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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
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: 0-27358
DOCUMENTUM, INC.
(exact name of registrant as specified in its charter)
DELAWARE 95-4261421
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588-8547
(Address of principal executive offices)
TELEPHONE NUMBER (510) 463-6800
(Registrant's telephone number, including area code)
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 [_]
The number of outstanding shares of the registrant's Common Stock, par
value $.001 per share, was 14,281,341 on July 31, 1997.
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1.
<PAGE>
FORM 10-Q
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as
of June 30, 1997 and December 31, 1996............. 3
Condensed Consolidated Statements of
Operations for the three and six months ended
June 30, 1997 and 1996............................. 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 1997 and 1996............................. 5
Notes to Condensed Consolidated
Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................... 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders................................... 16
Item 6. Exhibits and Reports on Form 8-K................... 17
Signature ................................................... 18
Exhibit Index ................................................... 19
2.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,033 $ 5,369
Short-term investments 46,857 46,803
Accounts receivable, net of allowances of $860 and $1,069 (including
$1,791 and $737 receivable from a stockholder and its affiliates) 11,986 13,531
Other current assets 2,133 1,519
------- -------
Total current assets 70,009 67,222
Property and equipment, net 9,149 6,339
Other assets 1,473 1,383
------- -------
$80,631 $74,944
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,532 $ 1,488
Accrued liabilities 8,982 8,124
Deferred revenue 6,077 4,956
Current portion of long term obligations 142 833
------- -------
Total current liabilities 17,733 15,401
------- -------
Long term obligations, less current portion -- 211
------- -------
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized
Common stock, $0.001 par value; 35,000 shares authorized;
14,258 and 14,187 shares issued and outstanding 14 14
Additional paid-in capital 62,479 61,450
Cumulative translation adjustment 16 43
Retained earnings/(accumulated deficit) 389 (2,175)
------- -------
Total stockholders' equity 62,898 59,332
------- -------
$80,631 $74,944
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3.
<PAGE>
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Licenses (including $919, $1,609, $1,932 and
$3,322 from a stockholder and its affiliates) $12,007 $ 7,653 $23,069 $14,641
Services 5,303 2,554 9,278 4,248
------- ------- ------- -------
Total revenues 17,310 10,207 32,347 18,889
------- ------- ------- -------
Cost of revenues:
Licenses 411 418 797 921
Services 2,911 1,744 5,401 2,920
------- ------- ------- -------
Total cost of revenues 3,322 2,162 6,198 3,841
------- ------- ------- -------
Gross profit 13,988 8,045 26,149 15,048
------- ------- ------- -------
Operating expenses:
Sales and marketing 8,613 4,584 15,898 8,606
Research and development 2,563 1,788 4,861 3,329
General and administrative 1,197 918 2,501 1,877
------- ------- ------- -------
Total operating expenses 12,373 7,290 23,260 13,812
------- ------- ------- -------
Income from operations 1,615 755 2,889 1,236
------- ------- ------- -------
Interest and other income, net 552 579 997 917
------- ------- ------- -------
Income before income tax provision 2,167 1,334 3,886 2,153
Provision for income taxes (720) (467) (1,322) (754)
------- ------- ------- -------
Net income $ 1,447 $ 867 $ 2,564 $ 1,399
======= ======= ======= =======
Net income per share $ 0.10 $ 0.06 $ 0.17 $ 0.10
Shares used to compute net income per share 14,805 14,938 14,843 14,535
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.
<PAGE>
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,564 $ 1,399
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,496 870
Provision for doubtful accounts (146) 24
Changes in assets and liabilities:
Accounts receivable 1,692 (659)
Other current assets and other assets (705) (358)
Accounts payable 1,044 340
Accrued liabilities 859 305
Deferred revenue 1,120 1,255
-------- --------
Net cash provided in operating activities 7,924 3,176
-------- --------
Cash flows from investing activities
Purchases of short-term investments (31,387) (44,349)
Sales of investments 31,333 -
Purchases of property and equipment (4,305) (2,230)
-------- --------
Net cash used by investing activities (4,359) (46,579)
-------- --------
Cash flows from financing activities
Issuance of common stock 1,028 45,772
Proceeds from term loan -- 387
Repayments on capital lease obligations (125) (128)
Repayment on term loan (777) (243)
-------- --------
Net cash provided by financing acitivities 126 45,788
-------- --------
Effect of exhange rate on changes in cash (27) 3
-------- --------
Net increase in cash and cash equivalents 3,664 2,388
Cash and cash equivalents at beginning of period 5,369 5,978
-------- --------
Cash and cash equivalents at end of period $ 9,033 $ 8,366
======== ========
Supplemental schedule of noncash transactions
Conversion of preferred stock to common stock -- 13,391
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 Basis of Presentation
---------------------
The unaudited condensed consolidated financial statements of Documentum, Inc.
("Documentum" or the "Company") included herein reflect all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management are necessary to fairly state the Company's consolidated financial
position, results of operations, and cash flows for the periods presented.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements as included in the Company's 1996
Annual Report on Form 10-K. The consolidated results of operations for the
period ended June 30, 1997 are not necessarily indicative of the results to be
expected for any subsequent quarter or for the entire fiscal year ending
December 31, 1997.
2 Net Income Per Share
--------------------
Net income per share is computed using the weighted average number of common
stock and common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options and warrants calculated using the
treasury method. Common equivalent shares are excluded from the computation if
their effect is antidilutive. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletins, common and common equivalents shares, options and
warrants issued by the Company during the 12-month period prior to the Company's
initial public offering have been included in the calculation as if they were
outstanding for all periods prior to and including February 5, 1996.
