be materially adversely impacted.
For example, in connection with its acquisition of PMI in 1996, the Company
incurred a one-time charge to earnings of $22.5 million for in-process research
and development.
Application Security Architecture. The Company's application software
products incorporate extensive security features designed to protect certain
sensitive data managed by these applications from unauthorized retrieval or
modification. The Company has developed a security architecture utilizing the
capabilities of its own applications, the client operating system software, some
of the security features contained in the RDBMS platforms on which the
applications run, as well as certain third party security products. To date, the
Company is not aware of any violations of its application security architecture
within its installed base. Although these security features are subject to
constant review and enhancement, no assurances can be given concerning the
successful implementation of these security features and their effectiveness
within a particular customer's operating environment. Should a breach of
security or a suspected breach of security occur, the accompanying publicity or
any subsequent claims
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<PAGE> 40
against the Company could have an adverse impact on the demand for the Company's
software products and/or cause a decline in the market price of the Company's
stock and/or adversely impact the Company's financial results due to lost or
delayed closing of software licensing opportunities.
Intellectual Property and Proprietary Rights. The Company regards certain
aspects of its internal operations, software and documentation as proprietary,
and relies on a combination of contract, patent, copyright, trademark and trade
secret laws and other measures to protect its proprietary information. The
Company received its first patent in June 1995 and its second patent in August
1995. In July 1995, the Company received title to a third patent as part of a
teaming and development agreement. The Company also has four additional patent
applications pending. There can be no assurance that any issued patents will
result from such applications or that, if issued, such patents will provide any
meaningful competitive advantage. Existing copyright laws afford only limited
protection. The Company believes that, because of the rapid pace of
technological change in the computer software industry, patent, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent software product
enhancements and the timeliness and quality of support services. There can be no
assurance that these protections will be adequate or that PeopleSoft's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Many customers of PeopleSoft
are beneficiaries of a source code escrow arrangement to enable the customer to
acquire a future limited right to use the Company's source code solely for their
internal provision of maintenance services. This possible access to the
Company's source code may increase the likelihood of misappropriation or other
misuse of the Company's intellectual property. In addition, the laws of certain
countries in which the Company's software products are or may be licensed do not
protect the Company's software products and intellectual property rights to the
same extent as the laws of the United States.
The Company does not believe that its software products, third party
software products the Company offers under sublicense agreements, Company
trademarks or other Company proprietary rights infringe the property rights of
any third parties. However, there can be no assurance that third parties will
not assert infringement claims against the Company in the future with respect to
current or future software products or that any such assertion may not require
the Company to enter into royalty arrangements or result in costly litigation.
Product Liability. The Company's license agreements with its customers
contain provisions designed to limit the exposure to potential product liability
claims. It is possible, however, that the limitation of liability provisions
contained in such license agreements may not be valid as a result of federal,
state, local laws or ordinances or unfavorable judicial decisions. Although the
Company has not experienced any product liability claims to date, the license
and support of its software for use in mission critical applications creates the
risk of a claim being pursued against the Company. Damage or injunctive relief
resulting under such a successful claim could cause a materially adverse impact
on the Company's business, operating results and financial condition. In
addition, as PeopleSoft begins to compete in the manufacturing software
application market, the mission critical nature of such software products may
increase PeopleSoft's exposure to product liability claims against the Company.
Growth in Operations. The Company has experienced an extended period of
significant revenue growth, growth in the Company's customer base, expansion of
its software product lines and supported platforms both through internal
development and merger and acquisition, a significant expansion in the number of
its employees, and expansion in the geographic scope of its operations. This
growth has resulted in new and increased responsibilities for management
personnel, and has placed and is expected to continue to place a significant
strain upon the Company's management, operating, and financial controls and
resources. To accommodate recent growth, compete effectively, and manage
potential future growth, the Company must continue to implement and improve its
operational and financial systems, procedures and controls. In addition, the
Company must continue to expand, train and manage its employee base. There can
be no assurance that the Company will be able to manage this expansion
effectively, or that the Company's personnel, procedures, systems and controls
will be adequate to support the Company's future operations.
Key Personnel. PeopleSoft believes that its continued success will depend
in large part upon its ability to attract, train and retain highly-skilled
technical, managerial and marketing personnel. The Company continues to
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<PAGE> 41
hire a significant number of additional sales, services and technical personnel.
Competition for the hiring of such personnel in the software industry is
intense, and the Company from time to time experiences difficulty in locating
candidates with appropriate qualifications within various desired geographic
locations, or with certain industry specific domain expertise. Growth in
contracting activity could be impacted by the Company's ability to attract,
train, retain and manage productive sales and sales support personnel.
The loss of services of one or more of the Company's key employees could
have a materially adverse effect on the Company's business, operating results
and financial condition. The Company has historically experienced a very low
attrition rate amongst all of its employees, especially those in critical
positions. The Company has several retention programs in place to retain such
key personnel including granting of stock with annual vesting periods over five
years. A number of key employees have vested stock options which have a
relatively low price when compared to the Company's current stock price. These
potential gains provide these employees the economic freedom to explore personal
objectives both within and outside the Company which may result in the loss of
one or more key employees during the coming years.
It is widely held that the technology industry is at or beyond a condition
of full employment. There can be no assurance that the Company will be
successful in attracting, training and retaining the personnel it requires to
develop, market, sell and support new or existing software or to continue to
grow. In addition, the Company's success in penetrating key vertical markets is
dependent upon its ability to attract, train and retain personnel with industry
specific domain expertise.
Year 2000 Compliance. The Company's internal business information systems
are primarily comprised of the same commercial application software products
generally offered for license by the Company to end user customers. These
applications have been tested for Year 2000 compliance and are certified by the
Information Technology Association of America (ITAA) as Year 2000 compliant,
therefore the Company does not expect any Year 2000 compliance issues to arise
related to its primary internal business information systems. PeopleSoft is not
aware of any material operational issues or costs associated with preparing
internal systems for the Year 2000. However, the Company utilizes other third
party vendor network equipment, telecommunication products, and other third
party software products which may or may not be Year 2000 compliant. Although
the Company is currently taking steps to address the impact, if any, of the Year
2000 issue surrounding such third party products, failure of any critical
technology components to operate properly in the Year 2000 may have an adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems.
Expansion of Facilities. Commercial building vacancy rates have
significantly dropped in many of the markets where the Company has significant
operations. As a consequence, the Company expects to experience increasing
difficulty in obtaining additional space within which to expand its operations.
Failure to either obtain space, or obtain it on reasonably attractive commercial
terms, may inhibit the Company's ability to grow, or otherwise adversely affect
the Company's operations and financial results.
Volatility of Stock Price. As is frequently the case with stock of high
technology companies, the market price of PeopleSoft's stock has been and may
continue to be quite volatile. Factors such as quarterly fluctuations in results
of operations, announcements of technological innovations by the Company or its
competitors or the introduction of new software products by PeopleSoft or its
competitors, and macroeconomic conditions in the computer hardware and software
industries generally, may have a significant impact on the market price of the
stock of PeopleSoft. If revenue or earnings in any quarter fail to meet the
expectations (published or otherwise) of the investment community, there could
be an immediate impact on PeopleSoft's stock price. In addition, as described in
the Possible Adverse Effects of Recent Securities Issuances section below, the
Company has issued shares, stock options and warrants which, if sold directly or
exercised and sold on the open market in large concentrations, could cause the
Company's stock price to decline in the short term. The Company makes no
assurance as to when and if such a short term stock price decline may recover.
Furthermore, the stock market has from time to time experienced extreme price
and volume fluctuations which have particularly affected the market price for
many high technology companies and which, on occasion, have been unrelated to
the operating performance of those companies. These broad market fluctuations
may materially adversely affect the market price of the stock of PeopleSoft.
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<PAGE> 42
Possible Adverse Effects of Recent Securities Issuances. The Company has
outstanding warrants to purchase 6,400,000 shares of its common stock which have
exercise prices below the current market price of the common stock. The exercise
of these warrants and resale of the underlying shares could adversely affect the
market price of the Company's common stock. At December 31, 1997 the Company had
13,121,129 outstanding exercisable options to purchase common stock issued
pursuant to employee stock plans which have exercise prices below the current
market price of the common stock. The exercise of such stock options and sale of
a significant number of the underlying shares could adversely affect the market
price of the Company's common stock.
Investments and Liquidity. The Company's short term and long term
investments consist primarily of high quality municipal bonds, U.S. government
securities, corporate debt securities and tax-advantaged money market funds.
Despite favorable credit ratings on these investments there can be no assurance
the issuing agencies will not default on their obligations which may result in
losses of principal and accrued interest by PeopleSoft. While operating
activities may provide cash in certain periods, to the extent the Company
experiences growth in the future, operating and investing activities may use
cash, and, consequently, such growth may require the Company to obtain
additional sources of financing. In addition, material acquisitions of
complementary businesses, products or technologies and capital expenditures may
require additional sources of financing. There can be no assurance that the
Company would be able to obtain additional sources of financing or additional
financing at terms favorable to the Company.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV Item 14(a)
(1) and (2).
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report
because the registrant will file a definitive Proxy Statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's officers required by this Item is
included in the section in Part I hereof entitled "Personnel." The information
concerning the Company's directors required by this Item is incorporated by
reference to the Company's Proxy Statement under the heading "Election of
Directors-Nominees." Information concerning the Company's officers, directors
and 10% shareholders compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the information contained in the
Company's Proxy Statement under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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<PAGE> 43
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Transactions with
Management."
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements. The following consolidated
financial statements of PeopleSoft, Inc. are filed as part of
this report:
<TABLE>
Page
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<S> <C>
Report of Independent Auditors F-1
Covered by Report of Independent Auditors:
Consolidated Balance Sheets at December 31, 1996 and 1997 F-2
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Not Covered by Report of Independent Auditors:
Supplemental Quarterly Financial Information F-18
2. Consolidated Financial Statements Schedules. None.
3. Exhibits.
</TABLE>
<TABLE>
<S> <C>
2.1(7) Agreement and Plan of Reorganization between
PeopleSoft, Inc. and Red Pepper Company
dated as of September 4, 1996.
3.1(11) Restated Certificate of Incorporation of
Registrant filed with the Secretary of State
of the State of Delaware on May 25, 1996.
3.2(11) Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the State
of Delaware on June 17, 1996.
