===============================================================================
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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
Commission File Number 0-23078
MAPINFO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1166630
State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
One Global View
Troy, New York 12180
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (518) 285-6000
-------------------
Securities Registered Pursuant to Section 12(b) of The Act: None
Securities Registered Pursuant to Section 12(g) of The Act:
Common Stock, $.002 Par Value Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $82,177,812 based on the closing price of the
Common Stock on the Nasdaq National Market on November 1, 1999.
The number of shares outstanding of the registrant's common stock, $.002 par
value per share as of November 1, 1999 was 5,767,755.
Documents Incorporated by Reference
Document Description 10-K Part
- -------------------- ---------
Specifically Identified Portions of the Registrant's Proxy Statement
for the 2000 Annual Meeting of Stockholders........................ III
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
MapInfo Corporation (the "Company" or "MapInfo") designs, develops, markets,
licenses, and supports software and data products, application development
tools, and industry-focused solutions, together with a range of consulting,
training and technical support services. These products and services enable
organizations to correlate, visualize, and analyze location-based information in
their corporate databases and to deploy applications throughout their
organizations. Enterprise applications using MapInfo's integrated suite of
software and data products allow organizations to use location to transform
information into better business intelligence.
MapInfo's business strategy emphasizes the development of enterprise
applications that can be used by several departments in a customer's
organization to improve core business processes. These applications are
developed in partnership with MapInfo's value added resellers channel and
industry partners and marketed through a worldwide network that comprises a
direct sales force, a telemarketing group, value added resellers, and
distributors. When deployed throughout organizations, MapInfo technology allows
decision-makers to "see and analyze" their business and customer data; when used
in Internet applications, they enable organizations to serve their customers
directly and more efficiently.
MapInfo targets customers in five sectors whose business needs require spatial
solutions. These include telecommunications, the public sector, financial
services, retail, and utilities. In telecommunications, for example, customers
employ MapInfo's spatial solutions to plan networks efficiently, reduce customer
churn, improve services, and forecast demand. In the public sector, customers
deploy MapInfo technology in Web-based applications to better manage municipal
planning, emergency response, and public safety programs as well as communicate
new services more effectively to the general public. In other service
industries, such as financial services, retail and utilities, customers use
MapInfo technology in site selection, resource allocation, customer relations,
and sales and marketing.
An important development in enabling the Company to deliver enterprise
applications to customers is the development and marketing agreement the Company
signed with Oracle and announced in April 1999. In the year preceding the
announcement, development teams from MapInfo and Oracle's service industries
group worked side by side to integrate MapInfo spatial technology into Oracle's
new Internet database, Oracle8i. When work was successfully completed, the
companies jointly announced the availability of the new MapInfo/Oracle Spatial
Internet Solution on Oracle8i. Both companies are focused on delivering the
solution to joint customers in the commercial service industries and the public
sector. In June of 1999, MapInfo announced the signing of a $2.1 million
contract with Nextel Communications to implement an enterprise-wide
MapInfo/Oracle solution. Several customers in the public sector followed,
including FEMA (Federal Emergency Management Agency) and the New York Fire
Department. In real estate, MapInfo also closed a major enterprise deal with
Realty One, part of the Insignia Financial Group.
BACKGROUND
In today's competitive business environment, organizations are under constant
competitive pressure to acquire and retain customers, reduce costs, and improve
operating efficiencies. Having invested in vast databases, many businesses are
turning to information technology to meet these challenges, yet in many cases
organizations are overwhelmed by the vast amount of data available to them, or
have difficulty accessing and organizing data to effectively make decisions. In
order to meet their business goals and manage the information overload, many
companies are re-engineering core business processes by turning to Web-based
1
<PAGE>
applications to deploy information to managers at all levels within their
organizations easily and at low cost.
Applying location-based solutions to core business applications has become an
increasingly important way to gain better business intelligence about customers
and markets. A significant amount of all corporate data has a location
component, such as an address, area code, or postal code. By maximizing the use
of location components in their corporate data, customers of MapInfo are able to
make meaningful decisions by seeing and analyzing patterns, relationships and
trends not easily recognized with conventional analysis and reporting methods.
This helps to improve customer relations and operational efficiencies and,
hence, leads to business advantage.
PRODUCTS AND SERVICES
The Company offers a full range of software and data products and solutions for
key markets in addition to services that include consulting, training, and
technical support.
CORE PRODUCTS
o SOFTWARE PRODUCTS:
- -- MapInfo Professional(R) Product Line
MapInfo Professional
MapInfo Professional is a full-featured, customizable mapping software
package for businesses and analysts. It includes a wide range of data
visualization, management and analysis tools, plus open database
connectivity ("ODBC") to directly access corporate databases. It is
compatible with Microsoft's object linking and embedding ("OLE")
technology, allowing MapInfo maps to be easily integrated into other
applications, and allows users to access and spatially analyze important
corporate business and geographic data through integration with leading
industry databases: Oracle8i, IBM DB2, Informix, and Sybase. MapInfo
Professional can be customized for specific industry uses.
MapBasic(R)
MapBasic is a programming environment used by information system ("IS")
organizations and third-party developers to create customized mapping
applications for use with MapInfo Professional. MapBasic can be used to
focus or extend the functionality of MapInfo Professional, modify the user
interface to a specific business need, automate routine operations, and
integrate MapInfo Professional with other applications.
- -- MapInfo MapXtreme(R) Product Line
MapInfo MapX(R)
MapInfo MapX is a robust object control ("OCX") component used by
developers to embed mapping functionality into new and existing
applications. Developers can work from within familiar object-oriented
development environments such as Visual Basic(R), PowerBuilder(R), and
Delphi(TM) to add a mapping object to an application. Leading third-party
software providers, such as Seagate Software, Hummingbird Communications,
Microsoft, IBM, Manugistics, and SPSS, have embedded MapX into their new
applications. This enables users to access mapping functionality from
familiar business software solutions.
MapInfo MapXtreme for Windows NT(R)
MapInfo MapXtreme for Windows NT is a mapping application server that
allows developers to distribute mapping capability over the Internet and
corporate intranets. This enables organizations to take advantage of the
2
<PAGE>
ubiquity and scalability of the Internet to deploy spatial information at
low cost to many users throughout their organizations.
MapInfo MapXtreme Java(TM) Edition
MapInfo MapXtreme Java Edition is a universal deployment environment that
enables customers to integrate mapping into their applications in any way
they choose, as an OCX on the client side embedded in their existing
applications: MapX on a Windows NT operating platform; on an NT Server in
an intranet or Internet application: MapXtreme for Windows NT; or as a Java
Bean on the client side or on a Java Server regardless of operating
platform.
- -- Enterprise Extenders
SpatialWare(R)
SpatialWare is MapInfo server technology that stores and manages complex
spatial data along with traditional data types in corporate relational
database servers for ISO SQL3-based spatial querying. With it, users are
able to instantly incorporate mapping for visualization and analysis within
enterprise applications and data warehouse environments to support business
decisions. SpatialWare is available through our database partners as the
Oracle8i Spatial Internet Solution, the Spatial DataBlade for Informix
Dynamic Server, and IBM DB2 SpatialWare Extender.
o DATA and INFORMATION PRODUCTS:
The Company's Data and Information Products include a wide range of
value-added MapInfo-branded products developed through partnerships with
leading data providers worldwide. Through partnerships in the Americas such
as with The Polk Company, and the acquisitions of The Data Consultancy in
the United Kingdom and On Target Mapping in the United States, as well as
partnerships in Europe, Asia and Australia, MapInfo offers high-value
content data as well as mapping data, and data-centric applications.
MapInfo-owned or licensed information products are engineered to be
optimized in conjunction with MapInfo software to develop powerful business
solutions for MapInfo customers.
- -- Geocoding and Address Management Products
MapInfo's geocoding products assign correct latitude/longitude coordinates
or appropriate national projection coordinates to database records so that
data can be accurately displayed on a map and analyzed geographically.
MapMarker(R)and MapMarker(R)Plus are geocoding, address matching and
cleansing products marketed in the United States. The Company also offers
geocoders for use in Europe and Australia. These geocoding products are
available as a client or server-side product and some as an ActiveX/OCX and
include a developer kit for creating customized geocoding solutions to fit
into specific business processes, such as point-of-sale or demographic
analysis applications.
In August 1999, MapInfo introduced MapMarker J Server, the first geocoding
solution for developers working in Java environments. Developers can now
integrate MapInfo's industry leading geocoding technology into any
application regardless of operating platform. MapInfo also introduced the
MapInfo(R) Geocoding Cartridge, the first geocoding cartridge for Oracle8i,
enabling organizations to automate geocoding within the Oracle8i database.
- -- Demographics and Segmentation Products
The Company, in partnership with The Polk Company in the United States and
other data partners around the world, has a wide selection of demographic
data products. Information relating to population, income, household
expenditures, retail activity, employment, education, consumer trends, and
lifestyle choices allows organizations to understand their customers better
and make more informed business decisions.
3
<PAGE>
- -- Street Products
The Company offers a comprehensive set of high quality street products that
include street maps, highways, water features, railroad tracks, bridges,
feature points, and town boundaries. In addition to data for the Americas,
street files are available for most countries in Europe, Asia and
Australia.
- -- Telecommunications Products
In December 1998, MapInfo acquired On Target Mapping, a strategic channel
partner and a provider of telecom infrastructure databases and software for
the U.S. market. This has expanded the Company's capability to develop and
deliver industry-focused solutions for its telecommunications customers and
deepen its penetration of this market.
o SOLUTIONS
Through the Company's alliance with Oracle, MapInfo and Oracle now offer
the new MapInfo/Oracle Spatial Internet Solution on Oracle8i. MapInfo also
offers solutions through its partners who incorporate MapInfo technology
into their industry-specific solutions for end users. During the past two
years, the Company, having developed an integrated suite of new software
and data products designed for enterprise-wide applications, delivered new
MapInfo solutions to market. These include MapInfo Coverage Locator(TM),
CallingAreaInfo(TM), and TargetPro(TM) Telecom for the telecommunications
industry, all of which were introduced this fiscal year. Through its
agreement with its strategic partner Northwood Geoscience, Ltd., MapInfo
jointly markets and sells deciBel Planner(TM) for MapInfo, a
radio-frequency (RF) propagation solution for the telecommunications
industry. MapInfo TargetPro(TM), a market analysis solution, was introduced
in 1998. For European markets, MapInfo also offers Illumine(R) and
Markets(R) for market analysis.
In response to customer requests for solutions already developed by its
strategic partners, MapInfo signed channel partner agreements to deliver
third-party solutions through its channel. This year, MapInfo signed an
agreement with its channel partner, InterGis, to jointly develop and market
Visual Control Room(R), a routing and logistics management solution, and
with Public Safety Associates to market its CrimeWatch(R)solution, an
easy-to-use crime analysis software package for law enforcement agencies.
A description of each solution follows:
o The MapInfo/Oracle Solution
- -- Spatial Internet Solution on Oracle8i
The MapInfo/Oracle Spatial Internet Solution is a product suite plus data
content for deploying Web-enabled location-based spatial applications on
Oracle8i. It is the first complete non-proprietary, pure Java spatial
solution for the Internet and includes Oracle8i, Oracle Spatial and MapInfo
client and server-based software (MapXtreme, MapX, and MapInfo
Professional), MapInfo commercial data and geocoding products.
o Solutions for Telecommunications
- -- MapInfo Coverage Locator
MapInfo Coverage Locator is an Internet/intranet business solution that
allows customer service representative to quickly pinpoint a caller's
location and immediately relate that information to a service coverage
area. Also, with Coverage Locator, the customer service representatives can
locate, classify, and log a customer's service problem into a database for
later analysis by engineering, planning, operations, and maintenance.