3 Recent Accounting Pronouncements
--------------------------------
Effective for both interim and annual financial statements for periods ending
after December 15, 1997, the Company will adopt Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which replaces
primary earnings per share computed in accordance with APB Opinion 15 with a new
and simpler calculation called Basic Earnings Per Share and Diluted Earnings Per
Share. Basic Earnings Per Share will be calculated by dividing income available
to common stockholders by the weighted average common shares outstanding.
Diluted Earnings Per Share is calculated by dividing income available to common
stockholders by the assumed conversion of all potentially dilutive securities
under the treasury stock method. The adoption of SFAS 128 would not have a
material impact on the Company's earnings per share for the quarter ended June
30, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting of comprehensive income
and its components in a full set of general-purpose financial statements for
periods ending after December 15, 1997. Reclassification of financial
statements for earlier periods for comparative purposes is required. The
Company will adopt SFAS 130 in 1997 and does not expect such adoption to have a
material effect on the consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 beginning in 1998 and does not
expect such adoption to have a material effect on the consolidated financial
statements.
4 Accrued Expense and Other Current Liabilities
---------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Compensation and related benefits 3,480 3,617
Taxes 1,762 1,103
Other 3,740 3,404
----- -----
8,982 8,124
===== =====
</TABLE>
6.
<PAGE>
DOCUMENTUM, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this Form 10-Q contains forward-looking statements regarding
the Company, its business, prospects and results of operations that are subject
to certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed herein as well as those discussed under
the captions "Risk Factors" in the Company's 1996 annual report on Form 10-K and
"Factors that may Affect Future Results" in the Company's quarterly report on
Form 10-Q for the three months ended March 31, 1997. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date of this report. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission that attempt to
advise interested parties of the risks and factors that may affect the Company's
business.
OVERVIEW
Documentum, which was formed in 1990, provides object-oriented, client/server
software solutions that enable large organizations to effectively manage and
optimize the use of their unstructured business-critical information. From its
inception through December 1992, the Company's activities consisted primarily of
developing its products, establishing its infrastructure and conducting market
research. The Company shipped the first commercial version of its Documentum
Server product in late 1992, and since then substantially all of the Company's
revenues have been from licenses of its family of enterprise document management
system ("EDMS") products and related services, which include maintenance and
support, training and consulting services. The Company continues to invest in
research and development in order to update its family of EDMS products and
related services. In the first half of 1997, the Company introduced DocSolution
for standard operating procedures (SOPs), a consulting services offering
consisting of a framework of predefined document type, workflows and business
rules, and implementation services tailored to the specific challenges of SOP
management. Also during the first half of 1997, the Company announced new
strategic partnerships with PeopleSoft and Infinity Financial Technology, Inc.
to provide document management capabilities for PeopleSoft's and Infinity's
products. In addition, the Company introduced and shipped Documentum DocLink
for SAP's R/3, a bi-directional interface designed to provide seamless
integration between Documentum's Enterprise Document Management System (EDMS)
and SAP's R/3. Moreover, Documentum, Adobe Systems Incorporated and Cornerstone
Imaging announced a technology integration to develop complete solutions for
capturing and managing large volumes of paper documents using corporate
Intranets, the World Wide Web and traditional client/server information systems.
Furthermore, the Company introduced and shipped Documentum's DocPage Server and
WorkSpace products in a localized Kanji version. Additionally the Company
expanded its sales efforts in the Asia-Pacific region. The Company expects that
EDMS-related revenue will continue to account for substantially all of the
Company's revenues for the foreseeable future. As a result, the Company's future
operating results are dependent upon continued market acceptance of EDMS and
enhancements thereto.
Since inception, the Company has invested significant resources in developing
its EDMS software, as well as building its sales, marketing and general
administrative organizations. As a result, since inception the Company's
operating expenses have increased in absolute dollar amounts and are expected to
continue to increase for the remainder of the fiscal year.
Although the Company has experienced significant revenue growth in recent
years, the Company does not believe that such growth rates are sustainable.
Accordingly, the rate at which the Company has grown in the past should not be
considered to be indicative of future revenue growth, if any, or future
operating results. There can be no assurance that the Company will remain
profitable on a quarterly basis, or at all.
7.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statement of operations as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Licenses 69.4% 75.0% 71.3% 77.5%
Services 30.6% 25.0% 28.7% 22.5%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of revenues:
Licenses 2.4% 4.1% 2.5% 4.9%
Services 16.8% 17.1% 16.7% 15.5%
----- ----- ----- -----
Total cost of revenues 19.2% 21.2% 19.2% 20.4%
----- ----- ----- -----
Gross profit 80.8% 78.8% 80.8% 79.6%
----- ----- ----- -----
Operating expenses:
Sales and marketing 49.8% 44.9% 49.1% 45.6%
Research and development 14.8% 17.5% 15.0% 17.6%
General and administrative 6.9% 9.0% 7.7% 9.9%
----- ----- ----- -----
Total operating expenses 71.5% 71.4% 71.8% 73.1%
----- ----- ----- -----
Income from operations 9.3% 7.4% 9.0% 6.5%
----- ----- ----- -----
Interest and other income, net 3.2% 5.7% 3.1% 4.9%
----- ----- ----- -----
Income before income tax provision 12.5% 13.1% 12.1% 11.4%
Provision for income taxes (4.2%) (4.6%) (4.1%) (4.0%)
----- ----- ----- -----
Net income 8.3% 8.5% 8.0% 7.4%
===== ===== ===== =====
</TABLE>
REVENUES
The Company's revenues are derived from the sale perpetual licenses for its
document management software and related services, which include maintenance and
support, training and consulting services. License revenues are recognized upon
shipment of the product if no significant vendor obligations remain and
collection of the resulting receivable is probable. In instances where a
significant vendor obligation exists, revenue recognition is deferred until the
obligation has been satisfied. Allowances for estimated future returns are
provided upon shipment. Annual maintenance and support revenues are recognized
for providing ongoing support and product updates and are recognized ratably
over the term of the contract. Renewals of maintenance contracts are recorded
when collectibility is deemed probable. Revenues from training and consulting
are recognized when the services are performed and collectibility is deemed
probable.