3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the State
of Delaware on July 3, 1997.
3.4 Certificate of Designation as filed with the Secretary of
State of the State of Delaware on March 24, 1998.
3.5 Bylaws of Registrant, as amended to date.
4.1(9) Stockholder Rights Plan and Preferred Shares
Rights Agreement dated February 15, 1995.
4.2(12) First Amended and Restated Preferred Shares Rights Agreement
dated December 16, 1997.
10.1(11,5) Amended and Restated 1989 Stock Plan and
forms of option agreements thereunder.
10.2(11) 1992 Employee Stock Purchase Plan as amended
to date, and form of subscription agreement
thereunder.
10.3(1) 1992 Directors' Stock Option Plan and forms
of option agreements thereunder.
10.4(2,5) Executive Bonus Plan.
</TABLE>
41
<PAGE> 44
10.5(3) Amendment and Restatement of PeopleSoft,
Inc. 401(K) Plan, dated December 13, 1995,
Amendment No. 1 dated December 30, 1994, and
Amendment No. 2, dated August 25, 1995.
10.6(1) Form of Indemnification Agreement entered
into between the Registrant and each of its
directors and officers.
10.7(3) Loan Agreement between the Registrant and
West America Bank, N.A. dated October 31,
1995.
10.8(1) Office Lease for 1331 North California
Boulevard dated July 23, 1990 between the
Registrant and 1333 North California
Boulevard, a California limited partnership,
as amended by the First Amendment to Lease
dated April 24, 1991 and the Second
Amendment to Lease dated June 17, 1992 and
related Lease Guarantees dated July 26, 1990
and June 14, 1991 between 1333 North
California Boulevard and David A. Duffield.
10.9(1) Lease dated July 24, 1992 between the
Registrant and Glen Pointe Associates.
10.12(1,6) Software License and Support
Agreement dated June 23, 1992 between the
Registrant and ADP, Inc., as amended by
Amendment No. 1 dated September 30, 1992.
10.18(2) Lease dated June 23, 1993 between the
Registrant and Westbrook Corporate Center.
10.19(2) Lease dated January 17, 1994 between the
Registrant and R-H Associates Bldg. III
Corp.
10.20(2) Lease dated March 10, 1994 between the
Registrant and Rosewood Associates.
10.21(3) Contract of Sale and Escrow Instructions
between the Company and Rosewood Owner of
California (B) LLC, a California limited
liability company, dated October 4, 1995.
10.22(4) Warrant Agreement between the Registrant and
The First National Bank of Boston, as
Warrant Agent, dated October 30, 1995.
10.23(4) Warrant Purchase Agreement between the
Registrant and Goldman, Sachs & Co. dated
October 30, 1995.
10.24(4) Registration Rights Agreement between the
Registrant and Goldman, Sachs & Co. dated
October 30, 1995.
10.25(8) Amendment No. 2 dated September 28, 1994,
Amendment No. 3 dated September 21, 1995 and
Amendment No. 4 dated December 28, 1995 to
the Software License and Support Agreement
dated June 23, 1992 between the Registrant
and ADP, Inc. (Confidential treatment
requested for Amendment No. 2 and No. 4
only).
10.26(8) Amended Software Development Agreement dated
December 22, 1995 between the Registrant and
Solutions for Education Administrators, Inc.
10.27(8) Exclusive Marketing and Distribution
Agreement dated December 22, 1995 between
the Registrant and SIS Development LLC
("SIS").
42
<PAGE> 45
10.28(13) Amendment No. 1 dated September 19, 1994,
Amendment No. 2 dated May 15, 1995 and
Amendment No. 3 dated June 19, 1995 to the
Lease dated March 10, 1994 between the
Registrant and Rosewood Associates.
10.29(8) Systems Integrator Agreement dated August
25, 1995 between the Registrant and Shared
Medical Systems Corporation.
10.32(13) Lease dated December 4, 1996 between the
Registrant and Lease Plan North America,
Inc.
10.33(13) Purchase Agreement dated October
22, 1996 between the Registrant and Norwest
Equity Partners IV, L.P.
10.34(10) Red Pepper Software Company 1993 Stock
Option Plan, and forms of stock option
agreement thereunder.
21.1 Subsidiaries.
23.1 Consent of Ernst and Young LLP, Independent
Auditors.
24.1 Power of Attorney (see page 44).
27.1 Financial Data Schedule
- ----------
1 Incorporated by reference to the exhibit having the same number filed with
the Registrant's Registration Statement on Form S-1 (No. 33-53000) filed October
7, 1992, Amendment No. 1 thereto filed October 26, 1992, Amendment No. 2 thereto
filed November 10, 1992 and Amendment No. 3 thereto filed November 18, 1992,
which Registration Statement became effective November 18, 1992 and the
Registrant's Registration Statement on Form S-1 (No. 33-62356) filed on May 7,
1993, which Registration Statement became effective May 24, 1993.
2 Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
3 Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-K
filed with the Securities and Exchange Commission on December 15,1995.
4 Exhibits 10.22, 10.23, and 10.24 are incorporated by reference to Exhibits
10.1, 10.2, and 10.3, respectively, filed with the Company's Registration
Statement on Form S-3 (No. 33-80755) filed with the Securities and Exchange
Commission on December 22, 1995.
5 This agreement is a compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
6 Confidential treatment previously granted.
7 Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-4
filed with the Securities and Exchange Commission on October 4, 1996.
8 Incorporated by reference to the exhibit having the same filed numbers
with the Company's Annual Report on Form 10K for the year ended December 31,
1995.
9 Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-A
filed with the Securities and Exchange Commission on February 15, 1995.
10 Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-8
filed with the Securities and Exchange Commission on October 24, 1996.
11 Incorporated by reference to the exhibit filed with the Company's Form
S-8 (No. 333-08575) filed with the Securities and Exchange Commission on July
22, 1996.
12 Incorporated by reference to Exhibit 1 filed with the Company's Form 8-A/A
filed with the Securities and Exchange Commission on March 25, 1998.
13 Incorporated by reference to the exhibit having the same filed number
with the Company's Annual Report on Form 10K for the year ended December 31,
1996.
(b) Reports on Form 8-K. None
43
<PAGE> 46
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.
PEOPLESOFT, INC.
By: /s/ Ronald E .F. Codd
-------------------------------------
Ronald E. F. Codd, Senior
Vice President of Finance and
Administration and Chief Financial
Officer
Dated: March 27, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, David A. Duffield
and Ronald E. F. Codd, and each one of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report (Form 10-K) and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David A. Duffield President, Chief Executive Officer March 27, 1998
- ------------------------------------ and Director (Principal Executive Officer)
David A. Duffield
/s/ Ronald E. F. Codd Senior Vice President of Finance and March 27, 1998
- ------------------------------------ Administration and Chief Financial
Ronald E. F. Codd Officer (Principal Financial Officer)
/s/ Alfred J. Castino Vice President of Finance and Corporate March 27, 1998
- ------------------------------------ Controller (Principal Accounting Officer)
Alfred J. Castino
/s/ Dr. Edgar F. Codd Director March 27, 1998
- ------------------------------------
Dr. Edgar F. Codd
/a/ Albert W. Duffield Director March 27, 1998
- ------------------------------------
Albert W. Duffield
/s/ A. George Battle Director March 27, 1998
- ------------------------------------
A. George Battle
/s/ George J. Still, Jr. Director March 27, 1998
- ------------------------------------
George J. Still, Jr.
/s/ Cyril J. Yansouni Director March 27, 1998
- ------------------------------------
Cyril J. Yansouni
</TABLE>
44
<PAGE> 47
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PeopleSoft, Inc.
We have audited the accompanying consolidated balance sheets of
PeopleSoft, Inc. at December 31, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PeopleSoft, Inc. at December 31, 1996 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Walnut Creek, California
January 28, 1998
F-1
<PAGE> 48
PEOPLESOFT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 169,875 $ 267,897
Short-term investments 27,138 124,565
Accounts receivable, less allowance for doubtful
accounts of $7,423 in 1996 and $19,493 in 1997 163,676 299,243
Deferred income taxes 28,246 25,320
Other current assets 7,703 9,021
--------- ---------
Total current assets 396,638 726,046
Property and equipment, at cost:
Computer equipment 74,706 107,503
Furniture and fixtures 22,233 35,106
Leasehold improvements 18,485 27,261
Building 17,368 18,310
Land 7,487 7,487
--------- ---------
140,279 195,667
Less accumulated depreciation and amortization (43,581) (78,492)
--------- ---------
96,698 117,175
Investments 18,270 26,783
Deferred income taxes 13,302 7,371
Capitalized software, less accumulated amortization 11,173 9,706
Other assets 3,999 11,255
--------- ---------
$ 540,080 $ 898,336
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,630 $ 19,882
Accrued liabilities 27,498 43,626
Accrued compensation and related expenses 37,681 67,486
Income taxes payable 18,771 22,370
Deferred revenue 183,252 327,668
--------- ---------
Total current liabilities 286,832 481,032
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $.01 par value, 320,000,000 shares authorized;
shares issued and outstanding: 1996 - 215,279,000 and
1997 - 223,729,000 2,153 2,237
Additional paid-in capital 161,614 219,005
Accumulated foreign currency translation adjustment (89) (1,292)
Retained earnings 89,570 197,354
--------- ---------
Total stockholders' equity 253,248 417,304
========= =========
$ 540,080 $ 898,336
========= =========
</TABLE>
See accompanying notes.
