<PAGE>
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, 2000
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______to_________
Commission file number: 0-27358
DOCUMENTUM, INC.
(exact name of registrant as specified in its charter)
Delaware 95-4261421
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
6801 Koll Center Parkway, Pleasanton, 94566-3145
California (Address of principal (Zip Code)
executive offices)
(Registrant's telephone number, including area code): (925) 600-6800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Nasdaq National Market
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether the registrant 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
$0.001 per share, was 17,781,291 on June 30, 2000.
<PAGE>
FORM 10-Q
Index
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2000 and December
31, 1999........................................................................ Page 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 2000 and 1999.................................................... Page 4
Condensed Consolidated Statements of Cash Flow for the six months ended
June 30, 2000 and 1999.......................................................... Page 5
Notes to Condensed Consolidated Financial Statements............................ Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... Page 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... Page 20
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................. Page 20
Item 6. Exhibits and Reports on Form 8-K................................................ Page 20
Signature................................................................................. Page 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DOCUMENTUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,323 $ 18,286
Short-term investments 76,640 64,258
Accounts receivable, net 43,099 37,492
Other current assets 17,232 14,674
------------- -------------
Total current assets 154,294 134,710
Property and equipment, net 30,826 28,030
Other assets 7,513 6,262
------------- -------------
$ 192,633 $ 169,002
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,754 $ 5,645
Accrued liabilities 33,083 33,783
Deferred revenue 23,772 18,290
Current portion of capital lease obligation 185 232
------------- -------------
Total current liabilities 62,794 57,950
------------- -------------
Long-term capital lease obligation - 73
------------- -------------
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized;
none issued and outstanding - -
Common stock, $0.001 par value; 100,000 shares authorized;
17,781 and 16,840 shares issued and outstanding 18 17
Additional paid-in capital 155,982 138,546
Accumulated other comprehensive loss (494) (67)
Accumulated deficit (25,667) (27,517)
------------- -------------
Total stockholders' equity 129,839 110,979
------------- -------------
$ 192,633 $ 169,002
============= =============
</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,
-------------------------- ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
License $ 25,499 $ 15,852 $ 50,456 $ 27,086
Service 19,221 13,378 36,436 26,149
--------- --------- --------- ---------
Total revenue 44,720 29,230 86,892 53,235
--------- --------- --------- ---------
Cost of revenue:
License 1,518 1,529 3,425 2,547
Service 9,393 7,800 17,850 15,536
--------- --------- --------- ---------
Total cost of revenue 10,911 9,329 21,275 18,083
--------- --------- --------- ---------
Gross profit 33,809 19,901 65,617 35,152
--------- --------- --------- ---------
Operating expense:
Sales and marketing 19,020 14,201 37,547 27,266
Research and development 8,801 6,389 16,475 12,554
General and administrative 5,138 4,632 11,032 8,331
--------- --------- --------- ---------
Total operating expense 32,959 25,222 65,054 48,151
--------- --------- --------- ---------
Income (loss) from operations 850 (5,321) 563 (12,999)
Interest and other income, net 1,416 1,167 2,198 2,134
--------- --------- --------- ---------
Income (loss) before income tax provision (benefit) 2,266 (4,154) 2,761 (10,865)
Provision for (benefit from) income taxes 748 (1,412) 911 (3,694)
--------- --------- --------- ---------
Net income (loss) $ 1,518 $ (2,742) $ 1,850 $ (7,171)
========= ========= ========= =========
Basic earnings (loss) per share $ 0.09 $ (0.16) $ 0.11 $ (0.43)
========= ========= ========= =========
Diluted earnings (loss) per share $ 0.08 $ (0.16) $ 0.10 $ (0.43)
========= ========= ========= =========