License revenues increased by 57% to $12.0 million for the three months
ended June 30, 1997 from $7.7 million for the three months ended June 30, 1996,
and increased 58% to $23.1 million for the six months ended June 30, 1997 from
$14.6 million for the six months ended June 30, 1996. The growth in license
revenues was due to an increase in the number of licenses sold, reflecting
increased acceptance of the Company's EDMS family of products, as well as the
growing number of customers who have purchased large quantities of
product licenses, and the expansion of the Company's sales organization. During
the quarter ended June 30, 1997, a single sale to one customer accounted for 25%
or $3.0 million of total license revenues for the three months ended June 30,
8.
<PAGE>
1997. During the first half of 1997 a sale of $5.0 million to a customer
accounted for 22% of total license revenues and the sale of $3.0 million to a
customer accounted for 13% of total license revenues for the six months ended
June 30, 1997. For the three months ended June 30, 1997 and 1996 and six months
ended June 30, 1997 and 1996, license revenues from Xerox and certain Xerox
affiliates ("Xerox"), acting as systems integrators, a VAR and a distributor for
the Company's products, accounted for 8%, 21%, 8% and 23% of total license
revenues respectively. Although the Company's customer base has grown as
revenues have increased, a relatively small number of end user customers have
historically accounted for a significant percentage of the Company's revenues,
particularly on a quarterly basis, as noted above. The loss of a major customer
or any reduction or delay in orders by such customers would have a material
adverse effect on the Company's business, operating results and financial
condition.
Service revenue increased 108% to $5.3 million for the three months ended
June 30, 1997 from $2.6 million for the three months ended June 30, 1996, and
increased 118% to $9.3 million for the six months ended June 30, 1997 from $4.2
million for the six months ended June 30, 1996. The growth in both service
revenue dollars and in service revenues as a percent of total revenues was
attributable to increased demand for services, larger installed base of
customers receiving ongoing maintenance, delayed maintenance contract renewals,
training and support services, and increases in the Company's professional
services consulting staff.
The Company markets its products through its direct sales force and its
indirect channel partners. Historically, the Company has generated the majority
of its revenues from its direct sales force. However, the Company has also
focused on complementing its direct sales channel with indirect channels,
consisting of system integrators and distributors. Revenues from all indirect
channel partners comprised 30% and 43% of license revenues for the three months
ended June 30, 1997 and 1996, respectively, and 24% and 38% of license revenues
for the six months ended June 30, 1997 and 1996, respectively. License revenues
from indirect channels include revenues from Xerox. License revenues from Xerox
acting in its role as an indirect channel partner represented 8% and 21% of
license revenues for the three months ended June 30, 1997 and 1996,
respectively, and 8% and 23% of license revenues for the six months ended June
30, 1997 and 1996, respectively. The decrease in both indirect channel revenues
and revenues from Xerox as a percentage of license revenues is due to two large
direct sales during the six months ended June 30, 1997. Xerox owned
approximately 23% of the Company's outstanding common shares as of July 31,
1997. Management believes that the revenues, gross profit and costs and
expenses relating to transactions with Xerox are indicative of amounts which
would have been incurred or realized from nonrelated parties. Revenues from
indirect partners including Xerox for any period are subject to significant
variations. As a result, the Company believes that period to period comparisons
of indirect revenues are not necessarily meaningful and should not be relied
upon as indications of future performance. There can be no assurance that Xerox
or the Company's other indirect channel partners will elect or be able to
continue to market or support EDMS effectively, or that economic conditions or
industry demand will not adversely affect these partners.
International revenues represented 36% and 25% of license revenues for the
three months ended June 30, 1997 and 1996, respectively, and 26% and 26% for the
six months ended June 30, 1997 and 1996, respectively. A significant portion of
the international revenues are derived from the Company's indirect channel
partners, which include Xerox. International revenues are subject to
significant variations. In the first half of 1997, the Company expanded sales
efforts in the Asia-Pacific region and as a result, recognized revenue related
to the Asia-Pacific region during the three months ended June 30, 1997. The
Company classifies license revenue as domestic or international based upon the
billing location of the customer. In many instances, especially with large
purchases from multinational companies, the customer has the right to deploy the
licenses anywhere in the world. Thus the percentages discussed herein represent
where licenses were sold, and may or may not represent where they are used. As
a result, the Company believes that period to period comparison of international
revenues are not necessarily meaningful and should not be relied upon as
indications of future performance. The Company's direct international sales are
primarily denominated in United States dollars and the Company does not
currently engage in hedging activities. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in the currency exchange rates in the future will not have a
material adverse impact on revenues from direct international sales and thus the
Company's business, operating results and financial condition.