F-2
<PAGE> 49
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
License fees $ 137,808 $ 252,799 $ 433,195
Services 94,331 197,253 382,456
------------ ------------ ------------
Total revenues 232,139 450,052 815,651
Costs and expenses:
Cost of license fees 8,503 12,357 21,635
Cost of services 56,789 118,906 229,178
Sales and marketing 70,052 135,757 225,498
Product development 38,625 70,653 129,553
General and administrative 16,182 27,162 43,611
In-process research and development and acquisition costs -- 29,393 --
------------ ------------ ------------
Total costs and expenses 190,151 394,228 649,475
------------ ------------ ------------
Operating income 41,988 55,824 166,176
Other income, interest expense and other 4,149 5,888 9,862
------------ ------------ ------------
Income before income taxes 46,137 61,712 176,038
Provision for income taxes 18,799 25,851 67,775
------------ ------------ ------------
Net income $ 27,338 $ 35,861 $ 108,263
============ ============ ============
Basic income per share $ 0.13 $ 0.17 $ 0.49
============ ============ ============
Shares used in basic per share computation 203,689 211,248 219,302
============ ============ ============
Diluted income per share $ 0.12 $ 0.15 $ 0.44
============ ============ ============
Shares used in diluted per share computation 228,987 239,452 248,321
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 50
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Foreign
Common Stock Additional Currency Total
------------------------ Paid-in Translation Retained Stockholders'
Shares Amount Capital Adjustment Earnings Equity
--------- --------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 198,433 $ 1,985 $ 66,356 $ (132) $ 26,371 $ 94,580
Exercise of common stock options
and issuances under stock
purchase plan 5,640 56 5,043 -- -- 5,099
Proceeds from sale of Red Pepper
common and preferred stock 2,910 29 5,054 -- -- 5,083
Issuance of warrants -- -- 21,793 -- -- 21,793
Tax benefits from employee stock
transactions -- -- 7,333 -- -- 7,333
Translation adjustment -- -- -- (132) -- (132)
Net income for the year -- -- -- -- 27,338 27,338
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1995 206,983 2,070 105,579 (264) 53,709 161,094
Exercise of common stock options
and issuances under stock
purchase plan 7,580 76 15,015 -- -- 15,091
Acquisition of PMI 716 7 22,039 -- -- 22,046
Tax benefits from employee stock
transactions -- -- 18,981 -- -- 18,981
Translation adjustment -- -- -- 175 -- 175
Net income for the year -- -- -- -- 35,861 35,861
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1996 215,279 2,153 161,614 (89) 89,570 253,248
Exercise of common stock options
and issuances under stock
purchase plan 6,906 69 33,263 -- -- 33,332
Acquisitions 601 6 80 -- (479) (393)
Exercise of warrants 943 9 (9) -- -- --
Tax benefits from employee stock
transactions -- -- 24,057 -- -- 24,057
Translation adjustment -- -- -- (1,203) -- (1,203)
Net income for the year -- -- -- -- 108,263 108,263
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1997 223,729 $ 2,237 $ 219,005 $ (1,292) $ 197,354 $ 417,304
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 51
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 27,338 $ 35,861 $ 108,263
Adjustments to reconcile net income to net cash provided (used) by operating
activities, net of acquired companies:
Depreciation and amortization 11,540 26,691 38,873
Provision for doubtful accounts, net of write-offs and recoveries 2,860 2,597 12,070
Provision for deferred income taxes (7,790) (25,428) (6,932)
In-process research and development and acquisition costs -- 26,509 --
Changes in operating assets and liabilities:
Accounts receivable (51,908) (65,840) (147,637)
Other current assets (2,896) (1,093) (1,318)
Other noncurrent assets -- (7,245) (7,256)
Accounts payable and accrued liabilities 12,841 15,214 16,380
Accrued compensation and related expenses 16,494 12,545 29,805
Deferred revenue 45,772 85,129 144,416
Income taxes payable 5,454 6,992 19,388
Tax benefits from employee stock transactions 7,333 18,981 24,057
--------- --------- ---------
Net cash provided by operating activities 67,038 130,913 230,109
INVESTING ACTIVITIES
Purchase of available-for-sale investments (69,571) (29,157) (177,584)
Sale of available-for-sale investments 58,596 21,434 71,644
Purchase of property and equipment (54,318) (57,086) (55,388)
Additions to capitalized software, net (5,631) (2,568) (2,495)
Acquisitions -- 391 (393)
--------- --------- ---------
Net cash used in investing activities (70,924) (66,986) (164,216)
FINANCING ACTIVITIES
Net proceeds from sale of common stock and exercise of common
stock options 5,099 15,091 33,332
Proceeds from sale of Red Pepper common and preferred stock 5,083 -- --
Net proceeds from the issuance of warrants 21,793 -- --
--------- --------- ---------
Net cash provided by financing activities 31,975 15,091 33,332
Effect of foreign exchange rate changes on cash (132) 175 (1,203)
--------- --------- ---------
Net increase in cash and cash equivalents 27,957 79,193 98,022
Cash and cash equivalents at beginning of period 62,725 90,682 169,875
========= ========= =========
Cash and cash equivalents at end of period $ 90,682 $ 169,875 $ 267,897
========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 52
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
PeopleSoft, Inc. (the "Company") designs, develops, markets, licenses and
supports a family of client/server enterprise application software products,
including manufacturing, distribution, financial, and human resource management
systems. The Company also provides services such as maintenance, training,
installation, consulting and product support services. Customers consist
primarily of large and medium sized organizations including corporations, higher
education institutions, non-profit entities and federal, state and local
government agencies. The Company's business is predominately based in the United
States. It does not have a concentration of credit or operating risk in any one
industry or any one geographic region within the United States.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Despite management's best effort to establish good
faith estimates and assumptions, actual results may differ from these estimates.
CASH AND CASH EQUIVALENTS, SHORT TERM INVESTMENTS AND LONG TERM INVESTMENTS
Cash equivalents are highly liquid investments with insignificant interest
rate risk and remaining maturities of three months or less at the date of
purchase and are stated at amounts which approximate fair value, based on quoted
market prices. Cash equivalents consist principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid debt securities of
corporations, municipalities and the U.S. Government. All other cash is held in
bank demand deposits.
The Company accounts for its cash equivalents and investments under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. At
December 31, 1996 and 1997 the Company has classified all of its debt securities
as available-for-sale, the components of which follow (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
State and local municipalities $ 79,898 $ 233,374
U.S. Government 2,500 6,771
Corporate 25,605 39,940
---------- ----------
$ 108,003 $ 280,085
========== ==========
Cash equivalents $ 62,595 $ 128,737
Investments due in one year or less 27,138 124,565
Investments due in one year to 18 months 18,270 26,783
---------- ----------
$ 108,003 $ 280,085
========== ==========
</TABLE>
F-6
<PAGE> 53
Unrealized gains and losses at December 31, 1996 and 1997 and realized
gains and losses for the years then ended were not material. The cost of
securities sold is based on the specific identification method.
ACCOUNTS RECEIVABLE
Accounts receivable are comprised of billed receivables arising from
recognized and deferred revenues and unbilled receivables, which include accrued
license fees for payments not yet due and accrued services. The Company does not
require collateral for its receivables. Reserves are maintained for potential
losses. For the years ended December 31, 1995, 1996, and 1997 actual
write-offs were not significant. Future actual write-offs may differ from the
Company's estimates and could have a material impact on the Company's future
results of operations. The principal components of accounts receivable were as
follows at December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Billed receivables $ 94,343 $ 200,081
Unbilled receivables 76,756 118,655
--------- ---------
171,099 318,736
Allowance for doubtful accounts (7,423) (19,493)
--------- ---------
$ 163,676 $ 299,243
========= =========
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed using the straight-line method
over estimated useful lives of two to three years for computer equipment, five
years for telephones and office equipment, seven years for furniture and
fixtures, and 30 years for buildings. Leasehold improvements are depreciated
over the shorter of the lease term or the useful life of the asset. Intangible
assets are amortized over a three to five year life.
CAPITALIZED SOFTWARE
The Company capitalizes software purchased from third parties if the
related software product under development has reached technological feasibility
or if there are alternative future uses for the purchased software provided that
capitalized amounts will be realized over a period not exceeding five years. In
addition, the Company capitalizes certain internally incurred costs, consisting
of salaries, related payroll taxes and benefits, and an allocation of indirect
costs related to developing computer software products. Costs incurred prior to
the establishment of technological feasibility are charged to product
development expense. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future revenues, estimated
economic life and changes in software and hardware technologies. Upon the
general release of the software product to customers, capitalization ceases and
such costs are amortized (using the straight-line method) on a product by
product basis over the estimated life which is generally three years. All other
research and development expenditures are charged to research and development
expense in the period incurred.
Capitalized software costs and accumulated amortization at December 31,
1995, 1996 and 1997 and related software amortization expense (included in cost
of license fees) for the years then ended were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Capitalized software:
Internal development costs $ 7,016 $ 10,737 $ 13,232
Purchased from third parties 5,137 6,832 6,832
-------- -------- --------
12,153 17,569 20,064
Accumulated amortization (4,811) (6,396) (10,358)
-------- -------- --------
$ 7,342 $ 11,173 $ 9,706
======== ======== ========
Amortization expense $ 1,722 $ 1,585 $ 3,962
======== ======== ========
</TABLE>
F-7
<PAGE> 54
During 1995, the Company acquired certain manufacturing software from
Andersen Consulting for $4.0 million for use in its manufacturing software
products. Upon the acquisition of PeopleSoft Manufacturing, Inc. ("PMI"), and
the subsequent general availability of PMI's manufacturing software product line
in December 1996, the Company determined that the manufacturing software
acquired from Andersen was redundant and expensed the balance at December 31,
1996 (see Note 8). Also, as part of the acquisition of PMI, the Company
allocated $6.5 million to developed software costs which is being amortized over
five years.
DEFERRED REVENUE
Deferred revenue is comprised of deferrals for license fees, maintenance,
training and other services. The principal components of deferred revenue at
December 31, 1996 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
License fees $ 34,224 $ 71,168
Maintenance 104,257 184,171
Training 30,607 46,201
Other services 14,164 26,128
-------- --------
$183,252 $327,668
======== ========
</TABLE>
REVENUE RECOGNITION
The Company licenses software under noncancellable license agreements and
provides services including training, installation, consulting and maintenance,
consisting of product support services and periodic updates. License fee
revenues are generally recognized when a noncancellable license agreement has
been signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, there are no significant vendor obligations, the
fees are fixed and determinable, and collection is considered probable. The
Company allocates a portion of contractual license fees to post-contract support
activities covered under the contract including first year maintenance,
installation assistance and limited training services. Revenues from maintenance
agreements are recognized ratably over the maintenance period, which in most
instances is one year. Revenues for training or consulting services are
recognized as services are performed. Revenue and profits under contracts
requiring significant customization are recognized using contract accounting.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). This statement provides for a liability approach under which deferred
income taxes are provided based upon enacted tax laws and rates applicable to
the periods in which the taxes become payable.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the functional currency of each foreign
operation is the local currency. The effects of translation rate changes related
to assets and liabilities located outside the United States are included as a
component of stockholders' equity. Foreign currency transaction gains and losses
are included in Other income, interest expense and other on the Consolidated
Statements of Income. Through 1997, such gains and losses have not been
significant.