Shares used to compute basic earnings (loss) per share 17,597 16,821 17,410 16,824
========= ========= ========= =========
Shares used to compute diluted earnings (loss) per share 19,391 16,821 19,425 16,824
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands; unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
2000 1999
-------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 1,850 $ (7,171)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 5,305 3,320
Provision for doubtful accounts 382 (432)
(Gain) loss on disposal of fixed assets 554 (143)
Changes in assets and liabilities:
Accounts receivable (5,989) 9,536
Other current assets and other assets (1,797) (1,142)
Accounts payable 109 4,944
Accrued liabilities (700) (4,587)
Deferred revenue 5,482 2,317
--------- --------
Net cash provided by operating activities 5,196 6,642
--------- --------
Cash flow from investing activities:
Purchases of short-term investments (73,045) (62,570)
Sales of short-term investments 60,663 73,526
Net purchases of property and equipment (8,655) (13,500)
Purchases of long-term investments (2,012) -
--------- --------
Net cash used in investing activities (23,049) (2,544)
--------- --------
Cash flow from financing activities:
Issuance of common stock 17,437 2,588
Repurchase of common stock - (5,562)
Repayments on capital lease obligations (120) (57)
--------- --------
Net cash provided by (used in) financing activities 17,317 (3,031)
--------- --------
Effect of exchange rate changes on cash (427) (295)
--------- --------
Net increase (decrease) in cash and cash equivalents (963) 772
Cash and cash equivalents at beginning of period 18,286 16,240
--------- --------
Cash and cash equivalents at end of period $ 17,323 $ 17,012
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of presentation
The unaudited condensed consolidated financial statements of Documentum included
herein reflect all adjustments, consisting only of normal recurring adjustments,
which in the opinion of management are necessary to present fairly the Company's
consolidated financial position, results of operations and cash flow for the
periods presented. These financial statements should be read in conjunction with
the Company's audited consolidated financial statements included in the
Company's 1999 Annual Report on Form 10-K. The consolidated results of
operations for the period ended June 30, 2000 are not necessarily indicative of
the results to be expected for any subsequent quarter or for the entire fiscal
year ending December 31, 2000.
New Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company will adopt SAB
101, as amended, as required in the fourth quarter of 2000. The Company does not
expect the adoption of SAB 101 to have a material impact on its results of
operations or financial position.
The Company will adopt SFAS No. 133, "Accounting of Derivative Instruments and
Hedging Activities," as amended by SFAS No. 138, when required, in the first
quarter of fiscal year 2001. The Company does not expect the adoption of SFAS
No. 133, as amended, to have a material impact on its results of operations or
financial position.
Comprehensive income (loss)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive earnings such as foreign currency translation gains or losses and
unrealized holding gains or losses on available-for-sale marketable securities.
The Company's unrealized holding gains and losses on available-for-sale
marketable securities have been insignificant for all periods presented.
Documentum's total comprehensive income (loss) was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- -----------------------------------
2000 1999 2000 1999
-------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,518 $ (2,742) $ 1,850 $ (7,171)
Other comprehensive income (loss):
Foreign currency translation adjustment (308) (151) (427) (295)
-------------------- ---------------- ---------------- ----------------
Comprehensive income (loss) $ 1,210 $ (2,893) $ 1,423 $ (7,466)
==================== ================ ================ ================
</TABLE>
Earnings (loss) per share
Basic net earnings (loss) per share is computed using the weighted average
number of shares of common stock. Diluted net earnings (loss) per share is
computed using the weighted average number of shares of common stock and common
equivalent shares outstanding during the period. Common equivalent shares
consist of stock options (using the treasury stock method). Common equivalent
shares are excluded from the computation if their effect is antidilutive.