4
<PAGE>
- -- MapInfo CallingAreaInfo
The Company believes this is the only telecommunications software of its
kind that defines and maps local calling plans (business and residential)
available when calling out from or into a location in the United States. It
enables users to examine the local calling plan for calls that originate
from an Area Code (NPA) and Exchange (NXX).
- -- deciBel Planner(R) for MapInfo
This is Windows-based radio frequency propagation modeling solution used by
RF engineers to model radio frequency propagation, analyze
multi-transmitter communication networks, compare propagation results to
field tests, select tower locations, and distribute results via MapInfo
Professional to other users in marketing, customer service and management
who rely on geographic information.
- -- TargetPro Telecom
This solution provides a wide range of demographic and industry-specific
boundary data for telecommunications customers. The combination of
demographic and Industry-specific data enables organizations to better
understand the market potential of a given geographic area and to analyze
the demographic profile of a customer database.
o Solutions for Customer Analysis
- -- TargetPro
This solution provides precise market analyses based on demographic
information. The TargetPro product was enhanced to include cluster analysis
as a result of an October 1998 partnership with The Polk Company using
Polk's demographic data and PSYTE Cluster System, a geo-demographic
classification system, which profiles and predicts consumer behavior. With
this enhancement, MapInfo now offers a complete segmentation and analysis
solution.
- -- ReportZone.com(TM)
This new online service, launched in September 1999, is the first in a
series of online services to be rolled out as part of the Company's
strategic move into the Application Service Provider (ASP) market.
MapInfo's ReportZone.com is a subscription service that delivers
demographic reports on U.S. neighborhoods with easy-to-read site maps for
conducting effective market analysis.
o Third Party Solutions
- -- Visual Control Room(R)
In partnership with InterGis, MapInfo markets Visual Control Room (VCR), a
logistics management software that improves service-delivery efficiency
while improving customer relations and support. VCR, powered by MapInfo
MapX and MapMarker, offers a powerful visual multi-user interface, real
time optimization of routes, automated voice response, extensive management
reporting, and built-in importing and exporting capabilities.
- -- CrimeWatch
MapInfo has entered into an agreement with its channel partner, Public
Safety Associates (PSA), to market this crime analysis solution for law
enforcement agencies. Powered by MapInfo MapX and MapMarker Plus,
CrimeWatch is designed to meet police reporting and crime analysis
requirements and assists in solving some of the problems plaguing crime
analysis today.
5
<PAGE>
PRODUCT DEVELOPMENT
The software industry is characterized by extremely rapid changes in technology,
which require continuous expenditure on product research and development to
enhance existing products and create new products. The Company believes that the
timely development of new products and ongoing enhancements to existing products
is essential to maintain its competitive position in the marketplace. The
Company is committed to an open systems, standards-based product architecture to
provide software products that can be integrated into existing mainstream
business environments and be adaptable as environments change.
Most of the Company's software products are developed internally. Internal
development allows the Company to maintain close technical control over products
in terms of enhancements and modifications based on customer needs, and allows
the Company to create a family of products that provides natural migration paths
for customers as their business information needs change.
MARKETING & DISTRIBUTION
The Company has established multiple distribution channels to reach an array of
industries while simultaneously addressing specific vertical markets.
Distribution channels include an indirect channel of value-added resellers, OEMs
and distributors, a corporate accounts sales force, and a telemarketing sales
group. MapInfo markets its products worldwide through sales offices in North
America, Europe and Australia, and throughout the rest of Europe and the
Asia-Pacific region through exclusive and non-exclusive distribution
relationships.
The Company's direct sales and marketing organization is complemented by a
network of corporate partners including resellers, system integrators, OEMs and
distributors who purchase the Company's products at a discount for resale to
endusers. These partners may provide training, consulting services, application
development, customization, and data products to end-users. In Japan, Greater
China and certain other countries outside the U.S. the Company has appointed
master distributors. These master distributors generally build their own
value-added reseller network in addition to directly selling data products and
consulting services.
The Company also has an established network of strategic alliances with leading
database companies including Informix, Oracle, IBM and Microsoft. The Company
conducts joint sales and marketing programs and/or has technology agreements
with these companies to integrate mapping into their solutions and gain exposure
to a wider range of potential customers.
To build corporate identity and generate demand in support of the sales effort,
the Company conducts various marketing programs, which include advertising,
public relations, trade shows, direct mail, Web-based promotions, online
seminars and ongoing communications to customers about new products. The Company
additionally offers cooperative advertising and other marketing support to its
value-added reseller partners. The Company sponsors an annual partner
conference, which generates communication and support for the reseller network.
The Company also sponsors European and Asia-Pacific partner conferences, which
foster communication and support at the regional level.
The Company is focused on information discovery--that is, delivering products
and solutions that help transform information into business advantage. In
addition to desktop applications, the Company believes that organizations today
are seeking more widespread deployment of critical business applications and are
demanding Web-based solutions. The Company has successfully expanded its suite
of products and solutions to meet this customer demand. Sales to the enterprise
and Internet/intranet markets are directed to different decision-makers within
customer organizations and require a variety of selling and marketing programs.
6
<PAGE>
COMPETITION
The Company encounters competition in the US and foreign markets from various
companies offering mapping software and data products. These competitors include
Environmental Systems Research Institute, the GIS division of AutoDesk, the GIS
division of Intergraph, Small World, Tactician and others. The Company may also
face new competition from potential entrants into the mapping software and data
markets and more focused competition from companies in related markets. Some of
these companies may have significant name recognition, as well as substantially
greater capital resources, marketing experience, research and development staffs
and production facilities than the Company. Although the Company believes it has
a technological advantage over many existing competitors in the mapping software
markets, maintaining that advantage will require continued investment by the
Company in research and development. There can be no assurance that the Company
will have sufficient resources to make such investment or that the Company will
be able to make the technological advances necessary to maintain such
competitive advantage.
The Company believes that it competes principally on the basis of product
features and functionality (including cross-platform availability,
interoperability, integration and extensibility), product price, reliability,
ease of use and supportability. No assurance can be given that the Company will
be able to compete successfully against current and future competition and that
the competitive pressures faced by the Company will not adversely affect its
financial performance.
INTELLECTUAL PROPERTY
The Company regards its software and data products as proprietary and attempts
to protect them with a combination of copyright, trademark and trade secret
laws, employee and third-party non-disclosure agreements, and other methods of
protection. Despite these precautions, it may be possible for unauthorized third
parties to copy certain portions of the Company's products or reverse engineer
or obtain and use information the Company regards as proprietary. While the
Company's competitive position may be affected by its ability to protect its
proprietary information, the Company believes that the trademark and copyright
protections are less significant to the Company's success than other factors,
such as the knowledge, ability and experience of the Company's personnel,
MapInfo name recognition and ongoing product development and support.
The Company supplies MapInfo software products primarily under shrinkwrap
licenses. Shrinkwrap licenses are not negotiated with or signed by individual
licensees and take effect upon the opening of the product package. Certain
provisions of such licenses, including provisions protecting against
unauthorized use, copying, transfer and disclosure of the license program, may
be unenforceable under the laws of certain jurisdictions. In addition, the laws
of some foreign countries do not protect the Company's proprietary rights to the
same extent, as do the laws of the United States. Accordingly, the Company
supplies its MapInfo products using a hardware access key in many countries.
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 products.
Any such assertion could require the Company to enter into royalty arrangements
or result in costly litigation.
MapInfo, MapInfo Professional, MapMarker, MapInfo MapXtreme, SpatialWare,
MapInfo MapX, MapBasic and the MI Rainbow Logo are registered trademarks or
service marks of MapInfo Corporation in the United States and in certain foreign
jurisdictions. Illumine and Markets are registered trademarks of MapInfo
Corporation in the United Kingdom. TargetPro, MapInfo Coverage Locator,
CallingAreaInfo and Reportzone.com are trademarks of MapInfo Corporation. All
other marks are the property of their respective holders.
7
<PAGE>
EMPLOYEES
At September 30, 1999, the Company had 466 full-time employees. The Company's
employees are not represented by any collective bargaining organization and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases two premises totaling approximately 102,000 square feet of
office space in the Rensselaer Technology Park in Troy, New York, under leases
which expire in 2002 and 2004. These offices house the corporate headquarters,
the principal research and development center and the principal sales, marketing
and administrative staff for the Americas. The Company leases office space of
approximately 11,000 square feet in Windsor, England, which houses the European
headquarters. The lease on this facility expires in 2012. In addition, the
Company leases eight sales offices in the United States, one research and
development center in Canada, two sales offices in Europe and three sales
offices in Australia.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of the fiscal year ended September 30, 1999.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth (i) the name and age of each present executive
officer of the Company, (ii) the position(s) presently held by each person
named, and (iii) the principal occupations held by each person named for at
least the past five years.
<TABLE>
<CAPTION>
Executive Officer Age Position
- ----------------- ---- --------
<S> <C> <C>
Michael D. Marvin 53 Chairman of the Board
John C. Cavalier 60 President and Chief Executive Officer
John F. Haller 35 Vice President, Chief Technology Officer and
Secretary
D. Joseph Gersuk 49 Executive Vice President, Treasurer and Chief
Financial Officer
Mark P. Cattini 38 Vice President and General Manager,
Americas/European Sales
George C. Moon 48 Vice President - Engineering
</TABLE>
Mr. Marvin has served as Chairman of the Board since 1992 and served as acting
President and Chief Executive Officer from September 1, 1996, upon the announced
resignation of the Company's former President and Chief Executive Officer, to
November 1, 1996. From 1987 to 1992, Mr. Marvin served as Chief Executive
Officer of the Company. Mr. Marvin is a partner in Exponential Business
Development Co., a seed capital company. He is a director of various private
companies. He is also a founder of The Capital Region Software Alliance. Mr.
Marvin served as President and Chief Executive Officer of LearnLinc Corporation
(previously Interactive Learning International Corp.), a developer of online
learning software from February 1998 to June of 1999 and now serves as
Vice Chairman.
8
<PAGE>
Mr. Cavalier has served as President and Chief Executive Officer since
November 1, 1996. From January 1993 to September 1996, Mr. Cavalier served as
President and Chief Executive Officer of Antares Alliance Group. Mr. Cavalier is
a director of Focus Enhancements Incorporated.
Mr. Haller, a founder of the Company, has served as Vice President, Chief
Technology Officer and Secretary since April 1997. Mr. Haller previously served
as Vice President - Technology and Secretary of the Company since the Company's
inception in 1986 until April 1997, except during a leave of absence from March
1996 to June 1996. Mr. Haller resigned as Secretary of the Company in November
1999 and has indicated that he will resign as a director and officer of the
Company effective December 31, 1999.
Mr. Gersuk has served as Executive Vice President, Treasurer and Chief Financial
Officer since April 1997 and was previously Vice President, Treasurer and Chief
Financial Officer from October 1994 to April 1997. From November 1992 to October
1994, Mr. Gersuk was a director of and Vice President and Chief Financial
Officer of DataEase Sapphire International Inc., a computer software company.
From 1988 to 1992, Mr. Gersuk served as Vice President and Chief Financial
Officer of Staveley NDT Technologies Inc.
Mr. Cattini has served as Group Vice President and General Manager,
Americas/European Sales since December 1998. He had served as Vice President,
Sales - The Americas from November 1997 to December 1998. From October 1995 to
October 1997, he served as General Manager for the Company's United Kingdom and
West EAME (Europe, Africa and the Middle East) operations. From August 1987 to
October 1995, he held various positions with Lotus Development UK Limited, a
software company, including UK Corporate Accounts Sales Manager.