In January 1998, the Company initiated a foreign exchange hedging program
designed to hedge foreign currency net receivables and payables of PeopleSoft's
foreign subsidiaries. The program uses forward foreign exchange contracts as the
vehicle for hedging these intercompany balances. In general, these forward
foreign exchange contracts have terms of three months or less. Gains and
losses on these contracts will be recognized as other income or expense in the
current period, consistent with the period in which the gain or loss of the
underlying
F-8
<PAGE> 55
transaction is recognized. The foreign exchange hedging program is managed in
accordance with a corporate policy approved by the Company's Board of Directors.
In addition to hedging existing transaction exposures, the Company's
foreign exchange management policy allows for the hedging of anticipated
transactions, and exposure resulting from the translation of foreign subsidiary
financial results into U.S. Dollars. Such hedges can only be undertaken to the
extent that the exposures are highly certain, reasonably estimable, and
significant in amount. These hedges will only be undertaken should the Company
deem them necessary to protect the U.S. Dollar value of the underlying exposure.
The Company foresees that hedges of such anticipated transactions and
translation exposures will be done in the future using forward and option
contracts.
PER SHARE DATA
Share amounts for all periods presented reflect restatement for the
two-for-one stock split in December 1997. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS
128"), requiring public companies to exclude the dilutive effect of stock
options in calculating basic earnings per share as of December 31, 1997. As a
result, the Company changed the method used to compute earnings per share and
restated earnings per share for all prior periods. Basic income per share as
required under SFAS 128 is computed using the weighted average number of common
shares outstanding during the period. Diluted income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the shares
issuable upon the exercise of stock options and warrants (using the treasury
stock method). The following table sets forth the computation of basic and
diluted income per share for the years ended December 31, (in thousands except
per share amounts):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income $ 27,338 $ 35,861 $108,263
======== ======== ========
Denominator:
Denominator for basic income per share -
weighted average shares 203,689 211,248 219,302
Employee stock options 25,298 27,386 25,967
Warrants -- 818 3,052
-------- -------- --------
Denominator for diluted income per share -
adjusted weighted average shares and
assumed conversions 228,987 239,452 248,321
======== ======== ========
Basic income per share $ 0.13 $ 0.17 $ 0.49
======== ======== ========
Diluted income per share $ 0.12 $ 0.15 $ 0.44
======== ======== ========
</TABLE>
STOCK-BASED COMPENSATION
In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued and effective
for the year ending December 31, 1996. As permitted by SFAS 123, the Company has
continued to account for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25") and has made the pro forma disclosures required by SFAS
123 for each of the three years in the period ending December 31, 1997 in Note
3.
NEWLY ISSUED ACCOUNTING STANDARDS
F-9
<PAGE> 56
Statement of Position ("SOP") 97-2, "Software Revenue Recognition" was
issued in October 1997 and addresses software revenue recognition. The
SOP supersedes SOP 91-1 and is effective for transactions entered into for
fiscal years beginning after December 15, 1997. Based upon its reading and
interpretation of SOP 97-2 the Company believes its current revenue recognition
policies and practices are materially consistent with the SOP. However,
implementation guidelines for this standard have not yet been issued and a wide
range of potential interpretations are being discussed by the accounting
profession. Once available, such implementation guidance could lead to
unanticipated changes in the Company's current revenue accounting practices, and
such changes could be material to the Company's future revenue and earnings.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income ("SFAS 130") was issued. Under SFAS 130 all
items that meet the definition of comprehensive income will be reported in a
financial statement for the period in which they are recognized. Comprehensive
income will include changes in the balances of items that are reported directly
in a separate component of Stockholders' equity on the Consolidated Balance
Sheets. The Company will make the disclosures required by SFAS 130 in the first
quarter of 1998.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") was issued in
June 1997. SFAS 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis used internally
for evaluating segment performance and resource allocation. SFAS 131 is
effective for fiscal years beginning after December 31, 1997, however,
disclosure is not required in interim financial statements in the initial year
of adoption. Accordingly, the Company will make the required disclosures for the
year ending December 31, 1998, although the Company has not fully assessed the
impact of SFAS 131 on its financial disclosures.
2. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating leases which
generally require the Company to pay operating costs, including property taxes,
insurance and maintenance. The Company also leases certain computer equipment
under operating leases. Computer leases require the return of the equipment or
payment of residual values. Such residual values, which approximate fair values,
are not material to the consolidated financial statements.
Future minimum operating lease payments for the years ending December 31,
are due as follows (in thousands):
<TABLE>
<S> <C>
1998 $20,335
1999 16,631
2000 11,512
2001 8,823
2002 6,073
Thereafter 10,757
-------
$74,131
=======
</TABLE>
Rent expense totaled approximately $6.9 million, $9.8 million and $19.6
million in 1995, 1996 and 1997, respectively.
In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. This lease is structured as an
operating lease, however, the accounting treatment will ultimately be determined
upon inception of the lease term when the Company occupies the facility. The
lease commitments related to this lease have been included in the amounts above.
The lessor has committed to fund up to a maximum of $70.0 million for
construction of the facility. Construction on the facility is anticipated to be
completed in the third quarter of 1998 and payments under this lease will begin
at that time. The interest rate charged on amounts funded is LIBOR plus 0.625%
as measured on the date of each funding or rollover. At each funding or rollover
date, the Company has its choice of term and LIBOR rate (1 month, 2 months, 3
months, 6 months, 9 months or 12 months) applicable to each tranche at the date
the respective funding amount is requested and approved. The
F-10
<PAGE> 57
Company has an option to renew the lease for a an additional three years,
subject to certain conditions. If at the end of the lease term the Company does
not purchase the property, the Company would guarantee a residual value to the
lessor equal to a specified percentage of the lessor's cost of the facility.
Under this lease, the Company is required to maintain compliance with certain
financial covenants, is prohibited from making certain payments, including cash
dividends, and is subject to various other restrictions. At December 31, 1997,
the total amount funded by the lessor for construction of the facility was $38.5
million.
Subsequent to 1997, the Company negotiated an amendment to this lease
which extends the term of the lease until February 2003, with an option to renew
for an additional three years. Additionally, the Company negotiated a fixed rate
funding option under which the Company may elect that any or all of the amounts
funded to date be charged a fixed interest rate. The Company has the option of
setting the fixed rate expiration date for any date through the end of the lease
term.
Under certain software license agreements, the Company is required to
maintain surety bonds and/or letters of credit benefiting third party customers
which may be drawn against if the Company fails to perform its contractual
obligations. At December 31, 1997, three such surety bonds with a cumulative
total value of $9.3 million with maturity dates ranging from September 1998 to
June 2000, and one letter of credit for $991,000 with an expiration date of
April 1998 were outstanding.
The Company is party to various legal disputes and proceedings arising
from the ordinary course of general business activities. In the opinion of
management, resolution of these matters is not expected to have a material
adverse effect on the financial position, results of operations and cash flows
of the Company. However, depending on the amount and the timing, an unfavorable
resolution of some or all of these matters could materially affect the Company's
future results of operations or cash flows in a particular period.
3. STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
Under a stockholder rights plan established in 1995, every share of common
stock carries the right (a "Right"), under certain circumstances, to purchase
equity securities of the Company or an acquiring company. Ten days after a
tender offer or acquisition of 20 percent or more of the Company's common stock,
each Right may be exercised for $190 ("Exercise Price") to purchase one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock. Each one one-thousandth of each share of Series A Participating Preferred
Stock will generally be afforded economic rights similar to one share of the
Company's common stock. In addition, each Right entitles the holder to purchase
common stock of the Company with a fair value of twice the Exercise Price or, in
certain circumstances, securities of the acquiring company for the Exercise
Price. Each Right expires in February 2005, and, during specified periods, the
Company may redeem or exchange each Right for $.01 or one share of common stock,
respectively.
COMMON STOCK
In December 1997, the Company's common stock was split two for one. All
share and per share amounts applicable to prior periods have been restated to
reflect the split. The Company has never paid cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. At December 31, 1997, 67,102,507 authorized but unissued shares of
common stock were reserved for issuance under the Company's stock plans and for
outstanding warrants.
STOCK PLANS
1992 EMPLOYEE STOCK PURCHASE PLAN
Under the 1992 Employee Stock Purchase Plan ("ESPP"), eligible employees
may purchase common stock at a price equal to 85 percent of the lower of the
fair market value of the common stock at the beginning or end of each offering
period. Participation in the offering is limited to the lesser of ten percent of
an employee's compensation or $21,250 per year, may be terminated at any time by
the employee and automatically ends upon termination of
F-11
<PAGE> 58
employment with the Company. A total of 6,000,000 shares of common stock have
been reserved for issuance under this plan of which 4,453,504 shares have been
issued through December 31, 1997. Under this plan, 1,031,568 shares, 869,956
shares and 741,628 shares were issued in 1995, 1996 and 1997, respectively. In
January 1998, 420,906 shares were issued in connection with the offering period
ended December 31, 1997. Subsequent six-month offering periods will commence on
each January 1 and July 1.
1989 STOCK PLAN
Pursuant to the 1989 Stock Plan, incentive and non-qualified stock options
to purchase shares of the Company's common stock may be granted, and 99,600,000
shares have been reserved for issuance under this Plan. The exercise price of
each incentive and non-qualified stock option shall not be less than 100 percent
and 85 percent, respectively, of the fair market value of the stock on the date
the option is granted. The options expire 10 years after the date of grant and
are exercisable to the extent vested. Vesting is established by the Board of
Directors and generally occurs at the rate of 20 percent per year from the date
of grant.
1993 RED PEPPER SOFTWARE COMPANY PLAN
In connection with the merger of PeopleSoft and Red Pepper in 1996,
PeopleSoft assumed all of the outstanding stock options of Red Pepper (adjusted
for the exchange ratio). As of the date of the merger, 2,163,388 shares of
PeopleSoft common stock were reserved for issuance upon the exercise of options
assumed in connection with the business combination.