6
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a reconciliation of the computation for basic and diluted
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,518 $ (2,742) $ 1,850 $ (7,171)
=============== ================ =============== ===============
Shares calculation:
Weighted average shares outstanding 17,597 16,821 17,410 16,824
Stock options 1,794 - 2,015 -
Total shares used to compute
--------------- ---------------- --------------- ---------------
diluted earnings per share 19,391 16,821 19,425 16,824
=============== ================ =============== ===============
Earnings (loss) per basic share $ 0.09 $ (0.16) $ 0.11 $ (0.43)
=============== ================ =============== ===============
Earnings (loss) per diluted share $ 0.08 $ (0.16) $ 0.10 $ (0.43)
=============== ================ =============== ===============
</TABLE>
Options to purchase 205,718 and 3,487,866, shares of common stock were
outstanding during the three months ended June 30, 2000 and 1999, respectively,
and 116,776, and 3,579,512 shares of common stock were outstanding during the
six months ended June 30, 2000 and 1999, respectively, but were not included in
the computation of diluted earnings (loss) per share because either the option's
exercise price was greater than the average market price of the common shares
during the period or inclusion of such options would have been anti-dilutive.
Related Party Transactions
The Company has distribution agreements with Xerox and its affiliated entities,
which provide Xerox, or its affiliates with the non-exclusive rights to sell the
Company's products in specified territories. Prior to September 1999, Xerox
owned approximately 10% of the Company's outstanding common shares; however, on
September 29, 1999 Xerox sold a majority of its holdings and on October 6, 1999
Xerox completely divested all of their remaining holdings in the Company. For
the three and six months ended June 30, 1999, the Company recognized license
revenue from Xerox and its affiliated entities in the amount of $472,000 and
$737,000, respectively.
Segment Reporting
The Company's management considers its business activities to be focused on the
license of its products and related services to customers. Since management's
primary form of internal reporting is aligned with the offering of products and
services, the Company believes it operates in one segment. The Company markets
its products in the United States and in other foreign countries through its
direct sales force, worldwide systems integrators and distributors.
7
<PAGE>
DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Percentage of revenue by country or region was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
--------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
United States 72% 69% 70% 69%
Europe 26% 25% 28% 26%
Asia 1% 4% 1% 4%
Other countries 1% 2% 1% 1%
</TABLE>
There were no customers that comprised 10% or more of the Company's revenue for
the three and six months ended June 30, 2000 and 1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
The following discussion 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 caption "Risk Factors". 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.
9
<PAGE>
Results of Operations
The following table sets forth certain items from the Company's condensed
consolidated statements of operations as a percentage of total revenue for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ---------------------
2000 1999 2000 1999
-------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Revenue:
License 57% 54% 58% 51%
Service 43% 46% 42% 49%
------------ ------------ ------- --------
Total revenue 100% 100% 100% 100%
------------ ------------ ------- --------
Cost of revenue:
License 3% 5% 4% 5%
Service 21% 27% 21% 29%
------------ ------------ ------- --------
Total cost of revenue 24% 32% 24% 34%
------------ ------------ ------- --------
Gross profit 76% 68% 76% 66%
------------ ------------ ------- --------
Operating expense:
Sales and marketing 43% 49% 43% 51%
Research and development 20% 22% 19% 24%
General and administrative 11% 16% 13% 16%
------------ ------------ ------- --------
Total operating expense 74% 86% 75% 90%
------------ ------------ ------- --------
Income (loss) from operations 2% (18%) 1% (24%)
Interest and other income, net 3% 4% 3% 4%
------------ ------------ ------- --------
Income (loss) before income tax provision (benefit) 5% (14%) 3% (20%)
Provision for (benefit from) income taxes 2% (5%) 1% (7%)
------------ ----------- ------- -------
Net income (loss) 3% (9%) 2% (13%)
============ =========== ======= =======
<CAPTION>
As a Percentage of Related Revenue:
Cost of license revenue 6% 10% 7% 9%
Cost of service revenue 49% 58% 49% 59%
</TABLE>
Revenues
The Company's revenues are derived from the sale of licenses for its internet-
scale content management solutions and related services, which include
maintenance and support, consulting and training services. Revenues from license
arrangements are recognized upon contract execution, provided all shipment
obligations have been met, fees are fixed and determinable, and collection is
probable. If an ongoing vendor obligation exists under the license arrangement,
revenue is deferred based on vendor-specific objective evidence of the
undelivered element. If vendor-specific objective evidence does not exist for
all undelivered elements, all revenue is deferred until sufficient
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<PAGE>
evidence exists or all elements have been delivered. Allowances for estimated
future returns are provided upon shipment. Payments received in advance of
revenue recognition are recorded as deferred revenue. Revenues from annual
maintenance and support are deferred and recognized ratably over the term of the
contract. Revenues from consulting and training are deferred and recognized when
the services are performed and collectibility is deemed probable. Beginning
January 1, 1998, the Company has recognized revenue in accordance with Statement
of Position (SOP) 97-2, "Software Revenue Recognition," as amended.