Mr. Moon has served as Vice President - Engineering since July 1997. From April
1997 to July 1997, he served as Director of Software Development for the
SpatialWare business of the Company. Previously he served as Director of
Research and Development for the Spatial Technology Program of Unisys
Corporation, a systems integration company, from November 1994 to March 1997.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol MAPS. The table below shows the high and low trading prices of the Common
Stock during the fiscal years ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
1998
---------------------
Period High Low
------- -------
<S> <C> <C>
First Quarter $14.25 $ 8.375
Second Quarter $13.438 $10.563
Third Quarter $13.438 $10.00
Fourth Quarter $13.25 $ 9.75
<CAPTION>
1999
---------------------
Period High Low
------- -------
<S> <C> <C>
First Quarter $17.25 $ 9.188
Second Quarter $16.563 $13.25
Third Quarter $21.75 $12.813
Fourth Quarter $23.438 $18.625
</TABLE>
The Company has never declared or paid cash dividends on its capital stock and
currently intends to retain all available funds for use in the operation of its
business. The Company does not anticipate paying cash dividends in the
foreseeable future.
The approximate number of holders of record of the Company's Common Stock at
November 1, 1999 was 424. This number does not include stockholders for whom
shares were held in nominee or "street" name.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Income Statement data:
Net revenues $74,356 $60,603 $47,393 $41,532 $40,041
Cost of revenues 15,642 13,573 9,737 9,360 7,725
--------- --------- --------- --------- ---------
Gross profit 58,714 47,030 37,656 32,172 32,316
--------- --------- --------- --------- ---------
Operating expenses:
Research and development 11,253 10,231 9,020 6,984 5,752
Selling and marketing 31,538 25,606 22,864 19,565 17,541
General and administrative 10,193 8,019 7,036 5,688 4,749
--------- --------- --------- --------- ---------
Total operating expenses 52,984 43,856 38,920 32,237 28,042
--------- --------- --------- --------- ---------
Operating income (loss) 5,730 3,174 (1,264) (65) 4,274
Other income, net 978 1,150 931 975 1,035
--------- --------- --------- --------- ---------
Income (loss) before
provision for income taxes 6,708 4,324 (333) 910 5,309
Provision for (benefit from)
income taxes 2,198 1,143 (338) 203 1,513
--------- -------- -------- --------- ---------
Net income $4,510 $3,181 $ 5 $ 707 $ 3,796
========= ======== ======== ========= =========
Earnings per share:
Basic $ 0.79 $ 0.55 $ 0.00 $ 0.12 $ 0.68
Diluted $ 0.75 $ 0.54 $ 0.00 $ 0.12 $ 0.65
Weighted average shares outstanding:
Basic 5,740 5,827 5,822 5,691 5,561
Diluted 6,047 5,935 5,913 5,865 5,841
Consolidated Balance Sheet data:
Total assets $66,799 $59,531 $51,042 $49,091 $46,422
Long-term obligations, less
current portion $ - $ - $ - $ 17 $ 95
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MapInfo designs, develops, markets, licenses and supports business mapping
software products, application development tools, and data products, together
with a range of consulting, training and technical support services. These
products are sold through multiple distribution channels, including an indirect
channel of value-added resellers and distributors, a corporate account sales
force, and a telemarketing sales group. The Company's products are translated
into 20 languages and sold in 58 countries throughout the world. MapInfo markets
its products worldwide through sales offices in North America, Europe and
Australia, and throughout the rest of Europe and the Asia-Pacific region through
exclusive and non-exclusive distribution relationships.
RESULTS OF OPERATIONS FOR 1999, 1998 AND 1997
NET REVENUES
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 Change 1998 Change 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Software and data products $ 68,169 21% $ 56,154 31% $ 42,968
Services 6,187 39% 4,449 1% 4,425
- --------------------------------------------------------------------------------
Net revenues $ 74,356 23% $ 60,603 28% $ 47,393
- --------------------------------------------------------------------------------
</TABLE>
In 1999, revenues increased $13.8 million or 23% to $74.4 million. Approximately
$8.9 million of the increase was attributable to increased unit sales of data
products. The strong growth in data revenues resulted from $3.0 million of
revenues from the December 1998 acquisition of On Target Mapping (discussed
below); a $1.0 million increase in revenues from The Data Consultancy (discussed
below); and increased demand for the Company's data products in the Americas and
Australia. Software revenues increased by $3.2 million, and services revenue
increased by $1.7 million and reflects a 39% increase over the prior year
services revenue. This is mainly the result of higher revenue production from
the consulting and developer services groups in the Americas and Europe. On a
geographic basis, revenues increased approximately 30% in the Americas and 27%
in Europe. Asia-Pacific revenues decreased 9%, primarily due to lower revenues
from Japan, partially offset by increases in China and Australia revenues.
In 1998, revenues increased $13.2 million or 28% to $60.6 million. Approximately
half of the $13.2 million increase was attributable to increased unit sales of
enterprise and desktop software products and the balance was attributable to
increased unit sales of data products in the Americas and the effect of The Data
Consultancy acquisition (discussed below). Acquired in December 1997, The Data
Consultancy increased 1998 revenues by an estimated $3.8 million. On a
geographic basis, revenues increased approximately 28% in the Americas and 49%
in Europe. Asia-Pacific revenues remained consistent with the prior year,
despite the broad economic problems in the region.
The Americas represented 54%, 51% and 50% of Company revenues in 1999, 1998 and
1997, respectively. Europe represented 33%, 32% and 28% and Asia-Pacific
represented 13%, 17% and 22% of Company revenues in 1999, 1998 and 1997,
respectively.
The Company's operating results are affected by exchange rates. Approximately
31%, 31% and 27% of the Company's revenues were denominated in foreign
currencies in 1999, 1998 and 1997, respectively.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
COST OF REVENUES
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 Change 1998 Change 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of revenues $ 15,642 15% $ 13,573 39% $ 9,737
Percentage of net revenues 21.0% 22.4% 20.5%
- --------------------------------------------------------------------------------
</TABLE>
Cost of revenues as a percentage of net revenues decreased by 1.4 percentage
points in 1999. As a result, the gross profit margin increased to 79.0% in 1999
from 77.6% in 1998. The gross profit margin increase was primarily attributable
to improved gross profit margin on data product sales due to a shift from
selling third party products to selling the Company's own products. In addition,
gross profit margin on services also improved due to increased utilization of
consulting and developer services in revenue contracts. Cost of revenues as a
percentage of net revenues increased in 1998 primarily due to an increased
percentage of revenues from data products, including the effect of The Data
Consultancy acquisition, which increased cost of revenues by 2 percentage points
in 1998.
OPERATING EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 Change 1998 Change 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Research and development $11,253 10% $10,231 13% $ 9,020
Percentage of net revenues 15.1% 16.9% 19.0%
- --------------------------------------------------------------------------------
Selling and marketing $31,538 23% $25,606 12% $22,864
Percentage of net revenues 42.4% 42.3% 48.2%
- --------------------------------------------------------------------------------
General and administrative $10,193 27% $ 8,019 14% $ 7,036
Percentage of net revenues 13.7% 13.2% 14.8%
- --------------------------------------------------------------------------------
</TABLE>
RESEARCH AND DEVELOPMENT. In 1999, research and development (R&D) expenses
increased $1.0 million or 10% over 1998. The increase was primarily attributed
to a 10% increase in headcount and to higher compensation costs. In 1998, R&D
expenses increased $1.2 million or 13% over 1997. The increase in R&D expenses
in 1998 was primarily attributed to increased headcount from the acquisition of
SpatialWare technology and The Data Consultancy. Excluding the effect of the
acquisitions, R&D expenses reflected a slight decrease from 1997. Research and
development headcount increased from 97 at the end of fiscal 1997 to 110 at the
end of fiscal 1998 and to 123 at the end of fiscal 1999. As a percentage of net
revenues, R&D expenses declined to 15.1% in 1999 from 16.9% in 1998. Capitalized
product development costs were $615 thousand, $438 thousand, and $183 thousand
(exclusive of additional capitalized product development costs resulting from
the purchase of SpatialWare technology) in 1999, 1998 and 1997, respectively.
These amounts represented 2%, 4% and 3% of total research and development costs
in 1999, 1998 and 1997, respectively.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased $5.9
million or 23% in 1999. The increase in selling and marketing expenses was
primarily due to a 15% increase in sales and marketing headcount and a 28%
increase in spending on marketing programs in the Americas. The increases in
headcount and program spending relate to increased sales and product management
activities in the Americas, including those in support of the Company's
relationship with Oracle Corporation, and
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
significant increases in sales and marketing activities throughout the
Asia/Pacific region. Selling and marketing expenses increased approximately $2.7
million or 12% in 1998. The increase in selling and marketing expenses in 1998
was primarily attributable to a 35% increase in selling and marketing headcount
in Europe to support expanded operations, including the acquisition of The Data
Consultancy. Sales and marketing headcount increased from 146 at the end of 1997
to 170 at the end of 1998 to 195 at the end of 1999. As a percentage of net
revenues, selling and marketing expenses increased slightly to 42.4% in 1999
from 42.3% in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative (G&A) expenses
increased approximately $2.2 million or 27% in 1999. The increase in G&A
expenses was primarily due to a 8% increase in headcount to support expanded
operations in Europe, additional MIS headcount, Y2K initiatives throughout the
Company, and business development initiatives. In addition, approximately $600
thousand of the increase is due to additional amortization expense as a result
of the acquisitions of The Data Consultancy and On Target Mapping. Non-cash
amortization of intangible assets including goodwill amounted to $1.1 million in
1999 as compared to approximately $500 thousand in 1998. General and
administrative expenses increased approximately $1.0 million or 14% in 1998. The
increase in G&A expenses in 1998 was primarily due to The Data Consultancy
acquisition and associated amortization of intangibles (approximately $645
thousand) as well as an increase in European G&A expenses to support growing
operations. Excluding the effects of The Data Consultancy acquisition, G&A
expenses for the fiscal year 1998 increased 5% over prior year. As a percentage
of net revenues, G&A expenses increased slightly to 13.7% in 1999 from 13.2% in
1998.
OTHER INCOME, NET
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 Change 1998 Change 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other income, net $ 978 -15% $ 1,150 24% $ 931
- -------------------------------------------------------------------------------
</TABLE>
Other income consisted mainly of interest income of $1,209 thousand, $1,506
thousand and $1,357 thousand in 1999, 1998 and 1997, respectively. Interest
income was derived from investment activities. Interest income was offset by
foreign currency losses and other expenses, net totaling $231 thousand, $356
thousand and $426 thousand in 1999, 1998 and 1997, respectively.
PROVISION FOR (BENEFIT FROM) INCOME TAXES
(Dollars in thousands)
1999 Change 1998 Change 1997
- --------------------------------------------------------------------------------
Provision for income taxes $ 2,198 92% $ 1,143 >100% $ (338)
Effective tax rate 32.8% 26.4% -101.5%
- --------------------------------------------------------------------------------
The increase in the 1999 provision for income taxes versus 1998 was primarily
attributable to an increase in the pre-tax operating income. The increase in the
1998 provision for income taxes was primarily attributable to an increase in the
pre-tax income and the increase in taxable investment income.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
FINANCIAL CONDITION
The Company's cash and short-term investments totaled $28.9 million at September
30, 1999, and represented 43% of total assets. The portfolio is invested
primarily in short-term, marketable securities. MapInfo has no long-term debt.
The Company has a $10 million credit facility with a bank that expires in
December 1999. The Company also has a $10 million line of credit with a bank
that expires in January 2000. The Company anticipates that the credit facility
and the line of credit will be renewed upon expiration for a one-year period on
substantially the same terms. There were no outstanding borrowings under either
facility at September 30, 1999 or 1998.
In February 1999, the Board of Directors authorized the Company to repurchase
from time to time up to $5 million of the Company's Common Stock on the open
market or in negotiated transactions. The repurchase program will remain in
effect until September 30, 2000 unless discontinued earlier. The Company intends
to use the repurchased shares for issuance upon exercise of employee stock
options, purchases under the Company's stock purchase plan, or other corporate
purposes. During 1999, purchases under the program amounted to 90,000 shares for
$1.8 million at an average purchase price of $19.68 per share.