COMBINED OPTION ACTIVITY
Option activity under the 1989 Stock Plan, including the 1993 Red Pepper
Software Company Plan stock options assumed by PeopleSoft as a result of the
merger, is as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Shares
-------------- ------------
<S> <C> <C>
Balances at December 31, 1994 $ 1.015 28,893,016
Granted 5.258 12,068,924
Exercised 0.521 (4,610,040)
Canceled 6.760 (654,152)
------------ ------------
Balances at December 31, 1995 2.408 35,697,748
Granted 12.683 11,077,536
Exercised 1.156 (6,710,906)
Canceled 9.103 (1,103,748)
------------ ------------
Balances at December 31, 1996 5.551 38,960,630
Granted 21.691 10,870,350
Exercised 3.264 (6,160,683)
Canceled 11.918 (975,225)
============ ============
Balances at December 31, 1997 $ 9.982 42,695,072
============ ============
</TABLE>
The exercise prices for the above grants range from $0.001 to $39.00. At
December 31, 1997, options to purchase 13,081,129 shares were exercisable and
options for 15,651,435 shares were available for grant.
1992 DIRECTORS' STOCK OPTION PLAN
Under the 1992 Directors' Stock Option Plan, directors who are not
officers or employees may receive nonstatutory options to purchase shares of
common stock. A total of 2,400,000 shares of common stock have been reserved for
issuance under this plan and, as of December 31, 1997, options to purchase
578,000 shares with exercise prices of $1.766 to $23.97 per share have been
granted. Under this plan, 176,000, 48,000, and 34,000 options were granted in
1995, 1996 and 1997, respectively. During 1997, options to purchase 4,000 shares
were exercised. At December 31, 1997, options to purchase 28,000 shares were
exercisable and options for 1,822,000 shares were available for grant.
F-12
<PAGE> 59
\STOCK-BASED COMPENSATION
As permitted under SFAS 123, the Company has elected to continue to follow
APB Opinion No. 25 in accounting for stock-based awards to employees. Under APB
Opinion No. 25, the Company generally recognizes no compensation expense with
respect to such awards, since the exercise price of the stock options granted
are equal to the fair market value of the underlying security on the grant date.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS 123. The fair value of the Company's stock-based awards to
employees was estimated as of the date of the grant using a Black-Scholes option
pricing model. Limitations on the effectiveness of the Black-Scholes option
valuation model are that it was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable
and that the model requires the use of highly subjective assumptions including
expected stock price volatility. Because the Company's stock-based awards to
employees have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. Both of these plans are discussed in this Note
above. The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
Options ESPP
----------------------------------- -----------------------------------
1995 1996 1997 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years) 3.55 3.51 3.50 0.49 0.49 0.48
Expected volatility 0.40 0.38 0.37 0.45 0.40 0.40
Risk free interest rate 6.80% 5.71% 6.33% 6.09% 5.23% 5.45%
</TABLE>
For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period for options
and the six-month purchase period for stock purchases under the ESPP. The
Company's pro forma information follows (in thousands except for income per
share information):
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income
As reported $ 27,338 $ 35,861 $ 108,263
Pro forma $ 20,476 $ 16,072 $ 74,610
Basic income per share
As reported $ 0.13 $ 0.17 $ 0.49
Pro forma $ 0.10 $ 0.08 $ 0.34
Diluted income per share
As reported $ 0.12 $ 0.15 $ 0.44
Pro forma $ 0.09 $ 0.07 $ 0.31
</TABLE>
Because SFAS 123 is applicable only to stock-based awards granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until approximately 1999.
The weighted-average fair value of options granted during 1995, 1996 and
1997 was $1.94, $4.77 and $6.66 per share, respectively. The weighted-average
fair value of the ESPP during 1995, 1996 and 1997 was $1.55, $3.56 and $6.61 per
share, respectively.
F-13
<PAGE> 60
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ---------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Exercise Number of Contractual Average Number of Average
Prices Shares Life (years) Exercise Price Shares Exercise Price
- ----------------- --------- ------------ -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
$0.001 - 2.00 8,817,993 4.45 $ 0.47 6,108,653 $ 0.35
2.01 - 5.00 8,002,972 6.44 2.74 3,433,052 2.53
5.01 - 12.00 7,446,140 7.50 6.98 2,176,736 6.89
12.01 - 19.00 7,670,402 8.26 14.55 1,218,538 14.52
19.01 - 20.00 8,628,704 9.24 19.87 30,054 19.39
20.00 - 39.00 2,702,861 9.44 27.65 154,096 24.07
========== ==========
43,269,072 13,121,129
========== ==========
</TABLE>
WARRANTS
In November 1995, the Company received $21.8 million through the private
placement of warrants to purchase an aggregate of 8,000,000 shares of the
Company's common stock. Upon notice of exercise by the holders of the warrants,
the Company, at its option, may settle such exercise by either issuing the full
amount of shares and receiving cash proceeds, issuing a net amount of shares
with no cash proceeds, or purchasing the warrants for an amount equal to the
difference between the then fair market value of the common stock and the
warrant exercise price. In November 1997, the Company issued 942,880 shares of
common stock pursuant to the net exercise of warrants to purchase 1,600,000
shares of common stock at $13.75 per share. The warrants are exercisable by the
holders at any time at the following prices and expire in October or November of
the following years:
<TABLE>
<CAPTION>
Year of Expiration Number of Shares Exercise Price
- ------------------ ---------------- --------------
<S> <C> <C>
1998 1,600,000 $13.750
1998 1,600,000 $16.875
1999 1,600,000 $16.875
1999 1,600,000 $19.375
</TABLE>
4. INCOME TAXES
The provision for income taxes consisted of the following components for
the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 20,964 $ 37,396 $ 60,565
State 5,387 10,545 10,711
Foreign 1,417 3,338 3,431
-------- -------- --------
27,768 51,279 74,707
-------- -------- --------
Deferred:
Federal (7,546) (20,240) (7,239)
State (1,423) (5,188) 307
-------- -------- --------
(8,969) (25,428) (6,932)
======== ======== ========
Total provision for income tax $ 18,799 $ 25,851 $ 67,775
======== ======== ========
</TABLE>
F-14
<PAGE> 61
The provision for income taxes differs from the amount computed by
applying the federal statutory income tax rate to the Company's income before
taxes as follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax provision at federal statutory rate $ 16,148 $ 21,599 $ 61,613
State income tax, net of federal tax effect 2,577 3,323 8,849
Income from tax-advantaged investments (914) (1,425) (2,995)
Research and development tax credit (550) (1,031) (3,211)
Merger costs -- 1,015 --
Other 1,538 2,370 3,519
-------- -------- --------
Provision for income taxes $ 18,799 $ 25,851 $ 67,775
======== ======== ========
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes consisted of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue, net $ 18,202 $ 595
Depreciation 2,403 --
Research and development costs 8,766 8,362
Accrued compensation 2,880 7,582
Allowance for doubtful accounts 3,585 8,156
Self insured claims accruals 1,215 2,011
Net operating losses and tax credits 3,744 1,606
Other 4,898 10,784
-------- --------
Total deferred tax assets 45,693 39,096
-------- --------
Deferred tax liabilities:
Capitalized software development costs (2,152) (1,973)
State taxes (1,155) (523)
Depreciation -- (1,720)
Other (838) (2,189)
-------- --------
Total deferred tax liabilities (4,145) (6,405)
======== ========
Total net deferred tax asset $ 41,548 $ 32,691
======== ========
</TABLE>
Deferred tax assets and liabilities are classified in the consolidated
balance sheet based on the classification of the related asset or liability.
Management has concluded that no valuation allowance is required based on its
assessment that current and historical levels of taxable income are sufficient
to realize the deferred tax asset.
The income tax benefits from employee stock transactions have been
recorded as an increase in additional paid-in capital.
5. RETIREMENT PLAN
The Company has two defined contribution savings plans, a qualified plan
(401k Plan) under the provisions of Section 401(k) of the Internal Revenue Code
that covers all full-time employees and a non-qualified plan which covers
employees with earnings over $160,000 per year. Under the terms of the 401k
Plan, member employees may contribute varying amounts of their annual
compensation (to a maximum of $9,500). The Company matches a portion of
qualified employee contributions based upon years of service, up to a maximum of
ten percent of the employee's compensation, subject to certain vesting
provisions based on length of employee service. Company contributions to the
401k Plan totaled $0.5 million in 1995, $0.7 million in 1996 and $2.0 million in
1997. Under the terms of the non-qualified plan, member employees may contribute
varying amounts of their annual compensation up to 100 percent.
F-15
<PAGE> 62
The Company matches a portion of non-qualified employee contributions
based upon years of service, up to a maximum of $9,500, subject to certain
vesting provisions based on length of employee service. Company contributions to
the non-qualified plan totaled $118,000 in 1995, $291,000 in 1996, and $249,000
in 1997.
6. JOINT BUSINESS ARRANGEMENTS
The Company and a limited liability company ("LLC") entered into
agreements in 1995 and 1997, whereby the LLC will provide up to $9.6 million to
fund the development of a suite of student information and administration system
applications ("SIS Software") and the Company is the exclusive distributor of
the SIS Software. Substantially all of the LLC's funds were provided equally by
the Company's founder and principal stockholder and the Student Loan Marketing
Association ("Sallie Mae"), an independent strategic business partner. The
Company has no contractual obligation to provide funds to the LLC and does not
have a right to acquire any of the LLC's equity interests. The Company will pay
the LLC a royalty based on fees received from the licensing of the SIS Software
until the later of five years from the commercial release of the SIS Software or
$17 million in cumulative royalties. The royalty rate was determined based on
negotiations between the Company and Sallie Mae. All ownership rights and
interests in the SIS Software will transfer to the Company, upon the later of
five years from the commercial release of the SIS Software or when $17 million
in cumulative royalties have been paid to the LLC. The SIS Software became
generally available for sale in December 1997, and the Company recorded $3.3
million in cumulative royalty expense in the year ended December 31, 1997. The
LLC reimbursed the Company $2.0 million, $2.4 million and $3.2 million in 1995,
1996 and 1997, respectively, for development funding advanced by the Company,
and, in 1998, the Company anticipates using the remaining $2.0 million to fund
the development of two new related software products. In addition, the Company
was reimbursed $98,000 in 1995 and $65,700 in 1996 for interest on such
advances.
7. SEGMENT AND GEOGRAPHIC AREAS
The Company operates in one industry segment, the design, development,
marketing, licensing and support of a family of client/server enterprise
application software products, and markets its software products and services
through the Company's offices in the United States and its branches,
subsidiaries and distributors in Canada, Europe/Africa, Asia/Pacific and Latin
America. As discussed in Note 1, information about the Company's operating
segments will be reported for the year ending December 31, 1998 as required by
SFAS 131. International revenues from each geographic region was less than ten
percent of total revenues.