COST OF REVENUES
Cost of license revenues consists primarily of the royalties paid to third-
party vendors and product costs such as packaging, documentation, production and
freight. Cost of license revenues decreased by 2% to $411,000 for the three
months ended June 30, 1997 from $418,000 for the three months ended June 30,
1996, and decreased by 13% to $797,000 for the six months ended June 30, 1997
from $921,000 for the six months ended June 30, 1996, representing 3% and 6% of
license revenues for the three months ended June 30, 1997 and 1996,
respectively, and 4% and 6% of license revenue for the six months ended June 30,
1997 and 1996, respectively. The decrease in cost of license revenues and the
decrease in costs of license revenues as a percentage of license revenues was
principally related to a decrease in the number of shipments requiring royalty
payments, and fixed royalty fees, which have remained constant as revenue
increased. The Company expects that the cost of license revenues will increase
in dollar amount for the remainder of the year.
9.
<PAGE>
Cost of service revenues consists primarily of personnel-related costs
incurred in providing telephone support, consulting services and training to
customers. Cost of service revenues increased by 67% to $2.9 million for the
three months ended June 30, 1997 from $1.7 million for the three months ended
June 30, 1996, and increased by 85% to $5.4 million for the six months ended
June 30, 1997 from $2.9 million for the six months ended June 30, 1996,
representing 55% and 68% of related service revenues for the three months ended
June 30, 1997 and 1996, respectively, and 58% and 69% for the six months ended
June 30, 1997 and 1996, respectively. The increase in cost of service revenue
was a result of increased personnel-related costs as the Company expanded its
customer support and training operations to support its increased installed
customer base in both the US and Europe, as well as payments to third parties
for providing consulting services. The decrease in spending as a percentage of
service revenues is primarily due to economies of scale realized as certain
expenses such as technical support grew proportionately less than maintenance
revenues. The Company expects that the cost of services revenues will increase
in dollar amount for the remainder of the year in order to support and service
the growing installed base of customers.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses consist primarily of
-------------------
salaries, benefits, sales commissions and other expenses related to the direct
sales force, various marketing expenses and costs of other market development
programs. Sales and marketing expenses increased by 88% to $8.6 million for the
three months ended June 30, 1997 from $4.6 million for the three months ended
June 30, 1996, and increased by 85% to $15.9 million for the six months ended
June 30, 1997 from $8.6 million for the six months ended June 30, 1996,
representing 50% and 45% of total revenues for the three months ended June 30,
1997 and 1996, respectively, and 49% and 46% of total revenues for the six
months ended June 30, 1997 and 1996, respectively. The increase in dollar
amount and the increase as a percentage of revenues was the result of the
Company's strategy to continue to invest in its sales and marketing
infrastructure, including increasing the number of sales teams during the
quarter and increasing the number of marketing programs. The Company expects
that sales and marketing expenses will increase in dollar amount for the
remainder of the year, in order to drive the Company's anticipated revenue
growth.
Research and development. Research and development expenses consist
------------------------
primarily of salaries and benefits for software developers, contracted
development efforts and related facilities costs. Research and development
expenses increased by 43% to $2.6 million for the three months ended June 30,
1997 from $1.8 million for the three months ended June 30, 1996, and increased
by 46% to $4.9 million for the six months ended June 30, 1997 from $3.3 million
for the six months ended June 30, 1996, representing 15% and 18% of total
revenues for the three months ended June 30, 1997 and 1996, respectively, and
15% and 18% of total revenues for the six months ended June 30, 1997 and 1996,
respectively. The increase in dollar amount reflects the expansion of the
Company's engineering staff and related costs required to support the
development of new products and enhancement of existing products. The decrease
in research and development as a percentage of revenue is due primarily to the
Company's strategic decision to increase the level of investment in sales and
marketing activities. The Company expects research and development expenses
will increase in dollar amount for the remainder of the year in order to support
increased development efforts to both existing products and new products.
General and administrative. General and administrative expenses consist
--------------------------
primarily of personnel costs for finance, management information systems, human
resources and general management as well as outside professional services.
General and administrative expenses increased by 30% to $1.2 million for the
three months ended June 30, 1997 from $918,000 for the three months ended June
30, 1996, and increased by 33% to $2.5 million for the six months ended June 30,
1997 from $1.9 million for the six months ended June 30, 1996, representing 7%
and 9% of total revenues for the three months ended June 30, 1997 and 1996,
respectively, and 8% and 10% of total revenues for the six months ended June 30,
1997 and 1996, respectively. The increase in dollar amount is primarily due to
increased staffing and professional fees necessary to manage and support the
Company's growth. The decrease in spending as a percentage of revenues is
primarily due to economies of scale realized as certain expenses such as
management compensation grew proportionately less than revenues. The Company
expects general and administrative expenses to increase in dollar amount for the
remainder of the year in order to support the growing needs of the Company.
INTEREST AND OTHER INCOME, NET
Interest and other income, net consists primarily of interest income earned on
the Company's cash and cash equivalents and short term investments, and other
items including foreign exchange gains and losses and interest expense.
Interest and other income, net decreased 5% to $552,000 for the three months
ended June 30, 1997 from $579,000 for the three months ended June 30, 1996 and
increased 9% to $997,000 for the six months ended June 30, 1997 from $917,000
for the six months ended June 30, 1996. To date, the Company's international
sales have been generally denominated in US dollars and the Company has not
engaged in hedging activities as the exposure to currency fluctuations has been
insignificant. In the future, as the Company expands its international
operations, the Company expects to have an increased amount of non-US dollar
denominated contracts. Unexpected changes in the
10.