License revenues increased by 61% or $9.6 million to $25.5 million for the three
months ended June 30, 2000 from $15.9 million for the three months ended June
30, 1999 and increased by 86% or $23.4 million to $50.5 million for the six
months ended June 30, 2000 from $27.1 million for the six months ended June 30,
1999. The increase in license revenue for the three and six months ended June
30, 2000 over the same period in 1999 in absolute dollars and as a percentage of
total revenues was due to an increase in the number of new licenses sold, as
well as an increase in the number of customers who purchased additional product
licenses. In addition, the Company experienced increases in revenue due to
customer acceptance of Documentum 4i, which was released in the second half of
1999 and expanded the Company's product offerings into web content management.
In 1999, license revenues were adversely impacted by a general industry slowdown
in customer license sales for enterprise software applications. For the three
and six months ended June 30, 1999, the Company experienced a weakness in
customer demand and difficulty in closing large license contracts with
customers. For the three months ended June 30, 1999 the Company had sales to a
single customer accounting for $1.6 million, or 10% of total license revenues.
The Company did not have any sales to a single customer that accounted for
greater than 10% of license revenue for the three and six months ended June 30,
2000 and for the six months ended June 30, 1999. For the three and six months
ended June 30 1999, license revenue from Xerox and certain Xerox affiliates, as
systems integrators, accounted for 3% of total license revenues. 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 revenues increased by 44% to $19.2 million for the three months ended
June 30, 2000 from $13.4 million for the three months ended June 30, 1999,
representing 43% and 46% of total revenues in the respective periods and
increased by 39% to $36.4 million for the six months ended June 30, 2000 from
$26.1 million for the six months ended June 30, 1999, representing 42% and 49%
of total revenues in the respective periods. The increase in absolute dollars
was attributable to a larger installed base of customers receiving ongoing
maintenance, training and support services and increases in the Company's
professional services staff in conjunction with the Company's focus to expand
solution offerings to customers. The decrease in service revenues as a percent
of total revenues was primarily due to the increase in total license revenues in
the first half of 2000 over the same period in 1999, causing services revenues
to be lower as a percentage of total revenues.
The Company markets its products through its direct sales force and its indirect
channel partners. While historically the Company has generated the majority of
its revenues from its direct sales force, the Company has also focused on
complementing its direct sales channel with indirect channels, consisting of
systems integrators and distributors. Revenues from all indirect channel
partners comprised 52% and 29% of license revenues for the three months ended
June 30, 2000 and 1999, respectively, and 45% and 32% of license revenue for the
six months ended June 30, 2000 and 1999, respectively. Revenues from indirect
partners for any period are subject to significant variations. As a result, the
Company believes that period to period comparisons of indirect revenue are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
International revenues represented 37% and 45% of license revenues for the three
months ended June 30, 2000 and 1999, respectively, and 41% and 45% of license
revenues for the six months ended June 30, 2000 and 1999, respectively. The
decrease in international revenues as a percent of license revenues in 2000 was
primarily due to a rise in total license revenue in the first half of 2000 as
compared to the same period in 1999. The general industry slowdown in the first
half of fiscal year 1999 negatively impacted domestic revenue to a greater
extent than international revenue. The Company classifies license revenues 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 the products are used. As a result, the
11
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Company believes that period to period comparisons of international revenue are
not necessarily meaningful and should not be relied upon as an indication of
future performance.