The following table presents a summary of operating information and
certain year end balance sheet information by geographic region for the years
ended December 31, (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers
Domestic operations $196,083 $377,782 $690,554
International operations 36,056 72,270 125,097
======== ======== ========
Consolidated $232,139 $450,052 $815,651
======== ======== ========
Operating income
Domestic operations $ 39,537 $ 48,313 $157,035
International operations 2,451 7,511 9,141
======== ======== ========
Consolidated $ 41,988 $ 55,824 $166,176
======== ======== ========
Identifiable assets
Domestic operations $284,403 $488,206 $782,888
International operations 37,838 51,874 115,448
======== ======== ========
Consolidated $322,241 $540,080 $898,336
======== ======== ========
</TABLE>
8. BUSINESS COMBINATIONS
1997 BUSINESS COMBINATIONS
F-16
<PAGE> 63
In 1997, the Company completed three business combinations: Campus
Solutions, Inc., Salerno Manufacturing, Inc., and TeamOne, LLC. Campus
Solutions, a business partner since 1994, developed the Company's Student
Administration application suite. Salerno Manufacturing develops, licenses and
supports a suite of quality management software applications. TeamOne has been
providing implementation services to middle market companies, and becomes an
integral part of the PeopleSoft Select business unit. All of the outstanding
shares of Campus Solutions and all of the assets of Salerno Manufacturing were
acquired for approximately 600,000 shares of common stock in transactions
accounted for as pooling-of-interests; however, prior period consolidated
financial statements were not restated because the retroactive effects were not
material. All of the member interests of TeamOne were acquired for $4 million
cash in a transaction accounted for under the purchase method, and results of
operations of TeamOne are included in the consolidated financial statements
prospectively from the date of acquisition. The Company did not incur
significant merger related costs associated with these transactions and the
aggregate effect of the three acquisitions was not material to the financial
position and results of operations of the Company in any period.
1996 BUSINESS COMBINATIONS
In 1996, the Company completed two business combinations: Red Pepper
Software Company (Red Pepper) and PMI. Red Pepper is a leader in the emerging
supply chain management systems market, and PMI developed the Company's
Manufacturing application suite. All of the outstanding shares of Red Pepper
were acquired in exchange for approximately 10.8 million shares of common stock
and the assumption, under the Company's stock option plan, of all outstanding
rights to purchase Red Pepper common stock which approximated 1.1 million shares
of PeopleSoft stock. The Red Pepper transaction was accounted for as a pooling
of interests and the historical consolidated financial statements of PeopleSoft
for the periods prior to the merger have been restated in the accompanying
consolidated financial statements to include the financial position, results of
operations and cash flows of Red Pepper. In addition, merger costs of $2.9
million were charged to operations in 1996.
All of the assets of PMI were acquired in November 1996 for an aggregate
purchase price of $30.1 million. This transaction has been accounted for under
the purchase method and resulted in a one-time charge to earnings of $22.5
million in 1996 for in-process research and development. Significant components
of the $30.1 million purchase price included the issuance of common stock with a
fair value of $14.4 million, issuance of common stock options to PMI employees
with a fair value of $7.6 million, issuance of a note payable of $4.7 million,
and forgiveness of debt and other consideration of $3.4 million. The purchase
price was allocated, based upon an independent valuation, to in-process research
and development costs with a fair value of $22.5 million, capitalized software
of $6.5 million and cash and other assets of $1.1 million. The results of the
operations of PMI have been included in the Company's consolidated financial
statements since November 1, 1996. The results of operations of PMI for periods
prior to November 1, 1996, were not material to the consolidated financial
statements.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is detailed below, except for non-cash
activities related to the acquisition of PMI which are as discussed in Note 8
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest $ 24 $ 264 $ 381
========== ========== ==========
Cash paid for income taxes $ 13,902 $ 25,306 $ 30,680
========== ========== ==========
</TABLE>
F-17
<PAGE> 64
PEOPLESOFT, INC.
SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly supplemental consolidated financial information for
1996 and 1997 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues $ 82,282 $ 102,721 $ 117,382 $ 147,667
Operating income 14,156 17,668 20,713 3,287
Net income 9,459 11,480 13,179 1,743
Basic income per share $ 0.05 $ 0.05 $ 0.06 $ 0.01
Shares used in basic per share computation 207,922 211,138 213,316 214,648
Diluted income per share $ 0.04 $ 0.05 $ 0.05 $ 0.01
Shares used in diluted per share computation 234,359 238,463 241,377 246,055
1997
Total revenues $ 153,654 $ 184,376 $ 217,050 $ 260,571
Operating income 27,204 34,074 43,808 61,090
Net income 17,838 22,271 28,699 39,455
Basic income per share $ 0.08 $ 0.10 $ 0.13 $ 0.18
Shares used in basic per share computation 216,495 218,713 221,010 222,949
Diluted income per share $ 0.07 $ 0.09 $ 0.11 $ 0.16
Shares used in diluted per share computation 247,693 249,208 253,830 253,052
</TABLE>
F-18
<PAGE> 65
EXHIBIT INDEX
Exhibit No. Document
----------- --------
<TABLE>
<S> <C>
2.1(7) Agreement and Plan of Reorganization between
PeopleSoft, Inc. and Red Pepper Company
dated as of September 4, 1996.
3.1(11) Restated Certificate of Incorporation of
Registrant filed with the Secretary of State
of the State of Delaware on May 25, 1996.
3.2(11) Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the State
of Delaware on June 17, 1996.
3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the State
of Delaware on July 3, 1997.
3.4 Certificate of Designation as filed with the Secretary of
State of the State of
Delaware on March 24, 1998.
3.5 Bylaws of Registrant, as amended to date.
4.1(9) Stockholder Rights Plan and Preferred Shares
Rights Agreement dated February 15, 1995.
4.2(12) First Amended and Restated Preferred Shares Rights Agreement
dated December 16, 1997.
10.1(11,5) Amended and Restated 1989 Stock Plan and
forms of option agreements thereunder.
10.2(11) 1992 Employee Stock Purchase Plan as amended
to date, and form of subscription agreement
thereunder.
10.3(1) 1992 Directors' Stock Option Plan and forms
of option agreements thereunder.
10.4(2,5) Executive Bonus Plan.
10.5(3) Amendment and Restatement of PeopleSoft,
Inc. 401(K) Plan, dated December 13, 1995,
Amendment No. 1 dated December 30, 1994, and
Amendment No. 2, dated August 25, 1995.
10.6(1) Form of Indemnification Agreement entered
into between the Registrant and each of its
directors and officers.
10.7(3) Loan Agreement between the Registrant and
West America Bank, N.A. dated October 31,
1995.
10.8(1) Office Lease for 1331 North California
Boulevard dated July 23, 1990 between the
Registrant and 1333 North California
Boulevard, a California limited partnership,
as amended by the First Amendment to Lease
dated April 24, 1991 and the Second
Amendment to Lease dated June 17, 1992 and
related Lease Guarantees dated July 26, 1990
and June 14, 1991 between 1333 North
California Boulevard and David A. Duffield.
10.9(1) Lease dated July 24, 1992 between the
Registrant and Glen Pointe Associates.
10.12(1,6) Software License and Support Agreement
dated June 23, 1992 between the Registrant
and ADP, Inc., as amended by Amendment
No. 1 dated September 30, 1992.
10.18(2) Lease dated June 23, 1993 between the
Registrant and Westbrook Corporate Center.
10.19(2) Lease dated January 17, 1994 between the
Registrant and R-H Associates Bldg. III
Corp.
10.20(2) Lease dated March 10, 1994 between the
Registrant and Rosewood Associates.
10.21(3) Contract of Sale and Escrow Instructions
between the Company and Rosewood Owner of
California (B) LLC, a California limited
liability company, dated October 4, 1995.
10.22(4) Warrant Agreement between the Registrant and
The First National Bank of Boston, as
Warrant Agent, dated October 30, 1995.
10.23(4) Warrant Purchase Agreement between the
Registrant and Goldman, Sachs & Co. dated
October 30, 1995.
10.24(4) Registration Rights Agreement between the
Registrant and Goldman, Sachs & Co. dated
October 30, 1995.
10.25(8) Amendment No. 2 dated September 28, 1994,
Amendment No. 3 dated September 21, 1995 and
Amendment No. 4 dated December 28, 1995 to
the Software License and Support Agreement
dated June 23, 1992 between the Registrant
and ADP, Inc. (Confidential treatment
requested for Amendment No. 2 and No. 4
only).
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
10.26(8) Amended Software Development Agreement dated
December 22, 1995 between the Registrant and
Solutions for Education Administrators, Inc.
10.27(8) Exclusive Marketing and Distribution
Agreement dated December 22, 1995 between
the Registrant and SIS Development LLC
("SIS").
10.28(13) Amendment No. 1 dated September 19, 1994,
Amendment No. 2 dated May 15, 1995 and
Amendment No. 3 dated June 19, 1995 to the
Lease dated March 10, 1994 between the
Registrant and Rosewood Associates.
10.29(8) Systems Integrator Agreement dated August
25, 1995 between the Registrant and Shared
Medical Systems Corporation.
10.32(13) Lease dated December 4, 1996 between the
Registrant and Lease Plan North America,
Inc.
10.33(13) Purchase Agreement dated October 22,
1996 between the Registrant and Norwest
Equity Partners IV, L.P.
10.34(10) Red Pepper Software Company 1993 Stock
Option Plan, and forms of stock option
agreement thereunder.
21.1 Subsidiaries.
23.1 Consent of Ernst and Young LLP, Independent
Auditors.
24.1 Power of Attorney (see page 44).
27.1 Financial Data Schedule
</TABLE>
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1 Incorporated by reference to the exhibit having the same number filed with
the Registrant's Registration Statement on Form S-1 (No. 33-53000) filed October
7, 1992, Amendment No. 1 thereto filed October 26, 1992, Amendment No. 2 thereto
filed November 10, 1992 and Amendment No. 3 thereto filed November 18, 1992,
which Registration Statement became effective November 18, 1992 and the
Registrant's Registration Statement on Form S-1 (No. 33-62356) filed on May 7,
1993, which Registration Statement became effective May 24, 1993.