Net cash flow from operating activities was $8.8 million in fiscal 1999,
compared to $6.8 million in 1998. Net cash flow from operating activities in
1999 included net income of $4.5 million and depreciation and amortization of
$4.8 million, partially offset by increases in working capital. Net cash used
for investing activities of $15.7 million included $2.2 million for the
acquisition of On Target Mapping, $2.9 million of performance based earn-out
consideration for the acquisition of The Data Consultancy, $3.3 million for
purchases of computer equipment and property and $6.8 million in net purchases
of short-term investments. Net cash used for financing activities was $0.1
million and consisted primarily of $1.8 million of repurchased shares of common
stock offset by $1.4 million of proceeds from the exercise of stock options and
share issuances under the Company's Employee Stock Purchase Plan.
Management believes existing cash and short-term investments together with funds
generated from operations should be sufficient to meet the Company's operating
requirements for the next twelve months.
THE ON TARGET COMMUNICATIONS, INC. ACQUISITION
Pursuant to an Asset Purchase Agreement dated December 15, 1998, the Company
acquired substantially all of the assets and assumed certain liabilities of On
Target Communications, Inc., a Pennsylvania corporation doing business as On
Target Mapping. A MapInfo value-added reseller since 1992, On Target Mapping
delivers data products and solutions for large telecommunications providers. The
purchase price was approximately $2.2 million in cash, net of cash acquired. In
addition, the Company may be obligated to make a contingent cash payment in
March 2001, based on the financial performance of On Target Mapping in the two
years following the acquisition. The acquisition has been accounted for as a
purchase; and, accordingly, the Company has included On Target Mapping's results
of operations in the financial statements from the date of acquisition.
Intangible assets resulting from the acquisition, including goodwill, are being
amortized on a straight-line basis over a period of five years.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
THE DATA CONSULTANCY ACQUISITION
Pursuant to a Share Sale and Purchase Agreement dated December 2, 1997, the
Company acquired all of the issued share capital of The URPI Group Limited, an
English company trading as The Data Consultancy ("The Data Consultancy") and
engaged in the sale of market analysis solutions and information products in the
United Kingdom. The purchase price was approximately $5.4 million, consisting of
$5.0 million in cash (of which $2.9 million was paid in 1999) and $400 thousand
in the Company's common stock. The acquisition has been accounted for as a
purchase; and, accordingly, the Company has included The Data Consultancy's
results of operations in its financial statements from the date of acquisition.
Intangible assets resulting from the acquisition, including goodwill, are being
amortized on a straight-line basis over a period of seven years.
INVESTMENT IN THREE D GRAPHICS
On October 21, 1998, the Company invested approximately $1 million in Three D
Graphics, Inc., a California software company, under a five-year Convertible
Promissory Note (the "Note"). The Note bears interest at 10% per annum, payable
on a quarterly basis. The Company has the option, at any time prior to October
21, 2003, to convert the outstanding principal amount of the Note into 20% of
the then issued and outstanding shares of capital stock of Three D Graphics,
Inc. As part of the agreement, the Company also received an option to purchase,
on or before October 2, 1999, a majority of the shares of capital stock of Three
D Graphics, Inc. The Company did not exercise this option. In addition, under a
Technology License Agreement, the Company received a license to bundle Three D
Graphics technology with MapInfo's products for a period of five years.
INVESTMENT IN OBJECT/FX CORPORATION
Pursuant to a Purchase Agreement dated April 3, 1998, the Company invested
$1.1 million in the form of convertible debt and a preferred stock investment in
Object/FX Corporation, a Minnesota company engaged in the development and sale
of Java mapping technology. In September 1999, Object/FX exercised its right to
pre-pay the convertible debt and to repurchase the Company's equity interest at
a premium. Accordingly, the Company recorded a gain of $262 thousand in the
fourth quarter of fiscal year 1999 related to the redemption of the convertible
debt and preferred stock investments. The gain is included in the caption "Other
Income, net" in the Consolidated Income Statements.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the balance
sheet and measures those instruments at fair value. Management does not believe
this will have a material effect on the Company's operations. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
YEAR 2000 COMPLIANCE
BACKGROUND
Many currently installed computer systems are not capable of correctly
processing 21st century dates. As a result, computer systems, software and other
computer controlled processes used by many companies in a wide variety of
applications will experience operating difficulties unless they are modified or
upgraded to adequately process information involving, related to, or dependent
upon the century change. Significant uncertainty exists concerning the scope and
magnitude of problems associated with the century change.
WHAT THE COMPANY IS DOING
The Company recognizes the need to take appropriate action so that its
operations will not be adversely impacted by Year 2000 computer failures and has
established a project team, consisting of specifically assigned employees, to
address Year 2000 risks. The project team has coordinated the identification of
potential risk areas and is in the process of completing necessary changes to
computer hardware and software applications that will attempt to ensure
availability and integrity of the Company's information systems, operational
systems and critical business processes. The assessment for internal systems is
complete and the remediation and testing is nearing completion. The Company is
also assessing the potential overall risks of the impending century change on
its business partners, results of operations and financial position.
STATUS OF COMPANY PRODUCTS
The Company's saleable products rely on software applications. The Company
believes that such products are Year 2000 compliant, with the exception of
certain retired products or products for which remediation versions are
available. It should be noted that despite these efforts, there can be no
assurances that the Company's current products do not contain undetected errors
or defects associated with Year 2000 date functions that may result in
additional costs to the Company.
STATUS OF INTERNAL SYSTEMS
The Company has completed the process of conducting a company-wide assessment of
its internal computer systems and operations infrastructure to identify computer
hardware, software, and process control systems that are not Year 2000
compliant. Based on this assessment, the Company believes that its order
processing, principal accounting and production systems are Year 2000 compliant.
Some systems have been remediated as a consequence of normal and previously
planned business improvement and system replacement projects prior to 2000.
Others systems, such as personal computers and office productivity software,
have been remediated specifically for Year 2000 issues, in many cases through
low cost or free upgrades provided by the product vendors. The Company believes
that the majority of its business-critical computer systems are presently Year
2000 compliant and the remaining will be replaced, upgraded or modified prior to
2000.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
STATUS OF THE COMPANY'S CUSTOMERS AND PARTNERS
The Company faces risk to the extent that suppliers of products, services, and
systems important to its business operations, and others, with whom the Company
transacts business on a worldwide basis, do not comply with Year 2000
requirements. The Company has initiated formal communications with significant
suppliers to determine the extent to which these parties have addressed their
own Year 2000 issues. In the event any such third parties cannot provide the
Company with products, services or systems that meet the Year 2000 requirements
on a timely basis, or in the event Year 2000 issues prevent such third parties
from timely delivery of products or services required by the Company, the
Company's results of operations could be materially adversely affected.
The Company also faces risk to the extent that major customers or channel
partners do not comply with Year 2000 requirements in their own organizations
and suffer business disruption as a result. To the extent Year 2000 issues cause
significant delays in or cancellation of purchases of the Company's products or
services, the Company's business, results of operations and financial position
could be materially adversely affected. The Company has initiated formal
communications with its largest customers and channel partners to determine the
extent to which the Company is vulnerable to any such third-party's failure to
remediate their own Year 2000 issues.
REMEDIATION PLANS, CONTINGENCY PLANS AND ESTIMATED COSTS
The Company has completed its estimate of Year 2000 costs at this stage of the
project, and expects to refine the estimate as testing and the remediation and
contingency planning tasks are completed in the near term. It is estimated that
the aggregate cost of the Company's Year 2000 efforts will be less than $700,000
of which approximately $600,000 has been expended to date. Much of the
expenditures relating to the Company's Year 2000 efforts have been capitalized
and funded through operating cash flows. To the extent that equipment is deemed
obsolete as a result of the Year 2000 issue, the applicable costs and
accumulated depreciation will be removed from the accounts and the resulting
loss, if any, will be recognized in the income statement.
The Company expects that some of its customers may be using older product
versions that are not Year 2000 compliant. The Company has established a process
and is encouraging such customers to migrate to compliant product versions. It
is possible that the Company may experience increased expenses in upgrading
these customers. Such amounts are not included in the estimates above.
The Company expects to complete its Year 2000 project during calendar 1999.
Based on currently available information and remediation plans, the Company does
not believe any material exposure to significant business interruption exists as
a result of Year 2000 compliance issues. While certain IT projects of the
Company have been deferred, the Company believes deferral of these projects will
not have a material impact on the Company. Although the Company does not believe
that it will incur any material costs or experience material disruptions in its
business associated with preparing its internal systems for the year 2000, there
can be no assurances that the Company will not experience serious unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in the technology used in its internal systems, which are composed of
third-party software, third-party hardware that contains embedded software and
the Company's own software products. The most reasonably likely worst case
scenario would include: (i) corruption of data contained in the Company's
internal information systems, (ii) hardware failure, and (iii) delays in
shipping the Company's saleable products. The Company is in the process of
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
developing a contingency plan to address situations that may result if the
Company is unable to achieve Year 2000 readiness of its critical operations, as
anticipated, in a timely manner.
These costs and the timing in which the Company plans to complete its Year 2000
modification and testing processes are based on management's best estimates.
However, there can be no assurance that the Company will timely identify and
remediate all significant Year 2000 problems, that remedial efforts will not
involve significant time and expense, or that such problems will not have a
material adverse effect on the Company's business, results of operations or
financial position.
This discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance are Year 2000 Readiness Disclosures as defined
in the Year 2000 Information and Readiness Disclosure Act (S. 2392, 105th
Congress, 2nd Session).
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
OUTLOOK: ISSUES AND RISKS
This Annual Report on Form 10-K contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements, including
statements as to the sufficiency of funds to meet operating requirements for the
next 12 months and statements as to the Year 2000 assessment. The following
important factors, among others, could cause actual results to differ materially
from those indicated by forward-looking statements made in this Annual Report on
Form 10-K and presented elsewhere by management from time to time. In addition
to the other information in this
Annual Report on Form 10-K, the following issues and risks, among others, should
be considered in evaluating MapInfo's outlook and future.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The mapping software and information
business is characterized by extremely rapid technological change, evolving
industry standards, and frequent new product introductions. These conditions
require continuous expenditures on product research and development to enhance
existing products and to create new products. The Company believes that the
timely development of new products and continuing enhancements to existing
products is essential to maintain its competitive position in the marketplace.
During recent years, the Company introduced a number of new products, including
SpatialWare, TargetPro, dbPlanner, MapXsite, MapXtreme and MapX. The Company's
future success depends, in part, upon customer and market acceptance of these
new products. Any failure to achieve acceptance of these and other new product
offerings could have a material adverse effect on the Company's business and
results of operations.
There can be no assurance that the Company will successfully complete the
development of new or enhanced products or successfully manage transitions from
one product release to the next.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COMPETITION. The Company encounters significant competition in the market for
business mapping systems worldwide. Some of the Company's competition may have
significant name recognition, as well as substantially greater capital
resources, marketing experience, research and development staffs and production
facilities than the Company. Increased competition may lead to pricing pressures
that could adversely affect the Company's gross margins. Prices of software in
Europe and Asia are generally higher than in the Americas to cover localization
costs and higher costs of distribution. Such price uplifts could erode in the
future.
RELIANCE ON THIRD PARTIES. The Company relies in part on strategic partners and
independent developers for the development of specialized data products that use
MapInfo software. Failure by such strategic partners or independent developers
to continue to develop such data products, or changes in the contractual
arrangements with such strategic partners or independent developers, could have
a material adverse effect on the Company's business and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Revenues outside the Americas
represented approximately 46% of total Company revenues in fiscal 1999. The
international portion of the Company's business is subject to a number of
inherent risks, including the difficulties in building and managing
international operations, reliance on financial commitments from certain
international distributors, difficulties in localizing products and translating
documentation into foreign languages, fluctuations in import/export duties and
quotas, and unexpected regulatory, economic, or political changes in
international markets. The Company's operating results are also affected by
exchange rates. Approximately 31% of the Company's revenues were denominated in
foreign currencies during 1999. Changes in international business conditions
could have a material adverse effect on the Company's business and results of
operations.