<PAGE>
exchange rates for these foreign currencies could result in significant
fluctuation in the foreign currency translation gains and losses in future
periods.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects the estimated annualized effective
tax rate of 34% applied to earnings for the six months ended June 30, 1997 and
35% to earnings for the six months ended June 30, 1996. During the three months
ended June 30, 1997, the Company reduced its estimated annualized effective tax
rate from 35% to 34% due to the establishment of a foreign sales corporation and
a shift to tax free investments. In accordance with Financial Accounting
Standards No. 109, "Accounting for Income Taxes", the Company provides a
valuation allowance for deferred tax assets when it is more likely than not,
based on available evidence, that some portion or all of the deferred tax assets
will not be realized. At June 30, 1997 the Company has valued its deferred tax
assets at $1.3 million which is comprised of reserves not deductible for tax
purposes. The Company will continue to assess the realizability of the deferred
tax assets based on actual and forecasted operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has financed its operations primarily through the sale
of stock and through cash generated from operations. In February 1996, the
Company completed its initial public offering of common stock, and its common
stock began trading on the NASDAQ National Market under the symbol DCTM. Through
the offering, the Company sold 2,058,000 shares of its common stock, and
received net proceeds of approximately $45 million cash.
The Company's cash and investments totaled $55.9 million at June 30, 1997
representing 69% of total assets. The Company has invested its cash in excess of
current operating requirements in a portfolio of both taxable and tax-exempt
investment grade securities. The investments have variable and fixed interest
rates and short term and long term maturities. In accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities" such
investments are classified as "available for sale".
Net cash provided by operating activities was $7.9 million and $3.2 million
for the six months ended June 30, 1997 and 1996, respectively. For the six
months ended June 30, 1997, the cash generated by operations was primarily
attributable to net income of $2.6 million, a decrease in accounts receivable of
$1.7 million, growth in accounts payable of $1.0 million and growth in deferred
revenue of $1.1 million. For the six months ended June 30, 1997, capital
expenditures of $4.3 million were primarily for computer equipment and software,
fixed assets and leasehold improvements acquired in conjunction with the
Company's expansion.
The Company currently has a line of credit facility which allows for
borrowings of up to $5.0 million at the bank's prime rate. This facility
expires in November, 1997 and the Company presently anticipates that it will be
able to renew the line of credit. At June 30, 1997, the Company had no
outstanding borrowings under its line of credit. During the quarter ended June
30, 1997, the Company paid $600,000 to eliminate the two existing term notes
relating to equipment financing.
In addition, the Company may borrow up to an additional $1.5 million through
November 1997. Interest only is payable on such additional borrowings at the
bank's prime rate plus 0.25% through November 1997 after which any outstanding
balance is due in 24 equal installments. All obligations shall bear interest,
from and after the occurrence of an event of default, at a rate equal to 5%
points above the interest rate applicable immediately prior to the occurrence of
the event of default. Borrowings under the loan agreement are secured by
substantially all of the assets of the Company.
The Company currently has no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities and capital leases.
The Company believes that its existing cash balances, combined with available
bank financing and the cash flows generated from operations, if any, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. A portion of the Company's cash
could be used to acquire or invest in complementary businesses or products or
obtain the right to use complementary technologies. The Company is currently
evaluating, in the ordinary course of business, potential investments in such
businesses, products or technologies.
11.
<PAGE>
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results. Prior growth rates in the Company's revenue and operating results
should not be considered indicative of future growth, if any, or of future
operating results. Future operating results will depend upon many factors,
including the demand for the Company's products, the level of product and price
competition, the length of the Company's sales cycle, the size and timing of
individual license transactions, the delay or deferral of customer
implementations, the budget cycles of the Company's customers, the Company's
success in expanding its direct sales force and indirect distribution channels,
the timing of new product introductions and product enhancements by the Company
and its competitors, the mix of products and services sold, levels of
international sales, activities of and acquisitions by competitors, the timing
of new hires, changes in foreign currency exchange rates, the ability of the
Company to develop and market new products and control costs and general
domestic and international economic and political conditions. In addition, the
operating results of many software companies reflect seasonal trends, and the
Company's business, operating results and financial condition may be affected by
such trends in the future. A relatively small number of end user customers
account for a significant percentage of the Company's revenues. The Company
expects that sales of its products to a limited number of customers and industry
segments will continue to account for a high percentage of revenue for the
foreseeable future. The Company's sales generally reflect a relatively high
amount of revenues per order. The loss or delay of individual orders, therefore,
could have a significant impact on the revenues and quarterly results of the
Company. Moreover, the timing of license revenue is difficult to predict because
of the length of the Company's sales cycle, which is typically six to twelve
months from the initial contact. Because the Company's operating expenses are
based on anticipated revenue trends and because a high percentage of the
Company's expenses are relatively fixed, a delay in the recognition of revenue
from a limited number of license transactions could cause significant variations
in operating results from quarter to quarter and could result in losses. To the
extent such expenses precede increased revenues, the Company's operating results
would be materially adversely affected. As a result of these factors, operating
results for any quarter are subject to significant variation, and the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Furthermore, due to all of the foregoing factors, it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's common stock would likely be materially adversely affected.
Lengthy Sales and Implementation Cycles. The license of the Company's software
products is often an enterprise-wide decision by prospective customers and
generally requires the Company to engage in a lengthy sales cycle (typically
between six and twelve months) to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's products.