Cost of revenues
Cost of license revenues consists primarily of the royalties paid to third-party
vendors, packaging, documentation, production, and freight costs. Royalties,
which are paid to third-parties for selected products, include both fixed and
variable fees. Cost of license revenues was $1.5 million for the three months
ended June 30, 2000 and June 30, 1999, and increased by 35% to $3.4 million for
the six months ended June 30, 2000 from $2.5 million for the six months ended
June 30, 1999 representing 6% and 10% of the related license revenues for the
three months ended June 30, 2000 and 1999, respectively, and 7% and 9% of the
related license revenues for the six months ended June 30, 2000 and 1999,
respectively. The increase in cost of license revenues for the six months ended
June 30, 2000, in absolute dollars was related to higher license sales for the
six months ended June 30, 2000 over the comparable period, as well as a
continued shift in the mix of products being sold. The Company currently carries
and integrates into its products more third party products and is selling a
greater number of those products than it had in the same period in the prior
year. Thus, royalty expenses associated with the increase in sales of third
party products have increased over the comparable period in 1999. Cost of
revenues decreased as a percentage of license revenues for the three and six
months ended June 30, 2000 over the comparable periods in 1999 due to the
increase in license revenues in the first half of fiscal year 2000 over the same
periods in 1999, as described above. In addition, in the first half of 2000,
even though the Company sold more royalty bearing products than those sold in
the same period in 1999, the sales of these products did not grow
proportionately to license revenue thus cost of license revenue declined as a
percentage of license revenue. The Company expects the cost of license revenues
to fluctuate in absolute dollar amount and as a percentage of total license
revenues as the related license revenues fluctuate.
Cost of services revenue consists primarily of personnel-related costs incurred
in providing consulting services, training to customers and maintenance
services, which includes telephone support. Cost of services revenue increased
by 20% to $9.4 million for the three months ended June 30, 2000 from $7.8
million for the three months ended June 30, 1999 and increased by 15% to $17.9
million for the six months ended June 30, 2000 from $15.5 million for the six
months ended June 30, 1999, representing, 49% and 58% of the related services
revenue for the three months ended June 30, 2000 and 1999, respectively, and 49%
and 59% of the related services revenue for the six months ended June 30, 2000
and 1999, respectively. The increase in cost of services revenue in absolute
dollar amount was a result of increased personnel-related costs as the Company
expanded its consulting, training and maintenance operations to support its
larger installed customer base, as well as an increase in solutions offered to
customers. The decrease in cost of services revenue as a percentage of services
revenue for the three and six months ended June 30, 2000 over the same periods
in 1999 was primarily due to economies of scale realized as certain expenses
such as technical support grew proportionately less than maintenance revenue, as
well as the continued improvement in consulting margins in fiscal year 2000 over
1999. The Company expects the cost of services revenue to increase in absolute
dollar amount as the related service revenues increase.
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 34% to $19.0 million for the
three months ended June 30, 2000 from $14.2 million for the three months ended
June 30, 1999, and increased 38% to $37.5 million for the six months ended June
30, 2000 from $27.3 million for the six months ended June 30, 1999 representing
43% and 49% of total revenues for the three months ended June 30, 2000 and 1999,
respectively, and 43% and 51% of total revenue for the six months ended June 30,
2000 and 1999, respectively. The increase in absolute dollar amount in 2000 over
the comparable period in 1999 was the result of the Company's strategy to
continue to invest in its sales and marketing infrastructure, including an
increase in the number of sales teams and marketing programs in order to create
awareness and a position in the content management market. The decrease in sales
and marketing expenses as a percentage of total revenues for the three and six
months ended June 30, 2000 over the comparable periods in 1999 was primarily due
to (1) the increase in license revenues for the three and six months ended June
30, 2000, as described above, and (2) economies of scale realized in the first
half of fiscal year 2000 as certain expenses, such as
12
<PAGE>
management compensation, grew proportionately less than revenues. The Company
expects that sales and marketing expense will continue to increase in absolute
dollar amount.