PRICES. Future prices the Company is able to obtain for its products may
decrease from previous levels depending upon market or competitive pressures or
distribution channel factors. Any decrease could have a material adverse effect
on the Company's business and results of operations.
INTELLECTUAL PROPERTY RIGHTS. The Company regards its software as proprietary
and attempts to protect it with a combination of copyright, trademark and trade
secret laws, employee and third-party non-disclosure agreements, and other
methods of protection. Despite these precautions, it may be possible for
unauthorized third parties to copy certain portions of the Company's products,
reverse engineer or obtain and use information the Company regards as
proprietary. In addition, the Company's shrinkwrap licenses, under which the
Company licenses its products, may be unenforceable under the laws of certain
jurisdictions. Also, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Any misappropriation of the Company's intellectual property could have a
material adverse effect on the Company's business and results of operations.
Furthermore, 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 products. Any such assertion could require the Company to enter into
royalty arrangements or result in costly litigation.
COST OF REVENUES. Cost of revenues varies with the mix of technology development
and licensing fees, product revenues, and services revenues, as well as with the
distribution channel mix. Changes in the revenue mix, as well as the
distribution model, may affect cost of revenues as a percentage of net revenues
in the future.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
EXPANSION TO ENTERPRISE MARKET. The Company has historically marketed its
products primarily in the desktop mapping market. The Company has recently
expanded its product offerings beyond the desktop market to the enterprise and
Internet/intranet markets. Sales to the enterprise and Internet/intranet markets
are directed to different decision-makers within customer organizations and
require different selling and marketing programs than are used in the desktop
market. The failure of these products to achieve market acceptance could have a
material adverse effect on the Company's business and results of operations.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results may vary significantly from quarter to quarter, depending upon factors
such as the introduction and market acceptance of new products and new versions
of existing products, the ability to reduce expenses, and the activities of
competitors. Because a high percentage of the Company's expenses are relatively
fixed in the near term, minor variations in the timing of orders and shipments
can cause significant variations in quarterly operating results. The Company
operates with little or no backlog and has no long-term contracts, and
substantially all of its product revenues in each quarter result from software
licenses issued in that quarter. Accordingly, the Company's ability to
accurately forecast future revenues and income for any period is necessarily
limited.
POTENTIAL VOLATILITY OF STOCK PRICE. There has been, and will likely continue to
be, significant volatility in the market price of securities of technology
companies. Factors such as announcements of new products by the Company or its
competitors, quarterly fluctuations in the Company's financial results or other
software companies' financial results, shortfalls in the Company's actual
financial results compared to results previously forecasted by stock market
analysts, and general conditions in the software industry and conditions in the
financial markets could cause the market price of the Common Stock to fluctuate
substantially. These market fluctuations may adversely affect the price of the
Company's Common Stock.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company has made a number of
acquisitions and will continue to review future acquisition opportunities. No
assurances can be given that acquisition candidates will continue to be
available on terms and conditions acceptable to the Company. Acquisitions
involve numerous risks, including, among other things, possible dilution to
existing shareholders, difficulties and expenses incurred in connection with the
acquisitions and the subsequent assimilation of the operations and services or
products of the acquired companies, the difficulty of operating new businesses,
the diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. In the event that the
operations of an acquired business do not meet expectations, the Company may be
required to restructure the acquired business or write-off the value of some or
all of the assets of the acquired business. There can be no assurance that any
acquisition will be successfully integrated into the Company's operations.
RISKS ASSOCIATED WITH DISTRIBUTION CHANNELS. The Company primarily markets and
distributes its products in North America, Europe and Australia through the
Company's telesales, outside sales force and through third party resellers. In
the Asia-Pacific, the Company's products are marketed and distributed through
exclusive and non-exclusive distribution relationships. The Company has limited
control over resellers and distributors that are not employees of the Company.
There can be no assurance that the Company will be able to retain its current
resellers and distributors, that its resellers and distributors will perform to
the Company's expectations, or that the Company will be able to expand its
distribution channels by entering into arrangements with new resellers and
distributors in the Company's current markets or in new markets.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's continued
success will depend in large part on its ability to attract and retain highly
qualified technical, managerial, sales and marketing and other personnel.
Competition for such personnel is intense. There can be no assurance that the
Company will be able to continue to attract or retain such personnel.
For risks related to the Year 2000 problem, see Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year 2000
Compliance".
22
<PAGE>
QUARTERLY FINANCIAL INFORMATION (unaudited)
(Amounts in thousands, except earnings per share)
This information has been derived from unaudited quarterly consolidated
financial statements that, in the opinion of management include all normal
recurring adjustments necessary for a fair presentation of such information. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
Fiscal Year 1999 Quarter Ended Fiscal Year 1998 Quarter Ended
------------------------------------------ ------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1999 1999 1999 1997 1998 1998 1998
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 16,145 $ 18,028 $ 19,012 $ 21,171 $ 13,145 $ 14,897 $ 15,451 $ 17,110
Cost of revenue 3,560 3,943 3,801 4,338 2,854 3,350 3,454 3,915
------------------------------------------ ------------------------------------------
Gross profit 12,585 14,085 15,211 16,833 10,291 11,547 11,997 13,195
Operating expenses 11,975 12,684 13,774 14,551 10,189 10,767 11,316 11,584
------------------------------------------ ------------------------------------------
Operating income 610 1,401 1,437 2,282 102 780 681 1,611
Other income, net 258 183 221 316 278 201 425 246
------------------------------------------ ------------------------------------------
Income before taxes 868 1,584 1,658 2,598 380 981 1,106 1,857
Provision for income taxes 260 524 531 883 76 217 275 575
----------------------------------------- ------------------------------------------
Net income $ 608 $ 1,060 $ 1,127 $ 1,715 $ 304 $ 764 $ 831 $ 1,282
========================================== ==========================================
Earnings per share:
Basic $ 0.11 $ 0.19 $ 0.20 $ 0.30 $ 0.05 $ 0.13 $ 0.14 $ 0.22
Diluted $ 0.10 $ 0.18 $ 0.19 $ 0.28 $ 0.05 $ 0.13 $ 0.14 $ 0.22
Weighted average shares outstanding:
Basic 5,710 5,722 5,767 5,761 5,897 5,856 5,836 5,720
Diluted 5,902 5,981 6,090 6,185 5,985 5,991 5,955 5,825
</TABLE>
23
<PAGE>
MAPINFO CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 1999
ITEM 8
FINANCIAL STATEMENTS
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements included in Item 8:
Index To Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 26
Consolidated Income Statements for the years ended
September 30, 1999, 1998 and 1997 27
Consolidated Balance Sheets as of September 30, 1999 and 1998 28
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, 1998 and 1997 29
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997 30
Notes to Consolidated Financial Statements 31
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Maplnfo Corporation and Subsidiaries:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) present fairly, in all material respects, the
financial position of MapInfo Corporation and its subsidiaries at September 30,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1999, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a) presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Albany, New York
October 28, 1999
26
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
(In thousands, except earnings per share)
<S> <C> <C> <C>
Net revenues:
Products $68,169 $56,154 $42,968
Services 6,187 4,449 4,425
----------- ----------- -----------
Total net revenues 74,356 60,603 47,393
Cost of revenues 15,642 13,573 9,737
----------- ----------- -----------
Gross profit 58,714 47,030 37,656
----------- ----------- -----------
Operating expenses:
Research and development 11,253 10,231 9,020
Selling and marketing 31,538 25,606 22,864
General and administrative 10,193 8,019 7,036
----------- ----------- -----------
Total operating expenses 52,984 43,856 38,920
----------- ----------- -----------
Operating income (loss) 5,730 3,174 (1,264)
Other income, net 978 1,150 931
----------- ----------- -----------
Income (loss) before provision for income taxes 6,708 4,324 (333)
Provision for (benefit from) income taxes 2,198 1,143 (338)
----------- ----------- -----------
Net income $ 4,510 $ 3,181 $ 5
=========== =========== ===========
Earnings per share:
Basic $ 0.79 $ 0.55 $ 0.00
Diluted $ 0.75 $ 0.54 $ 0.00
Weighted average shares outstanding:
Basic 5,740 5,827 5,822
Diluted 6,047 5,935 5,913
</TABLE>
See accompanying notes.
27
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------
1999 1998
----------- -----------
(Dollars in thousands,
except share data)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 8,996 $ 15,886
Short-term investments, at amortized cost 19,865 13,037
Accounts receivable, less allowance of $1,686 at
September 30, 1999 and $1,772 at September 30, 1998 19,379 15,224
Inventories 506 601
Other current assets 2,814 1,971
Deferred income taxes 894 734
----------- -----------
Total current assets 52,454 47,453
Property and equipment - net 4,851 4,430
Product development costs - net 1,202 1,272
Deferred income taxes 1,157 1,369
Intangible assets - net 5,426 3,458
Investments and other assets 1,709 1,549
----------- -----------
Total assets $ 66,799 $ 59,531
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 2,621 $ 2,200
Accrued liabilities 11,102 10,522
Deferred revenue 4,915 3,781
Income taxes payable 1,996 992
----------- -----------
Total current liabilities 20,634 17,495
Deferred revenue, long term 361 322
----------- -----------
Total liabilities 20,995 17,817
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.002 par value; 25,000,000 shares authorized;
5,963,197 shares issued in 1999 and 1998
12 12
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued
- -
Paid-in capital 30,738 31,046
Retained earnings 18,243 13,733
Accumulated other comprehensive income (178) 95
----------- -----------
48,815 44,886
Less treasury stock, at cost,
199,317 shares in 1999 and 258,174 shares in 1998 3,011 3,172
----------- -----------
Total stockholders' equity 45,804 41,714
----------- -----------
Total liabilities and stockholders' equity $ 66,799 $ 59,531
=========== ===========
See accompanying notes.
</TABLE>
28
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
and
Additional
Common Paid-in Accumulated
Stock Capital Other Treasury Stock Total
------------------------- Retained Comprehensive ------------------ Stockholders'
Shares Amount Earnings Income Shares Amount Equity
-----------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 5,774,980 $ 29,836 $ 10,547 $ 13 2,000 $ 1 $ 40,395
Net income - - 5 - - - 5
Foreign currency translation
adjustment - - - 2 - - 2
----------
Comprehensive income 7
Exercise of options and sale of stock
under the Employee Stock Purchase Plan 144,339 765 - - - - 765
Tax benefit from option exercises - 206 - - - - 206
Purchase of treasury stock - - - - 80,000 878 878
----------------------------------------------------------------------------------------
Balance, September 30, 1997 5,919,319 30,807 10,552 15 82,000 879 40,495
Net income - - 3,181 - - - 3,181
Foreign currency translation
adjustment - - - 80 - - 80
----------
Comprehensive income 3,261
Exercise of options and sale of stock
under the Employee Stock Purchase Plan 43,878 54 - - (97,094) (969) 1,023
Treasury shares issued for acquisition - 96 - - (31,332) (324) 420
Tax benefit from option exercises - 101 - - - - 101
Purchase of treasury stock - - - - 304,600 3,586 3,586
----------------------------------------------------------------------------------------
Balance, September 30, 1998 5,963,197 31,058 13,733 95 258,174 3,172 41,714
Net income - - 4,510 - - - 4,510
Foreign currency translation
adjustment - - - (273) - - (273)
----------
Comprehensive income 4,237
Exercise of options and sale of stock
under the Employee Stock Purchase Plan - (494) - - (148,857) (1,932) 1,438
Tax benefit from option exercises - 186 - - - - 186
Purchase of treasury stock - - - - 90,000 1,771 1,771
----------------------------------------------------------------------------------------
Balance, September 30, 1999 5,963,197 $ 30,750 $ 18,243 $ (178) 199,317 $3,011 $ 45,804
========================================================================================
</TABLE>
See accompanying notes.