Additionally, the size of the transaction and the complexity of the arrangement
can also cause delays in the sales cycle. Additionally, the implementation by
customers of the Company's products involves a significant commitment of
resources by such customers over an extended period of time and is commonly
associated with substantial reengineering efforts. For these and other reasons,
the sales and customer implementation cycles are subject to a number of
significant delays over which the Company has little or no control. Delay in the
sale or customer implementation of a limited number of license transactions
could have a material adverse effect on the Company's business and operations
and cause the Company's operating results to vary significantly from quarter to
quarter. Therefore, the Company believes that its quarterly operating results
are likely to vary in the future.
Risk of Product Defects. Software products as complex as those offered by the
Company frequently contain errors or failures, especially when first introduced
or when new versions are released. Although the Company conducts extensive
product testing, the Company has in the past released products that contain
defects, and has discovered software errors in certain of its new products and
enhancements after their introduction. The Company could in the future lose or
delay recognition of revenues as a result of software errors or defects. The
Company's products are typically intended for use in applications that may be
critical to a customer's business. As a result, the Company expects that its
customers and potential customers have a greater sensitivity to product defects
than the general market for software products. Although the Company's business
has not been adversely affected by any such errors to date, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of revenue or delay in
market acceptance, diversion of development resources, damage to the Company's
reputation, or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Product Concentration. To date, substantially all of the Company's revenues
have been attributable to sales of licenses of the Documentum EDMS family of
12.
<PAGE>
products and related services. The Company currently expects the Documentum EDMS
family of products, and related services, to account for substantially all of
its future revenues. As a result, factors adversely affecting the pricing of or
demand for the Documentum EDMS products such as competition or technological
change could have a material adverse effect on the Company's business, operating
results and financial condition. The Company's future financial performance will
depend, in significant part, on the successful development, introduction and
customer acceptance of new and enhanced versions of the Documentum EDMS family
of products.
End User Customer and Industry Concentration. A relatively small number of end
user customers account for a significant percentage of the Company's revenues.
The Company expects that sales of its products to a limited number of customers
and industry segments will continue to account for a high percentage of revenue
for the foreseeable future. In addition, the future success of the Company will
depend on its ability to obtain orders from new customers and its ability to
successfully market its products in industries other than the pharmaceutical
industry. The loss of a major customer or any reduction or delay in orders by
such customers, or the failure of the Company to successfully market its
products outside existing targeted industry segments would have a material
adverse effect on the Company's business, operating results and financial
condition.
Reliance on Certain Relationships. The Company has established strategic
relationships with a number of organizations that it believes are important to
its worldwide sales, marketing, support and development activities. The
Company's relationships with indirect channel partners and other consultants
provide marketing and sales opportunities for the Company's direct sales force,
expand the distribution of its products and broaden its product offerings
through product bundling. The Company's relationships with its technology
partners provide its customers with integrated product solutions, updates and
enhancements to third party products used in conjunction with the Company's
products, and changes in customer requirements or emerging industry standards.
There can be no assurance that any systems integrator or distributor will
continue to market or to resale the Company's products or that the Company will
be successful in maintaining relationships that assist the Company in keeping
pace with the technological and marketing developments of major vendors, and in
certain instances, provide the Company with technical assistance for the
Company's product development efforts. The failure by the Company to maintain
these relationships, or to establish new relationships in the future, could have
a material adverse effect on the Company's business, operating results and
financial condition.
New Products and Rapid Technological Change. The document management software
market is characterized by rapid technological change, changes in customer
requirements, frequent new product introductions and enhancements and emerging
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards can render existing products obsolete
and unmarketable. Accordingly, the life cycles of the Company's products are
difficult to estimate. The Company's future success will depend in part upon its
ability to enhance current products and to develop and introduce new products
that respond to evolving customer requirements and keep pace with technological
developments and emerging industry standards. Moreover, the Company has in the
past experienced delays in the release dates of enhancements to its EDMS
products. If release dates of any future EDMS enhancements are delayed or, if
when released, fail to achieve market acceptance, the Company's business,
operating results and financial condition could be materially adversely
affected.
Dependence on Emerging Markets. The client/server application software market
is a relatively new market and is intensely competitive, highly fragmented and
subject to rapid change. The Company markets its products solely to customers
who have migrated their enterprise computing systems to client/server computing
environments. The Company's future financial performance will depend in large
part on continued growth in the number of organizations adopting client/server
computing environments. There can be no assurance that the client/server market
will maintain its current level of growth or continue to grow at all. If the
client/server market fails to grow or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially adversely affected.
In addition, the commercial market for products and services designed for use
with the Internet, corporate intranets and the World Wide Web has only recently
begun to develop, and the success of the Company's products may depend, in part,
on their continued compatibility with the Internet, corporate intranets and the
World Wide Web. It is difficult to predict with any assurance whether the
Internet will prove to be a viable commercial marketplace or whether the demand
for Internet-related products and services will increase or decrease in the
future. The increased commercial use of the Internet could require substantial
modification and customization of the Company's products and services and the
continued introduction of new products and services.
Intense Competition. The market for the Company's products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for open, client/server
software solutions, and the Company's competitors offer a variety of products
and services to address this market. The Company currently encounters direct
competition from a number of public and private companies such as FileNet, PC
DOCS, Novasoft, OpenText, Metaphase and Lotus Notes. Several of these
competitors have longer operating histories,
13.
<PAGE>
significantly greater name recognition, installed base of customers, financial,
technical, marketing and other resources than the Company.