2 Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
3 Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-K
filed with the Securities and Exchange Commission on December 15,1995.
4 Exhibits 10.22, 10.23, and 10.24 are incorporated by reference to Exhibits
10.1, 10.2, and 10.3, respectively, filed with the Company's Registration
Statement on Form S-3 (No. 33-80755) filed with the Securities and Exchange
Commission on December 22, 1995.
5 This agreement is a compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
6 Confidential treatment previously granted.
7 Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-4
filed with the Securities and Exchange Commission on October 4, 1996.
8 Incorporated by reference to the exhibit having the same filed numbers
with the Company's Annual Report on Form 10K for the year ended December 31,
1995.
9 Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-A
filed with the Securities and Exchange Commission on February 15, 1995.
10 Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-8
filed with the Securities and Exchange Commission on October 24, 1996.
11 Incorporated by reference to the exhibit filed with the Company's Form
S-8 (No. 333-08575) filed with the Securities and Exchange Commission on July
22, 1996.
12 Incorporated by reference to Exhibit 1 filed with the Company's Form 8-A/A
filed with the Securities and Exchange Commission on March 25, 1998.
13 Incorporated by reference to the exhibit having the same filed number
with the Company's Annual Report on Form 10K for the year ended December 31,
1996.
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
PeopleSoft, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of PeopleSoft, Inc.,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and authorizing and directing the officers and directors of the
corporation to solicit the consent of the stockholders of said corporation for
consideration thereof. The resolution setting forth said amendment is as
follows:
RESOLVED: That the Certificate of Incorporation of this corporation be
amended by changing the first paragraph of Article III thereof so that,
as amended said paragraph shall be and read as follows:
"The Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and
"Preferred Stock". The total number of shares which the
corporation is authorized to issue is Three Hundred Twenty-Two
Million (322,000,000) shares. Three Hundred Twenty Million
(320,000,000) shares shall be Common Stock and Two Million
(2,000,000) shares shall be Preferred Stock, each with a par
value of One Cent ($0.01)."
SECOND: That thereafter, the necessary number of shares of this
corporation's capital stock as required by Section 228 of the General
Corporation Law of Delaware voted in favor of such amendment at the
corporation's Annual Meeting of Stockholders.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, PeopleSoft, Inc. has caused this certificate to be
signed by Ronald E.F. Codd, its Senior Vice President of Finance and
Administration, Chief Financial Officer and Secretary, this 3rd day of June,
1997.
/s/ Ronald E.F. Codd
-------------------------------------
Ronald E.F. Codd
Senior Vice President of Finance and
Administration, Chief Financial
Officer and Secretary
<PAGE> 1
Exhibit 3.4
Page 1
CERTIFICATE OF DESIGNATIONS OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF PEOPLESOFT, INC.
The undersigned, David A. Duffield and Ronald E.F. Codd do hereby certify:
1. That they are the duly elected and acting President and Secretary,
respectively, of PeopleSoft, Inc., a Delaware corporation (the "CORPORATION").
2. That no shares of the Company's Series A Participating Preferred Stock
have been issued.
3. That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the said Corporation, the said Board of
Directors on December 16, 1997 adopted the following resolution amending the
designations, powers, preferences and relative and other special rights,
limitations and restrictions of the Company's Series A Participating Preferred
Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation by the Restated Certificate of Incorporation, the Board of
Directors does hereby fix and herein state and express the designations, powers,
preferences and relative and other special rights and the qualifications,
limitations and restrictions of the Company's Series A Participating Preferred
Stock as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $.01 per share, and the
number of shares constituting such series shall be 1,000,000.
Section 2. Proportional Adjustment. In the event the Corporation shall at
any time after the issuance of any share or shares of Series A Participating
Preferred Stock (i) declare any dividend on Common Stock of the Corporation
("COMMON STOCK") payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3. Dividends and Distributions.
(a) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating
<PAGE> 2
Page 2
Preferred Stock shall be entitled to receive when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of January, April, July and October in
each year (each such date being referred to herein as a "QUARTERLY DIVIDEND
PAYMENT DATE"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
1,000 times the aggregate per share amount of all cash dividends, and 1,000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Participating Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of Series
A Participating Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 4. Voting Rights. The holders of shares of Series A Participating
Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to a vote of
the stockholders of the Corporation.
<PAGE> 3
Page 3
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(c) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 5. Certain Restrictions.
(a) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 3
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with Series A Participating Preferred
Stock, except dividends paid ratably on the Series A Participating Preferred
Stock and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the
<PAGE> 4
Page 4
Series A Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(c) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
Section 6. Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein and, in the Restated Certificate of Incorporation, as then amended.
Section 7. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Participating Preferred Stock shall be entitled to receive an aggregate amount
per share equal to 1,000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends on such shares of Series A Participating Preferred Stock.
Section 8. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged.
Section 9. No Redemption. The shares of Series A Participating Preferred
Stock shall not be redeemable.
Section 10. Ranking. The Series A Participating Preferred Stock shall rank
junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11. Amendment. The Restated Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or
<PAGE> 5
Page 5
change the powers, preference or special rights of the Series A Participating
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority of the outstanding shares of Series A Participating
Preferred Stock, voting separately as a class.
Section 12. Fractional Shares. Series A Participating Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set forth in
the foregoing Certificate of Designation are true and correct of our own
knowledge.
Executed at Pleasanton, California on March 4, 1998.
David A., President
Ronald E.F. Codd, Secretary
<PAGE> 1
Exhibit 3.5
BY-LAWS
OF
PEOPLESOFT, INC.
(As Amended through February 1995)
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I - CORPORATE OFFICES............................................ 1
1.1 REGISTERED OFFICE.............................................. 1
1.2 OTHER OFFICES.................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................... 1
2.1 PLACE OF MEETINGS.............................................. 1
2.2 ANNUAL MEETING................................................. 1
2.3 SPECIAL MEETING................................................ 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................... 2
2.6 QUORUM......................................................... 2
2.7 ADJOURNED MEETING; NOTICE...................................... 2
2.8 CONDUCT OF BUSINESS............................................ 3
2.9 VOTING......................................................... 3
2.10 WAIVER OF NOTICE............................................... 3
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING........................................................ 3
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS....................................................... 4
2.13 PROXIES........................................................ 5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.......................... 5
2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINEES......................... 5
2.16 ADVANCE NOTICE OF STOCKHOLDER BUSINESS......................... 6
ARTICLE III - DIRECTORS.................................................. 7
3.1 POWERS......................................................... 7
3.2 NUMBER OF DIRECTORS............................................ 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF
DIRECTORS...................................................... 7
3.4 RESIGNATION AND VACANCIES...................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE....................... 8
3.6 REGULAR MEETINGS............................................... 9
3.7 SPECIAL MEETINGS; NOTICE....................................... 9
3.8 QUORUM......................................................... 9
3.9 WAIVER OF NOTICE............................................... 10
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............. 10
3.11 FEES AND COMPENSATION OF DIRECTORS............................. 10
3.12 APPROVAL OF LOANS TO OFFICERS.................................. 10
3.13 REMOVAL OF DIRECTORS........................................... 10
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE IV - COMMITTEES.................................................. 11
4.1 COMMITTEES OF DIRECTORS........................................ 11
4.2 COMMITTEE MINUTES.............................................. 12
4.3 MEETINGS AND ACTION OF COMMITTEES.............................. 12
ARTICLE V - OFFICERS..................................................... 12
5.1 OFFICERS....................................................... 12
5.2 APPOINTMENT OF OFFICERS........................................ 12
5.3 SUBORDINATE OFFICERS........................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................ 13
5.5 VACANCIES IN OFFICES........................................... 13
5.6 CHAIRMAN OF THE BOARD.......................................... 13
5.7 PRESIDENT...................................................... 13
5.8 VICE PRESIDENTS................................................ 14
5.9 SECRETARY...................................................... 14
5.10 CHIEF FINANCIAL OFFICER........................................ 14
5.11 ASSISTANT SECRETARY............................................ 15
5.12 ASSISTANT TREASURER............................................ 15
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................. 15
5.14 AUTHORITY AND DUTIES OF OFFICERS............................... 16
ARTICLE VI - INDEMNITY................................................... 16
6.1 THIRD PARTY ACTIONS............................................ 16
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.................. 16
6.3 SUCCESSFUL DEFENSE............................................. 17
6.4 DETERMINATION OF CONDUCT....................................... 17
6.5 PAYMENT OF EXPENSES IN ADVANCE................................. 17
6.6 INDEMNITY NOT EXCLUSIVE........................................ 18
6.7 INSURANCE INDEMNIFICATION...................................... 18
6.8 THE CORPORATION................................................ 18
6.9 EMPLOYEE BENEFIT PLANS......................................... 18
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.... 19
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VII - RECORDS AND REPORTS........................................ 19
7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................... 19
7.2 INSPECTION BY DIRECTORS........................................ 20
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................... 20
ARTICLE VIII - GENERAL MATTERS........................................... 20
8.1 CHECKS......................................................... 20
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............... 20
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES......................... 21
8.4 SPECIAL DESIGNATION ON CERTIFICATES............................ 21
8.5 LOST CERTIFICATES.............................................. 22
8.6 CONSTRUCTION; DEFINITIONS...................................... 22
8.7 DIVIDENDS...................................................... 22
8.8 FISCAL YEAR.................................................... 22
8.9 SEAL........................................................... 22
8.10 TRANSFER OF STOCK.............................................. 23
8.11 STOCK TRANSFER AGREEMENTS...................................... 23
8.12 REGISTERED STOCKHOLDERS........................................ 23
ARTICLE IX - AMENDMENTS.................................................. 23
-iii-
<PAGE> 5
BY-LAWS
OF
PEOPLESOFT, INC.
(As Amended through February 1995)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to be business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors shall
be elected and any other proper business may be transacted.
-1-
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president. No
other person or persons are permitted to call a special meeting. No business
may be conducted at a special meeting other than the business brought before
the meeting by the board of directors or the chairman of the board or the
president.
2.4 NOTICE OF STOCKHOLDERS' MEETING
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these by-laws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present of represented at any
meeting of the stockholders, then either (i) the Chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING: NOTICE
When a meeting is adjourned to another time or place, unless these by-laws
otherwise require, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the
-2-
<PAGE> 7
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these by-laws,
subject to the provisions of Sections 217 and 218 of the General Corporation
Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate or incorporation of these
by-laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these by-laws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
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Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law
of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE: VOTING: GIVING
CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for
the adjourned meeting.