29
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from (used for) operating activities
Net income $ 4,510 $ 3,181 $ 5
Depreciation and amortization 4,763 4,314 4,377
Allowance for doubtful accounts, sales returns and inventory (107) 512 18
Provision for deferred income taxes 29 (288) (585)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (3,885) (5,697) (1,691)
Inventories 130 253 126
Other assets (1,411) (280) (676)
Accounts payable and accrued liabilities 3,011 2,948 768
Deferred revenue 791 1,500 1,043
Income taxes 1,017 331 117
----------- ----------- -----------
Net cash from operating activities 8,848 6,774 3,502
----------- ----------- -----------
Cash flows from (used for) investing activities
Additions to property and equipment (3,309) (2,884) (2,369)
Capitalized product development costs (621) (438) (183)
Acquisitions of businesses and technology (5,099) (2,088) (1,590)
Short-term investments, net (6,828) (6,537) (1,705)
Other investments 187 (1,171) -
----------- ----------- -----------
Net cash used for investing activities (15,670) (13,118) (5,847)
----------- ----------- -----------
Cash flows from (used for) financing activities
Payments on notes payable, long term debt and capital leases - - (95)
Repurchase of common stock for treasury (1,771) (3,586) (878)
Proceeds from exercise of stock options and ESPP purchases 1,439 1,023 765
Tax benefit from option exercises 186 101 206
----------- ----------- -----------
Net cash used for financing activities (146) (2,462) (2)
----------- ----------- -----------
Effect of exchange rates on cash and cash equivalents 78 (19) (46)
----------- ----------- -----------
Net change in cash and cash equivalents (6,890) (8,825) (2,393)
Cash and cash equivalents, beginning of period 15,886 24,711 27,104
----------- ----------- -----------
Cash and cash equivalents, end of period $ 8,996 $ 15,886 $ 24,711
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes 841 661 173
See accompanying notes.
</TABLE>
30
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. Summary of Significant Accounting Policies
NATURE OF OPERATIONS
MapInfo designs, develops, markets, licenses and supports software and data
products, application development tools, and industry-focused solutions,
together with a range of consulting, training and technical support services.
These products are sold through multiple distribution channels, including an
indirect channel of value-added resellers and distributors, a corporate account
sales force, and a telemarketing sales group. The Company's products are
translated into 20 languages and sold in 58 countries throughout the world.
MapInfo markets its products worldwide through sales offices in North America,
Europe and Australia, and throughout the rest of Europe and the Asia-Pacific
region through exclusive and non-exclusive distribution relationships.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of MapInfo
Corporation and its wholly owned subsidiaries. Significant intercompany balances
and transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For the purpose of the cash flows statements, the Company defines cash and cash
equivalents as cash and investments with original maturities of three months or
less.
INVENTORIES
Inventories are stated at the lower of cost or market as determined on the
average cost method and consist primarily of computer media, user manuals and
software packaging supplies.
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of debt securities with maturity
dates of one year or less. In accordance with SFAS No. 115, debt securities have
been classified in the accompanying consolidated balance sheets as
held-to-maturity securities and are reported at amortized cost because the
Company has the positive intent and the ability to hold these debt securities to
maturity. Market value is determined by quoted market prices.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets (two to ten
years) for financial reporting purposes and accelerated methods for tax
purposes. When assets are sold, retired, or otherwise disposed of, the
applicable costs and accumulated depreciation are removed from the accounts and
the resulting gain or loss is recognized.
31
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
1. Summary of Significant Accounting Policies (continued)
PRODUCT DEVELOPMENT COSTS
Product development costs, including product enhancements, are capitalized after
technological feasibility has been established. These costs are reported at the
lower of unamortized cost or net realizable value and are being amortized on a
straight-line basis over two to five years, the estimated economic life of the
products. Annual amortization under the straight-line method is greater than the
ratio of current gross revenue to total expected product revenues method.
Amortization expense is classified as research and development expense in the
accompanying consolidated income statements.
INTANGIBLE ASSETS
Intangible assets represent the excess of cost over the fair value of net assets
acquired. Intangible assets are being amortized using the straight-line method
over five to seven years. The Company continually evaluates the existence of
impairment on the basis of whether the intangible asset is fully recoverable
from projected, undiscounted net cash flows of the related business activity.
REVENUE RECOGNITION
The Company adopted Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition" in the first quarter of fiscal year 1999 and its adoption had no
material impact on the Company's operating results or financial position.
PRODUCT REVENUE: Revenue from software and data product licenses and technology
development fees is recognized upon the later of shipment of product or
completion of significant obligations to customers, provided collectibility of
the resulting receivable is probable.
ORIGINAL EQUIPMENT MANUFACTURER (OEM) REVENUE: Revenue from products licensed to
original equipment manufacturers is recorded when the product has been shipped
and all obligations of the Company have been satisfied, provided collectibility
of the resulting receivable is probable.
VALUE ADDED RESELLER (VAR) SALES: Revenue from product sales to distributors and
VAR's is recorded when related products are shipped, provided collectibility of
the resulting receivable is probable.
POSTCONTRACT CUSTOMER SUPPORT (PCS): PCS, inclusive of technical support and
maintenance, may be bundled with an initial licensing fee or sold separately. In
either case, the fair value of the PCS arrangement is recognized ratably over
the term of the agreement, generally over a one to two year period, provided
collectibility of the resulting receivable is probable.
SERVICES REVENUE: Revenue from services such as training and consulting are
recognized as the services are performed, provided collectibility of the
resulting receivable is probable.
32
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
1. Summary of Significant Accounting Policies (continued)
RESERVE FOR RETURNS
The Company as a matter of policy provides the buyer the right to return certain
products within a stated period ranging from 30-60 days, for a refund of the
purchase price or replacement of the product. Accordingly, the Company accrues
for estimated future returns.
ADVERTISING COSTS
The Company expenses all advertising costs as they are incurred.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable for future years
to differences between financial statement and tax basis of existing assets and
liabilities. The effect of tax rate changes on deferred taxes is recognized in
the income tax provision in the period that includes the enactment date.
Business tax credits are recorded by the flow-through method of accounting,
whereby they are applied as a reduction of income tax expense in the year the
credits are utilized.
FOREIGN CURRENCY
The assets and liabilities of the Company's foreign subsidiaries are translated
at year-end exchange rates, and the income statements are translated at the
average rates of exchange prevailing during the year. Gains or losses resulting
from translating non-U.S. currency financial statements are accumulated in a
separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in net income. The Company's exposure to
foreign currency risk is mitigated, in part, by the fact that it incurs certain
operating costs in the same foreign currencies in which revenues are
denominated.
COMPUTATION OF EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards (SFAS) No. 128 -
"Earnings Per Share", earnings per share is computed using the weighted average
number of common and diluted common equivalent shares outstanding during the
period. Diluted common equivalent shares consist of stock options using the
treasury stock method.
SEGMENT INFORMATION
In 1999, the Company adopted SFAS No. 131 - "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 supercedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." Under the new standard the
Company is required to use the "management" approach to reporting its segments.
The management approach designates that the internal organization that is used
by management for making operating decisions and assessing performance as the
source of the Company's segments.
33
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
1. Summary of Significant Accounting Policies (continued)
COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted SFAS No. 130 -
"Reporting Comprehensive Income." Under SFAS 130 the Company is required to
report comprehensive income, which includes the Company's net income, as well as
changes in equity from other sources. In the Company's case, the other changes
in equity included in comprehensive income are comprised of the foreign currency
cumulative translation adjustment.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Management does not believe this will have a material effect on
the Company's operations. SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 amounts to conform
with the 1999 presentation.
2. Short-term Investments
At September 30, short-term investments consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Amortized Aggregate Amortized Aggregate
Type of Investment Cost market value Cost market value
- ------------------ ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Municipal bonds $10,619 $ 10,616 $ 4,000 $ 4,000
Commercial paper 9,246 9,247 9,032 9,027
Government bonds - - 5 5
------------- --------------- ------------- ---------------
$19,865 $ 19,863 $13,037 $ 13,032
============= =============== ============= ===============
</TABLE>
Included in other income, net is interest income of $1,209, $1,506 and $1,357 in
1999, 1998 and 1997, respectively.
A board member of the Company is an officer and shareholder in a financial
services firm which provides investment management advisory and custodial
services for the Company. At September 30, 1999, this organization was in
custody of $24,001 of cash and cash equivalents and short-term investments under
an investment management agreement. The Company paid investment management fees
to this firm of $44, $42 and $36 in 1999, 1998 and 1997, respectively.
34
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Computer hardware and software $ 13,046 $ 9,275
Equipment 514 465
Furniture and fixtures 981 1,074
Leasehold improvements 1,005 1,218
------------ -------------
15,546 12,032
Accumulated depreciation and amortization (10,695) (7,602)
------------ -------------
$ 4,851 $ 4,430
============ =============
</TABLE>
Depreciation and amortization expense for the years ended September 30,
1999, 1998 and 1997 was $2,963, $2,883, and $3,101, respectively.
4. Product Development Costs
Product development costs consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Product development costs $ 5,453 $ 4,863
Accumulated amortization (4,251) (3,591)
------------ -------------
$ 1,202 $ 1,272
============ =============
</TABLE>
Capitalized product development costs for the years ended September 30,
1999, 1998 and 1997 were approximately $615, $438 and $1,623 (inclusive of
$1,440 resulting from the purchase of SpatialWare technology), respectively.
Amortization of capitalized product development costs for the years ended
September 30, 1999, 1998 and 1997 was approximately $685, $905 and $999,
respectively.
5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
1999 1998
------------ -------------
<S> <C> <C>
Intangible assets $ 7,074 $ 4,106
Accumulated amortization (1,648) (648)
------------ -------------
$ 5,426 $ 3,458
============ =============
</TABLE>
35
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
5. Intangible Assets (continued)
The increase in intangible assets during fiscal year 1999 was due to the
acquisitions of On Target Mapping and The Data Consultancy (see Note 17).
Amortization of intangible assets for the years ended September 30, 1999, 1998
and 1997 was approximately $1,034, $526 and $81, respectively.
6. Investments
OBJECT/FX
Pursuant to a Purchase Agreement dated April 3, 1998, the Company invested
$1,100 in the form of convertible debt and a preferred stock investment in
Object/FX Corporation, a Minnesota company engaged in the development and sale
of Java mapping technology. In September 1999, Object/FX exercised its right to
pre-pay the convertible debt and to repurchase the Company's equity interest at
a premium. Accordingly, the Company recorded a gain of $262 in the fourth
quarter of fiscal year 1999 related to the redemption of the convertible debt
and preferred stock investments. The gain is included in the caption "Other
Income, net" in the Consolidated Income Statements.
THREE D GRAPHICS
On October 21, 1998, the Company invested approximately $1,000 in Three D
Graphics, Inc., a California software company, under a five-year Convertible
Promissory Note (the "Note"). The Note bears interest at 10% per annum, payable
on a quarterly basis. The Company has the option, at any time prior to October
21, 2003, to convert the outstanding principal amount of the Note into 20% of
the then issued and outstanding shares of capital stock of Three D Graphics,
Inc. As part of the agreement, the Company also received an option to purchase,
on or before October 2, 1999, a majority of the shares of capital stock of Three
D Graphics, Inc. The Company did not exercise this option. In addition, under a
Technology License Agreement, the Company received a license to bundle Three D
Graphics technology with MapInfo's products for a period of five years.
7. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Compensation costs $ 3,533 $ 2,793
Royalties 2,476 1,760
Marketing 442 114
Commissions 1,127 1,008
Acquisition costs - 1,961
Value added taxes 1,228 1,019
Other 2,296 1,867
------------- ------------
$ 11,102 $ 10,522
============= ============
</TABLE>
36
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
7. Accrued Liabilities (continued)
The September 30, 1998 acquisition costs amount relates to a scheduled April
1999 payment made to The Data Consultancy in connection with the purchase
agreement (see Note 17).