It is also possible that new and emerging competitors such as Oracle,
Microsoft, or alliances among competitors may emerge and rapidly acquire
significant market share. The Company also expects that competition will
increase as a result of software industry consolidations. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which would have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially and adversely affect its business, operating results and financial
condition.
Management of Growth; Dependence Upon Key Personnel. The Company's ability to
compete effectively and to manage future anticipated growth, will require the
Company to expand, train and manage its employee work force. The Company's plans
include hiring a significant number of highly-qualified technical, sales and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to attract assimilate or retain
such key employees which could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success is heavily dependent upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. The Company presently has no patents or patent applications
pending. There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company is not aware that any of
its products infringe the proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments overlaps.
Any such claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. In addition, the Company also relies
on certain software that it licenses from third parties, including software that
is integrated with internally developed software and used in the Company's
products to perform key functions. There can be no assurances that such firms
will remain in business, that they will continue to support their products or
that their products will otherwise continue to be available to the Company on
commercially reasonable terms. The loss or inability to maintain any of these
software licenses could result in delays or reductions in product shipments
until equivalent software can be developed, identified, licensed and integrated,
which would adversely affect the Company's business, operating results and
financial condition.
International Operations. The Company's sales are primarily to large
multinational companies. To service the needs of such companies, both
domestically and internationally, the Company and its support partners must
provide worldwide product support services. As a result, the Company intends to
continue expanding its existing international operations and enter additional
international markets, which will require significant management attention and
financial resources and could adversely affect the Company's operating margins
and earnings, if any. The Company opened an office in London in April 1994, in
Frankfurt in December 1994, in Paris in November 1994 and in Munich in October
1996. In 1996, the Company established its own European technical support
operation, located in the London office. In order to successfully expand
international sales, the Company must establish additional foreign operations,
hire additional personnel and develop relationships with additional
international vendors. To the extent that the Company is unable to do so in a
timely manner, the Company's growth, if any, in international sales will be
limited, and the Company's business, operating results and financial condition
could be materially adversely affected.
Additional risks inherent in the Company's international business activities
generally include currency fluctuations, unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of and the Company's
limited experience in localizing products for foreign countries, lack of
acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences including restrictions on the repatriation
of earnings, and the burdens of complying with a wide variety of foreign laws.
To date, substantially all of the Company's international revenues have been
denominated in U.S. dollars. Although exposure to currency fluctuations to date
has been insignificant, there can
14.
<PAGE>
be no assurance that fluctuations in the currency exchange rates in the future
will not have a material adverse impact on revenues from direct international
sales and thus the Company's business, operating results or financial condition.
15.
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of stockholders was held on May 8, 1997 (the
"Annual Meeting").
(c) The following matters were voted upon at the Annual Meeting:
(i) The first matter related to the election of two director nominees,
Kathryn C. Gould and Edward J. Zander as directors of the Company to serve until
the 2000 annual meeting of stockholders. The votes cast and withheld for such
nominees were as follows:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Kathryn C. Gould 12,353,506 44,659
Edward J. Zander 12,353,806 44,359
</TABLE>
(ii) The second matter related to the approval of an amendment to the
Company's 1993 Equity Incentive Plan to increase the aggregate number of shares
of Common Stock authorized for issuance under such plan by 900,000 shares and to
add provisions with respect to Section 162(m) of the Internal Revenue Code of
1986, as amended. 8,210,550 votes were cast for approval, 2,822,636 votes were
cast against approval, and there were 9,646 abstentions and 1,355,333 broker
non-votes.
(iii) The third matter related to the approval of an amendment to the
Company's 1995 Non-Employee Directors' Stock Option Plan to increase the
aggregate number of shares of Common Stock authorized for issuance under such
plan by 100,000 shares. 10,362,101 votes were cast for approval, 694,477 votes
were cast against approval, and there were 10,701 abstentions and 1,330,886
broker non-votes.
(iv) The fourth matter related to the ratification of the appointment of
Price Waterhouse LLP as independent auditors of the Company for its fiscal year
ending December 31, 1997. 12,385,581 votes were cast for ratification, 6,964
votes were cast against ratification, and there were 5,620 abstentions.
Based on these voting results, each of the directors nominated was elected and
the second, third and fourth matters were approved.
16.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
(1)3.1 Registrant's Amended and Restated Certificate of Incorporation
(2)3.2 Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2
(2)4.2 Specimen stock certificate
(2)4.3 Amended and Restated Investor Rights Agreement, dated September 20,
1994, between the Registrant and certain investors.
(2)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(1)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated June 9, 1995, between the
Registrant and Sunol Center Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(2)10.10 Business Loan Agreement, dated December 23, 1993, between the
Registrant and Silicon Valley Bank.
(2)10.11 Promissory Note and Loan modification Agreement, dated October 21,
1994 between the Registrant and Silicon Valley Bank.
(2)10.12 Loan Modification Agreement, dated July 27, 1995, between the
Registrant and Silicon Valley Bank.
Y(2)10.13 International Distributor Agreement, dated December 8, 1993,
between the Registrant and Xerox Canada Ltd.
Y(2)10.14 Agreement for the Supply of Services, dated April 5, 1995, between
the Registrant and Rank Xerox Limited.
(2)10.15 Series C Stock Purchase Agreement, dated September 20, 1994,
between the Registrant and certain other parties named therein.
(2)10.16 Promissory Note and Loan Modification Agreement, dated November 10,
1995, between the Registrant and Silicon Valley Bank.