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2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall
be governed by the provisions of Section 212(c) of the General Corporation Law
of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
Such list shall presumptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by each of them.
2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Nominations of persons for election to the Board of directors of the
corporation may be made at a meeting of stockholders by or at the discretion of
the board of directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than twenty (20) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event less than thirty (30) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business address
and
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residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of the corporation which
are beneficially owned by such person, (iv) any other information relating to
such person that is required by law to be disclosed in solicitations of proxies
that is required by law to be disclosed in solicitations of proxies for
election of directors, and (v) such person's written consent to being named as
a nominee and to serving as a director if elected; and (b) as to the
stockholder giving the notice: (i) the name and address, as they appear on the
corporation's books, of such stockholder, and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder, and
(iii) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such
person or persons) relating to the nomination. At the request of the board of
directors any person nominated by the Board for election as a director shall
furnish to the secretary of the corporation that information required to be set
forth in the stockholder's notice of nomination which pertains to the nominee.
No person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section.
The chairman of the meeting shall, if the facts warrant, determine and declare
at the meeting that a nomination was not made in accordance with the procedures
prescribed by these bylaws, and if he should so determine, he shall so declare
at the meeting and the defective nomination shall be disregarded.
2.16 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
At the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (a) as specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (b) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before an annual
meeting by a stockholder shall not be considered properly brought if the
stockholder has not given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than twenty (20) nor more than sixty (60) days prior to the meeting;
provided, however, that in the event that less than thirty (30) days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address of the stockholder proposing such business, (iii) the
class and number of shares of the corporation, which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such
business, and (v) any other information that is required by law to be provided
by the stockholder in his capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any
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annual meeting except in accordance with the procedures set forth in this
Section. The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section, and,
if he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these by-laws relating to
action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of five (5) persons until changed by
a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these by-laws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting unless specified otherwise in the certificate of incorporation.
Directors need not be stockholders unless so required by the certificate of
incorporation or these by-laws, wherein other qualifications for directors may
be prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Elections of directors need not be by written ballot
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention
of the Secretary of the corporation. When one or more directors so resigns and
the resignation is effective at a
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future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies
Unless otherwise provided in the certificate of incorporation or these
by-laws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of the certificate of incorporation or these
by-laws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211 of
the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or
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similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS: NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
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3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these by-laws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these by-laws, the board of directors shall have the authority to fix the
compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these by-laws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
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however, that, so long as stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his or her removal would
be sufficient to elect such director if then cumulatively voted at an election
of the entire board of directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the by-laws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets; (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, the by-laws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the
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issuance of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these by-laws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting),
with such changes in the context of those by-laws as are necessary to
substitute the committee and its members for the board of directors and its
members; provided, however, that the time of regular meetings of committees may
be determined either by resolution of the board of directors or by resolution
of the committee, that special meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these by-laws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant vice presidents, one or more assistant secretaries, one
or more assistant treasurers, and any such other officers as may be appointed
in accordance with the provisions of Section 5.3 of these by-laws. Any number
of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these by-laws,
shall be appointed by the board of directors, subject to the rights, if any, of
an officer under any contract of employment.
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5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these by-laws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these by-laws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these by-laws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. The
president shall preside at all meetings of the stockholders and, in the absence
or nonexistence of a chairman of the board, at all meetings of the board of
directors. The president shall have the
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general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may be
prescribed by the board of directors or these by-laws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these by-laws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meeting or committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these by-laws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these by-laws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains,
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losses, capital retained earnings, and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. The chief
financial officer shall disburse the funds of the corporation as may be ordered
by the board of directors, shall render to the president and directors,
whenever they request it, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
board of directors or these by-laws.
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these by-laws.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these by-laws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
chief financial officer, the secretary or assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent, and exercise
on behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority granted herein may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly
executed by such person having the authority.
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<PAGE> 20
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) and amounts paid in settlement (if such settlement is approved in advance
by the corporation, which approval shall not be unreasonably withheld) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
-16-
<PAGE> 21
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.
Notwithstanding any other provision of this Article VI, no person shall be
indemnified hereunder for any expenses or amounts paid in settlement with
respect to any action to recover short-swing profits under Section 16(b) of the
Securities Exchange Act of 1934, as amended.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because the person has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (1) by the Board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (2) or if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders. Notwithstanding the
foregoing, a director, officer, employee or agent of the Corporation shall be
entitled to contest any determination that the director, officer, employee or
agent has not met the applicable standard of conduct set forth in Sections 6.1
and 6.2 by petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay such
amount if it shall ultimately be determined that the individual is not entitled
to be indemnified by the corporation as authorized in this Article VI.
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<PAGE> 22
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in their official
capacity and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employer or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against the
person and incurred by the person in any such capacity or arising out of the
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as the person would have with respect to such
constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article VI.
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<PAGE> 23
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these by-laws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent so
to act on behalf of the stockholder. The demand under oath shall be directed to
the corporation at its registered office in Delaware or at its principal place
of business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
-19-
<PAGE> 24
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director, The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these by-laws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
-20-
<PAGE> 25
8.3 STOCK CERTIFICATES: PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors, or the president or vice-president,
and by the chief financial officer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if the
person were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation
shall declare a dividend upon partly paid shares of the same class, but only
upon the basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
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<PAGE> 26
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION: DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these by-laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and
a natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
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<PAGE> 27
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE IX
AMENDMENTS
The by-laws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
by-laws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal by-laws.
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<PAGE> 28
CERTIFICATE OF AMENDMENT OF BY-LAWS
OF
PEOPLESOFT, INC.
Certificate by Secretary of Amendment
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of PeopleSoft, Inc. and that the foregoing
By-Laws, comprising twenty-five (25) pages, were ratified as the Amended and
Restated By-Laws of the corporation by the Board of Directors on February 15,
1995.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 15 day of February, 1995.
/s/ RONALD E. F. CODD
------------------------------------
Ronald E. F. Codd,
Secretary
<PAGE> 29
CERTIFICATE OF AMENDMENT
TO BYLAWS
OF
PEOPLESOFT, INC.
I, Ronald E.F. Codd, Secretary of PeopleSoft, Inc., a Delaware
corporation ("the Company"), hereby declare and certify that below is a true
and correct copy of the amendment to the Bylaws duly adopted by the board of
directors of the Company on December 15, 1995:
The first sentence of Section 3.2 of Article III of the Bylaws of the
Company is hereby amended, effective December 15, 1995, to read in full as
follows:
"The number of directors of this corporation shall not be
less than five (5) nor more than nine (9), until changed,
within the limits specified above, by an amendment to this
Section 3.2 duly adopted by the board of directors or by
the stockholders."
IN WITNESS WHEREOF, I declare under penalty of perjury that the foregoing
statements are true and correct.
/s/ Ronald E.F. Codd
--------------------------------------
Ronald E.F. Codd, Secretary
[seal]
<PAGE> 1
Exhibit 21.1
DIRECT SUBSIDIARIES OF PEOPLESOFT, INC.
<TABLE>
<CAPTION>
INCORP/FORMED IN
<S> <C>
PEOPLESOFT ARGENTINA S.A. Argentina
PEOPLESOFT CREDIT CORPORATION California, USA
PEOPLESOFT DO BRASIL LTDA Brazil
PEOPLESOFT FRANCE S.A. France
PEOPLESOFT GERMANY GMBH Germany
PEOPLESOFT IBERICA, S.L. Spain
PEOPLESOFT JAPAN K.K. Japan
PEOPLESOFT MEXICO SA DE CV Mexico
PEOPLESOFT PROPERTIES, INC. California, USA
PEOPLESOFT UK LTD. United Kingdom
PEOPLESOFT USA, INC. California, USA
PEOPLESOFT VENTURES, INC. California, USA
PSFT INTERNATIONAL HOLDINGS C.V. Netherlands
</TABLE>
INDIRECT SUBSIDIARIES OF PEOPLESOFT, INC.
<TABLE>
<CAPTION>
INCORP/FORMED IN
<S> <C>
PEOPLESOFT ASIA PTE. LTD. Singapore
PEOPLESOFT AUSTRALIA PTY. LTD. Australia
PEOPLESOFT, B.V. Netherlands
PEOPLESOFT CANADA CO. Canada
PEOPLESOFT C.I. LTD. Cayman Islands
PEOPLESOFT INTERNATIONAL B.V. Netherlands
PEOPLESOFT NEW ZEALAND New Zealand
PEOPLESOFT SOUTH AFRICA (PTY) LIMITED South Africa
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-3 No. 33-80755, No. 333-20555, and No. 333-36951) of PeopleSoft, Inc.
and in the related Prospectuses and in the Registration Statements (Form S-8)
pertaining to the 1989 Stock Option Plan, the 1992 Directors' Plan, the 1992
Employee Stock Purchase Plan of PeopleSoft, Inc. and the Red Pepper Software
Company 1993 stock option plan, of our report dated January 28, 1998, with
respect to the consolidated financial statements of PeopleSoft, Inc. included
in this Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Walnut Creek, California
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 267,897
<SECURITIES> 151,348
<RECEIVABLES> 318,736
<ALLOWANCES> 19,493
<INVENTORY> 0
<CURRENT-ASSETS> 726,046
<PP&E> 195,667
<DEPRECIATION> 78,492
<TOTAL-ASSETS> 898,336
<CURRENT-LIABILITIES> 481,032
<BONDS> 0
0
0
<COMMON> 2,237
<OTHER-SE> 415,067
<TOTAL-LIABILITY-AND-EQUITY> 898,336
<SALES> 0
<TOTAL-REVENUES> 815,651
<CGS> 0
<TOTAL-COSTS> 649,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,070
<INTEREST-EXPENSE> 454
<INCOME-PRETAX> 176,038
<INCOME-TAX> 67,775
<INCOME-CONTINUING> 108,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,263
<EPS-PRIMARY> 0.49<F1>
<EPS-DILUTED> 0.44<F2>
<FN>
<F1>For purpose of this Exhibit, Primary means Basic.
<F2>Earnings per share -- assuming dilution.
</FN>
</TABLE>