8. Credit Facilities
The Company has a $10 million uncollateralized line of credit with a commercial
bank, none of which was drawn down at September 30, 1999 or 1998. Interest is at
the bank's prime rate. The line of credit expires on January 31, 2000.
The Company also has a revolving convertible credit facility with a commercial
bank under which a maximum of $10 million can be borrowed for a two-year period
and then converted into a three-year term loan. Interest is at the bank's prime
rate, LIBOR plus 1.5%, or a fixed rate, at the Company's option. The credit
facility contains certain financial ratio covenants. None of this credit
facility was drawn down at September 30, 1999 or 1998. The facility expires in
December 1999.
9. Commitments and Contingencies
OPERATING LEASES:
The Company leases two facilities in the Rensselaer Technology Park totaling
approximately 102,000 square feet of office space. These offices house the
corporate headquarters, the principal research and development center and the
principal sales, marketing and administrative staff for the Americas. These
leases contain a nominal escalation in rental payments over the term of the
lease, and in addition to monthly lease payments, the Company is responsible for
such costs as real estate taxes and maintenance. The Company may acquire these
facilities through the termination of these leases at a negotiated purchase
price. The leases expire in 2002 and 2004. The Company also leases office space
of approximately 11,000 square feet in Windsor, England, which houses the
European headquarters. The lease on this facility expires in 2012.
Future minimum rental payments required under operating leases that have initial
or remaining non-cancelable lease terms in excess of one year as of September
30, 1999 decline from $2,100 in 2000 to $1,100 in 2004.
Total rent expense for the years ended September 30, 1999, 1998 and 1997 was
approximately $2,481, $2,253 and $2,133, respectively.
YEAR 2000 COMPLIANCE:
The Company's saleable products rely on software applications. The Company
expects that some of its customers may be using older product versions that are
not Year 2000 compliant. The Company will be encouraging such customers to
migrate to compliant product versions. It is possible that the Company may
experience increased expenses in addressing migration issues for such customers.
37
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
10. Income Taxes
Provision for (benefit from) income taxes consists of:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 1,203 $ 674 $ 100
State 194 112 40
Foreign 749 645 107
---------- --------- ---------
2,146 1,431 247
---------- --------- ---------
Deferred income taxes:
Federal 171 (161) (685)
State (23) 9 (50)
Foreign (96) (136) 150
---------- --------- ---------
52 (288) (585)
---------- --------- ---------
Provision for (benefit from) income taxes $ 2,198 $ 1,143 $ (338)
========== ========= =========
</TABLE>
10. Income Taxes (continued)
The provision for income taxes has been reduced for research and development tax
credits of approximately $523, $204 and $193 in 1999, 1998 and 1997,
respectively. At September 30, 1999, the Company has approximately $618 of
research and development tax credit carryforwards, which begin to expire in
2012, and approximately $71 of alternative minimum tax credit carryforwards,
which have no expiration date.
The provision for income taxes differs from the amount computed by applying the
U.S. federal statutory income tax rate of 34% as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Federal statutory income tax rate 34% 34% (34%)
State taxes 2 2 (2)
Non-U.S. tax rates and other foreign charges (2) (1) 21
Tax-exempt investment income (2) (3) (59)
Research and development credit (3) (6) (58)
Intangible asset amortization 3 3 -
Non-deductible expenses and other 0.8 (2.6) 30.5
---------- --------- ---------
32.8% 26.4% (101.5%)
========== ========= =========
</TABLE>
U.S. income (loss) before provision for income taxes was $4,911, $3,114 and
$(826) for the years ended September 30, 1999, 1998 and 1997, respectively.
38
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
10. Income Taxes (continued)
Deferred income taxes recorded in the consolidated balance sheets at September
30, 1999 and 1998 consist of the following temporary differences:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Current deferred tax asset:
Accrued expenses $ 433 $ 306
Bad debt reserve 210 217
Inventory 70 68
Allowance for returns 227 143
Other current assets (46) -
---------- ---------
Net current deferred tax assets 894 734
---------- ---------
Long term deferred tax assets (liabilities):
Capitalized product development costs (302) (283)
Tax credit carryovers 690 1,011
Property and equipment 470 423
Accrued expenses 82 97
Intangible assets 81 -
Other non-current assets 136 121
---------- ---------
Net long term deferred tax asset 1,157 1,369
---------- ---------
Net deferred tax asset $ 2,051 $ 2,103
========== =========
</TABLE>
There are no valuation allowances recorded against the Company's deferred tax
assets, as it is more likely than not that all future tax benefits will be
realized against future taxable income. However, the amount of deferred tax
assets considered realizable could be reduced in the future if estimates of
future taxable income are reduced.
11. Stockholders' Equity
EARNINGS PER SHARE
The following represents the basic and diluted earnings per share amounts
for the years ended September 30, 1999, 1998 and 1997 in accordance with SFAS
No. 128 -- "Earnings Per Share":
39
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
11. Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 4,510 $ 3,181 $ 5
--------- --------- ---------
Weighted average shares for basic EPS 5,740 5,827 5,822
Effect of dilutive stock options 307 108 91
--------- --------- ---------
Weighted average shares and assumed
exercise of stock options for diluted EPS 6,047 5,935 5,913
========= ========= =========
Basic EPS $ 0.79 $ 0.55 $ 0.00
Diluted EPS $ 0.75 $ 0.54 $ 0.00
</TABLE>
TREASURY SHARES
During the fiscal years ended September 30, 1999 and 1998, the Company
repurchased 90,000 shares at a cost of $1,800 and 304,600 shares at a cost of
$3,600, respectively. To date the Company has repurchased 476,600 shares at a
cost of $6,200, of which 277,283 shares have been reissued, primarily upon
option exercises and under the Company's Employee Stock Purchase Plan. The
Company intends to use the repurchased shares for issuance upon the exercise of
employee stock options, purchases under the Company's stock purchase plan, or
other corporate purposes.
12. Employee Stock Purchase and Stock Option Plans
EMPLOYEE STOCK PURCHASE PLAN
Under the 1993 Employee Stock Purchase Plan, the Company is authorized to issue
up to 400,000 shares of common stock to its full-time employees, nearly all of
whom are eligible to participate. Under the terms of the plan, shares of the
Company's common stock may be purchased at six-month intervals at 85% of the
lower of the fair value on the first or last day of each six-month period.
Employees may purchase shares having a value not exceeding 10% of their gross
compensation during an offering period. During 1999, 1998 and 1997, employees
purchased 86,707, 76,645 and 62,441 shares, respectively.
STOCK OPTION PLANS
The Company has stock option plans under which employees, officers, and
directors are eligible to participate, which provide for non-qualified and
incentive stock options. Typically, options granted under the plans provide for
an option exercise price equal to the fair market value at the date of grant.
Options granted prior to July 1996 typically vest over 5 years and 1 day and
expire 10 years from the date of grant. Options granted after June 1996
typically vest over 4 years and expire 10 years from the date of grant. At
September 30, 1999, options for 512,228 shares were vested and 289,252 were
available for future grants under the plans.
40
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
12. Employee Stock Purchase and Stock Option Plans (continued)
Stock options outstanding were as follows:
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------
Weighted
Number Average
of Exercise
Shares Price
------------- ------------
<S> <C> <C>
Balance, September 30, 1996 705,217 $ 8.63
-------------
Options granted 592,650 10.02
Options forfeited (148,073) 9.72
Options exercised (81,898) 3.51
-------------
Balance, September 30, 1997 1,067,896 9.65
-------------
Options granted 240,700 11.56
Options forfeited (134,385) 9.90
Options exercised (64,327) 5.83
-------------
Balance, September 30, 1998 1,109,884 10.25
-------------
Options granted 409,125 14.38
Options forfeited (77,702) 10.90
Options exercised (62,150) 8.71
-------------
Balance, September 30, 1999 1,379,157 11.51
=============
</TABLE>
For various price ranges, weighted average characteristics of outstanding stock
options at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ---------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 9/30/99 Contractual Life Exercise at 9/30/99 Exercise
Price Price
- ------------------ --------------- -------------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.74 to $9.38 122,450 6.89 $ 7.95 69,425 $ 7.23
$9.75 to $9.76 291,804 6.02 9.76 169,271 9.76
$9.81 to $11.00 361,443 7.30 10.21 186,447 10.21
$11.13 to $12.50 337,725 8.61 12.18 69,450 11.91
$12.72 to $30.25 265,735 9.18 16.00 17,635 18.92
--------------- --------------
1,379,157 7.68 11.51 512,228 10.19
=============== ==============
</TABLE>
41
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
12. Employee Stock Purchase and Stock Option Plans (continued)
The Company follows APB Opinion No. 25, Accounting for Stock Issued to
Employees, to account for stock option and employee stock purchase plans. No
compensation cost is recognized because the option exercise price is equal to
the market price of the underlying stock on the date of grant. Had compensation
cost for these plans been determined based on the Black-Scholes value at the
grant dates for awards as prescribed by SFAS No. 123, Accounting for Stock-Based
Compensation, pro forma net income (loss) and earnings (loss) per share would
have been:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- --------------
<S> <C> <C> <C>
Pro forma net income (loss) $ 3,056 $ 2,059 $ (1,569)
Pro forma diluted earnings (loss)
per share $ 0.51 $ 0.35 $ (0.27)
</TABLE>
The weighted average fair value of options granted under the plans during fiscal
years 1999, 1998 and 1997 were $8.28, $6.96 and $6.10, respectively. The
weighted average assumptions for the various option plans range from:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Risk-free interest rate 4.1% to 6.0% 4.5% to 5.9% 5.2% to 6.6%
Expected term 6 months to 6.2 years 6 months to 6.3 years 6 months to 7.3 years
Company's expected volatility 55% 57% 60%
Dividend yield None None None
</TABLE>
13. Deferred Compensation Plans
The Company's deferred compensation arrangements consist principally of a 401(k)
plan, which covers substantially all U.S.-based employees who have met certain
service requirements. Employees may contribute up to 15% of their pretax income
and 10% on an after-tax basis (up to the maximum established by the IRS each
year) to the plan. Beginning January 1, 1997, the Company may at its option
contribute up to 50% of the first two thousand dollars contributed by each
employee to the plan. Deferred compensation expense for the years ended
September 30, 1999, 1998 and 1997 was $265, $240 and $220, respectively.
14. Concentration of Credit Risk
The Company's investment portfolio consists of short-term investment grade
securities. At September 30, 1999, the Company had $124 in U.S. banks in excess
of insured limits and $814 in uninsured foreign banks. The Company sells a
significant portion of its product through third-party distributors.
42
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
15. Segment Information
The Company's operations involve the design, development, marketing, licensing
and supporting software and data products, application development tools, and
industry-focused solutions, together with a range of consulting, training and
technical support services.
The Company conducts business globally and is managed geographically. The
Company's management relies on an internal management accounting system. This
system includes revenue and cost information by geographic location. Revenues
are attributed to a geographic location based on the origination of the order
from the customer. The Company's management makes financial decisions and
allocates resources based on the information it receives from this internal
system. Based on the criteria set forth in SFAS No. 131, the Company has three
reportable segments: the Americas, EAME (Europe, Africa and the Middle East) and
Asia/Pacific.