Y(3)10.17 Services Partner Agreement, dated April 1, 1996, between the
Registrant and Xerox Corporation.
(4)10.18 Registrant's 1996 Non-Officer Equity Incentive Plan.
(5)10.19 Letter of Agreement, dated December 9, 1996 between the Registrant
and Mark S. Garrett.
(5)10.20 Lease agreement between Registrant and Britannia Hacienda IV Limited
Partnership.
11.1 Statement Regarding computation of Earnings Per Share.
(2)22.1 List of Subsidiaries of Registrant.
27.1 Financial Data Schedule.
- --------
Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-
1, as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1997.
17.
<PAGE>
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOCUMENTUM, INC.
(Registrant)
Date: August 13, 1997 By: /s/ Mark S. Garrett
----------------------
Mark S. Garrett
Vice President, and Chief Financial Officer,
(Duly Authorized Officer and Principal Financial
Officer)
18.
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
(1)3.1 Registrant's Amended and Restated Certificate of Incorporation
(2)3.2 Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibits 3.1 and 3.2
(2)4.2 Specimen stock certificate
(2)4.3 Amended and Restated Investor Rights Agreement, dated September 20,
1994, between the Registrant and certain investors.
(2)10.1 Registrant's 1993 Equity Incentive Plan, as amended.
(2)10.2 Form of Incentive Stock Option under the Equity Incentive Plan.
(2)10.3 Form of Nonstatutory stock Option under the Equity Incentive Plan.
(2)10.4 Form of Early Exercise Stock Purchase Agreement.
(1)10.5 Registrant's Employee Stock Purchase Plan, as amended.
(2)10.6 Registrant's 1995 Non-Employee Directors' Stock Option Plan.
(2)10.7 Form of Indemnity Agreement between the Registrant and its officers
and directors.
(2)10.8 Industrial Real Estate Lease, dated June 9, 1995, between the
Registrant and Sunol Center Associates.
(2)10.9 Letter Agreement, dated July 27, 1993, between the Registrant and
Jeffrey A. Miller.
(2)10.10 Business Loan Agreement, dated December 23, 1993, between the
Registrant and Silicon Valley Bank.
(2)10.11 Promissory Note and Loan modification Agreement, dated October 21,
1994 between the Registrant and Silicon Valley Bank.
(2)10.12 Loan Modification Agreement, dated July 27, 1995, between the
Registrant and Silicon Valley Bank.
Y(2)10.13 International Distributor Agreement, dated December 8, 1993,
between the Registrant and Xerox Canada Ltd.
Y(2)10.14 Agreement for the Supply of Services, dated April 5, 1995, between
the Registrant and Rank Xerox Limited.
(2)10.15 Series C Stock Purchase Agreement, dated September 20, 1994,
between the Registrant and certain other parties named therein.
(2)10.16 Promissory Note and Loan Modification Agreement, dated November 10,
1995, between the Registrant and Silicon Valley Bank.
Y(3)10.17 Services Partner Agreement, dated April 1, 1996, between the
Registrant and Xerox Corporation.
(4)10.18 Registrant's 1996 Non-Officer Equity Incentive Plan.
(5)10.19 Letter of Agreement, dated December 9, 1996 between the Registrant
and Mark S. Garrett.
(5)10.20 Lease agreement between Registrant and Britannia Hacienda IV Limited
Partnership.
11.1 Statement Regarding computation of Earnings Per Share.
(2)22.1 List of Subsidiaries of Registrant.
27.1 Financial Data Schedule.
- --------
Y Confidential treatment requested and granted for portions of this exhibit.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-
1, as amended (No. 33-80047) and incorporated herein by reference.
(3) Filed as an exhibit to the Registrant's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-15239) and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
19.
<PAGE>
EXHIBIT 11.1
DOCUMENTUM, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 1,447 $ 867 $ 2,564 $ 1,399
======= ======= ======= =======
Primary shares outstanding:
Weighted average shares outstanding
during the period 14,200 13,947 14,187 13,519
Common stock equivalent shares 605 991 656 1,016
------- ------- ------- -------
14,805 14,938 14,843 14,535
======= ======= ======= =======
Primary net income per
common stock and common stock
equivalent share (1) $ 0.10 $ 0.06 $ 0.17 $ 0.10
======= ======= ======= =======
</TABLE>
(1) Fully diluted earnings per share is not required to be presented.
20.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Company's
Form 10-Q for the period ended June 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 9,033 0
<SECURITIES> 46,857 0
<RECEIVABLES> 12,846 0
<ALLOWANCES> 860 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 70,009 0
<PP&E> 14,159 0
<DEPRECIATION> 5,010 0
<TOTAL-ASSETS> 80,631 0
<CURRENT-LIABILITIES> 17,733 0
<BONDS> 0 0
0 0
0 0
<COMMON> 14 0
<OTHER-SE> 62,884 0
<TOTAL-LIABILITY-AND-EQUITY> 62,898 0
<SALES> 12,007 23,069
<TOTAL-REVENUES> 17,310 32,347
<CGS> 411 797
<TOTAL-COSTS> 3,322 6,198
<OTHER-EXPENSES> 12,373 23,260
<LOSS-PROVISION> 31 (146)
<INTEREST-EXPENSE> 11 33
<INCOME-PRETAX> 2,167 3,886
<INCOME-TAX> 720 1,322
<INCOME-CONTINUING> 1,447 2,564
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,447 2,564
<EPS-PRIMARY> 0.10 0.17
<EPS-DILUTED> 0.10 0.17
</TABLE>