Summarized financial information by segment for 1999, 1998 and 1997, as taken
from the internal management accounting system discussed above, is as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenue:
Americas $ 40,019 $ 30,676 $ 23,988
EAME 24,861 19,540 13,090
Asia/Pacific 9,476 10,388 10,315
----------- ----------- ----------
Total Revenue $ 74,356 $ 60,603 $ 47,393
=========== =========== ==========
Operating income (loss):
Americas $ 13,780 $ 8,703 $ 2,596
EAME 6,902 5,015 4,033
Asia/Pacific 3,121 5,160 5,040
Corporate adjustments (18,073) (15,704) (12,933)
----------- ----------- ----------
Total operating income (loss) $ 5,730 $ 3,174 $ (1,264)
=========== =========== ==========
Depreciation and amortization included in operating income (loss) consists of:
<S> <C> <C> <C>
Americas $ 3,158 $ 2,970 $ 3,523
EAME 1,380 1,079 494
Asia/Pacific 225 265 360
----------- ----------- ----------
Total depreciation and
amortization $ 4,763 $ 4,314 $ 4,377
=========== =========== ==========
</TABLE>
The operating income (loss) above differs from the amounts recognized under
generally accepted accounting principles because the Company does not allocate
certain corporate costs for research and development, marketing and general &
administrative activities to the geographic locations.
43
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
15. Segment Information (continued)
Enterprise-wide information is provided in accordance with SFAS 131. Geographic
revenue information is based on the ordering location of the customer.
Long-lived assets information is based on the physical location of the assets.
The following is revenue and long-lived assets information for geographic
locations.
<TABLE>
<CAPTION>
September 30,
------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Revenue:
U.S. $ 38,703 $ 29,272 $ 23,318
United Kingdom 12,712 9,515 4,727
All other countries 22,941 21,816 19,348
----------- ----------- ----------
Total Revenue $ 74,356 $ 60,603 $ 47,393
=========== =========== ==========
Long-Lived Assets:
U.S. $ 6,448 $ 4,039 $ 4,824
United Kingdom 5,011 4,598 608
All other countries 770 901 950
----------- ----------- ----------
Total identifiable assets $ 12,229 $ 9,538 $ 6,382
=========== =========== ==========
</TABLE>
In 1999, 1998 and 1997 no single customer accounted for 10% or more of the
Company's revenues.
16. Comprehensive Income
Effective October 1, 1998 the Company adopted SFAS No. 130 - "Reporting
Comprehensive Income". This Statement establishes standards for reporting and
disclosure of comprehensive income and its components. This statement requires
foreign currency translation adjustments, which are reported as separate
components of stockholders' equity, to be included in comprehensive income.
Prior year information below has been reclassified to conform to the
requirements of SFAS No. 130.
Comprehensive income was as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Net Income $ 4,510 $ 3,181 $ 5
Change in accumulated translation
adjustments (273) 80 2
--------- ---------- ---------
Total Comprehensive Income $ 4,237 $ 3,261 $ 7
========= ========== =========
</TABLE>
44
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
17. Acquisitions
ON TARGET COMMUNICATIONS, INC.
Pursuant to an Asset Purchase Agreement dated December 15, 1998, the Company
acquired substantially all of the assets and assumed certain liabilities of On
Target Communications, Inc., a Pennsylvania corporation doing business as On
Target Mapping. A MapInfo value-added reseller since 1992, On Target Mapping
delivers data products and solutions for large telecommunications providers. The
purchase price was approximately $2,150, net of cash acquired. In addition, the
Company may be obligated to make a contingent cash payment in March 2001, based
on the financial performance of On Target Mapping in the two years following the
acquisition. The acquisition has been accounted for as a purchase; and,
accordingly, the Company has included On Target Mapping's results of operations
in the financial statements from the date of acquisition. Intangible assets
resulting from the acquisition, including goodwill, are being amortized on a
straight-line basis over a period of five years.
THE DATA CONSULTANCY
Pursuant to a Share Sale and Purchase Agreement dated December 2, 1997, the
Company acquired all of the issued share capital of The URPI Group Limited, an
English company trading as The Data Consultancy ("The Data Consultancy") and
engaged in the sale of market analysis solutions and information products in the
United Kingdom. The purchase price was approximately $5,400, consisting of
$5,000 in cash (of which $2,900 was paid in 1999) and $400 in the Company's
common stock. The acquisition has been accounted for as a purchase; and,
accordingly, the Company has included The Data Consultancy's results of
operations in its financial statements from the date of acquisition. Intangible
assets resulting from the acquisition, including goodwill, are being amortized
on a straight-line basis over a period of seven years.
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I hereof, and the remainder is contained in the
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders (the "2000
Proxy Statement") under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 2000 Proxy Statement
under the captions "Director Compensation," "Executive Compensation,"
"Compensation Committee Interlocks and Insider Participation," and "Certain
Relationships and Related Transactions" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The response to this item is contained in the Company's 2000 Proxy Statement
under the caption "Beneficial Ownership of Common Stock" and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 2000 Proxy Statement
under the caption "Certain Relationships and Related Transactions" and is
incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) See Item 8 for Index to Consolidated Financial Statements
Consolidated Financial Statement Schedules for the years ended September 30,
1999, 1998 and 1997 included in Item 14(d):
Schedule VIII - Valuation and Qualifying Accounts
Schedules other than the schedule listed above have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the consolidated financial statements and the notes thereto.
46
<PAGE>
Listing of Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Restated Certificate of Incorporation of the Registrant. (A)
3.2 By-Laws of the Registrant. (A)
4 Specimen Certificate for shares of the Registrant's Common Stock.(B)
10.1+ Employee Non-Qualified Stock Option Plan I, as amended to date. (C)
10.2+ Employee Non-Qualified Stock Option Plan II, as amended to date. (C)
10.3+ 1993 Stock Incentive Plan, as amended to date. (D)
10.4+ 1993 Director Stock Option Plan, as amended to date. (E)
10.5 Lease Agreement dated as of August 1, 1993 by and between the
Registrant and Rensselaer Polytechnic Institute. (C)
10.6+ Employee Patent and Confidential Information Agreement dated as of
May 1, 1988 by and between the Registrant and Michael D. Marvin. (F)
10.7+ Employee Patent and Confidential Information Agreement dated as of
May 3, 1988 by and between the Registrant and John F. Haller. (F)
10.8+ Amended and Restated Employment Agreement, dated as of April 1, 1997
by and between the Registrant and D. Joseph Gersuk. (G)
10.9+ Employee Intellectual Property, Confidential Information and
Non-Competition Agreement dated as of April 10, 1997 by and between
the Registrant and D. Joseph Gersuk. (G)
10.11 Two Global View Lease Agreement dated as of January 10, 1995 between
Rensselaer Polytechnic Institute and the Registrant. (H)
10.12+ Amended and restated Employment Agreement dated as of
September 30, 1996 by and between the Registrant and
Michael D. Marvin. (I)
10.13+ Employment Agreement dated as of September 28, 1996 by and between
the Registrant and John C. Cavalier. (I)
10.14+ Employee Patent, Confidential Information and Non-Competition
Agreement dated September 30, 1996 by and between the Registrant
and John C. Cavalier. (I)
10.16+ Loan Agreement dated October 21, 1996 by and between the Registrant
and D. Joseph Gersuk (J)
47
<PAGE>
10.17+ Unsecured Promissory Note dated June 2, 1997 by and between the
Registrant and John C. Cavalier. (G)
10.18+ Amended and Restated Employment Agreement dated as of
November 1, 1998 by and between the Registrant and
John C. Cavalier. (K)
10.19+ Employee Intellectual Property, Confidential Information and
Non-Competition Agreement dated as of December 1, 1998 by and
between the Registrant and Mark Cattini. (K)
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
(A) Incorporated herein by reference from the exhibits to the Form 8-K dated
November 6, 1997.
(B) Incorporated herein by reference from the exhibits to the Form 10-K for
the year ended September 30, 1997.
(C) Incorporation herein by reference from the exhibits to the Registrant's
Registration Statement on Form S-1 (File No. 33-72866).
(D) Incorporated herein by reference from the exhibits to the Form 10-Q for
the quarter ended March 31, 1998.
(E) Incorporated herein by reference from the exhibits to the Form 10-Q for
the quarter ended March 31, 1999.
(F) Incorporated herein by reference from the exhibits to the Form 10-K for
the year ended September 30, 1994.
(G) Incorporated herein by reference from the exhibits to the Form 10-Q for
the quarter ended June 30, 1997.
(H) Incorporated herein by reference from the exhibits to the Form 10-Q for
the quarter ended March 31, 1995.
(I) Incorporated herein by reference from the exhibits to the Form 10-K fo
the year ended September 30, 1996.
(J) Incorporated herein by reference from the exhibits to the Form 10-Q for
the quarter ended December 31, 1996.
(K) Incorporated herein by reference from the exhibits to the Form 10-K for
the year ended September 30, 1998.
+ Management contract or compensation plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K with the Securities and Exchange
Commission during the fiscal quarter ended September 30, 1999.
48
<PAGE>
MAPINFO CORPORATION
ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 1999
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULE
49
<PAGE>
MAPINFO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE VIII
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------- ------------ -------------------------------- ------------- ------------
Balance at Additions Additions Balance at
beginning charged to charged to end of
Description of period expense, net other accounts Deductions Period
----------- ------------ -------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts
and sales returns $1,249 92 282(2) (276)(1) $ 1,347
Year ended September 30, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts
and sales returns $1,347 196 235(2) (6)(1) $ 1,772
Year ended September 30, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts
and sales returns $1,772 144 172(2) (402)(1) $ 1,686
- ---------------------
(1) Uncollectible accounts written off.
(2) Allowance for sales returns.
</TABLE>
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAPINFO CORPORATION
(Registrant)
By: /s/ John C. Cavalier
------------------------------------
John C. Cavalier
President and Chief Executive Officer
Date: November 18, 1999
------------------------------------
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>
NAME TITLE DATE
<S> <C> <C>
/s/ John C. Cavalier President and Chief November 18, 1999
- ------------------------- Exective Officer -----------------
John C. Cavalier (Principal Executive Officer)
/s/ Michael D. Marvin Chairman of the Board November 18, 1999
- ------------------------- -----------------
Michael D. Marvin
/s/ D. Joseph Gersuk Executive Vice President, Treasurer November 18, 1999
- ------------------------- and Chief Financial Officer -----------------
D. Joseph Gersuk (Principal Financial and
Accounting Officer)
/s/ John F. Haller Vice President, Chief Technology November 18, 1999
- ------------------------- Officer, Secretary and Director -----------------
John F. Haller
/s/ Laszlo C. Bardos Director November 18, 1999
- ------------------------- ------------------
Laszlo C. Bardos
/s/ George C. McNamee Director November 18, 1999
- ------------------------- -----------------
George C. McNamee
/s/ James A. Perakis Director November 18, 1999
- ------------------------- ------------------
James A. Perakis
/s/ John F. Burton Director November 18, 1999
- ------------------------- ------------------
John F. Burton
</TABLE>
51
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
MapInfo Australia Pty. Limited Australia
MapInfo Canada Inc. Canada
MapInfo GmbH Germany
MapInfo Limited England
MapInfo UK Limited England
The Data Consultancy Limited England
</TABLE>
1
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-74660, 33-74662, 33-74664, 33-78406, 33-88780,
333-04268, 333-22973, 333-22975, 333-24545, 333-56359, 333-56361, 333-73409, and
333-73411) of MapInfo Corporation and Subsidiaries of our report dated October
28, 1999 relating to the financial statements and financial statement schedule,
which appears in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Albany, New York
November 16, 1999
1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 8,996
<SECURITIES> 19,865
<RECEIVABLES> 21,065
<ALLOWANCES> 1,686
<INVENTORY> 506
<CURRENT-ASSETS> 52,454
<PP&E> 15,546
<DEPRECIATION> 10,695
<TOTAL-ASSETS> 66,799
<CURRENT-LIABILITIES> 20,634
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 45,792
<TOTAL-LIABILITY-AND-EQUITY> 66,799
<SALES> 74,356
<TOTAL-REVENUES> 74,356
<CGS> 15,642
<TOTAL-COSTS> 15,642
<OTHER-EXPENSES> 52,984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,708
<INCOME-TAX> 2,198
<INCOME-CONTINUING> 4,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,510
<EPS-BASIC> 0.79
<EPS-DILUTED> 0.75
</TABLE>