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 38%
to $8.8 million for the three months ended June 30, 2000 from $6.4 million for
the three months ended June 30, 1999, and increased by 31% to $16.5 million for
the six months ended June 30, 2000 from $12.6 million for the six months ended
June 30, 1999, representing 20% and 22% of total revenues for the three months
ended June 30, 2000 and 1999, respectively, and 19% and 24% of total revenues
for the six months ended June 30, 2000 and 1999, respectively. The increase in
absolute dollar amount reflects the expansion of the Company's engineering staff
and related costs required to support the development of new web content
products, including Documentum 4i eBusiness Edition, which was introduced in the
first and second quarter of 2000, localization of Documentum 4i eBusiness
Edition, which began in the second quarter of 2000, and enhancements to existing
products. The decrease as a percentage of total revenue for the three and six
months ended June 30, 2000 over the comparable periods in 1999 was due to the
increase in license revenues for the three and six months ended June 30, 2000,
as described above. Based on the Company's research and development process,
costs incurred between the establishment of technological feasibility and
general release have been insignificant and therefore have been expensed as
incurred. The Company expects research and development costs will continue to
increase in absolute dollar amount in order to support increased development
efforts to both existing and new products.
General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, information technology, legal, human
resources and general management, as well as outside professional services.
General and administrative expenses increased by 11% to $5.1 million for the
three months ended June 30, 2000 from $4.6 million for the three months ended
June 30, 1999, and increased by 32% to $11.0 million for the six months ended
June 30, 2000 from $8.3 million for the six months ended June 30, 1999,
representing 11% and 16% of total revenues for the three months ended June 30,
2000 and 1999, respectively, and 13% and 16% of total revenues for the six
months ended June 30, 2000 and 1999, respectively. The increase in absolute
dollar amount for the three and six months ended June 30, 2000 over the
comparable periods in 1999 was primarily due to increased staffing and
professional fees necessary to manage and support the Company's planned growth,
as well as consulting costs associated with changes to the Company's information
systems. The decrease as a percentage of total revenue is due to the increase in
license revenues in the first half of fiscal year 2000, as described above. The
Company expects general and administrative expenses to increase in absolute
dollar amount 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, cash equivalents and short term investments, and other items
including foreign exchange gains and losses, the gain on sale of fixed assets,
and interest expense. Interest and other income, net, increased $0.2 million for
the three months ended June 30, 2000 to $1.4 million from $1.2 million for the
three months ended June 30, 1999 and increased by $0.1 million for the six
months ended June 30, 2000 to $2.2 million from $2.1 million for the six months
ended June 30, 1999. The increase for the three and six months ended June 30,
2000 over the same periods in 1999 was primarily due to interest income earned
on higher cash and investment balances in the first half of fiscal year 2000. To
date, the Company's international sales have been generally denominated in U.S.
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-U.S. dollar denominated contracts. Unexpected changes in the
exchange rates for these foreign currencies could result in significant
fluctuation in the foreign currency translation gains and losses in future
periods.
Income taxes
Income tax provision (benefit) for the interim periods is based on estimated
annual income tax rates. The Company's effective tax rate for the three and six
months ended June 30, 2000 was 33% and was 34% for the three and six months
ended June 30, 1999. The decrease in the Company's effective tax rate is a
result of increased benefit from the Federal Research and Development Credit due
to the recent extension of the credit to June 30, 2004.
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Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments totaled $94.0
million at June 30, 2000 representing 49% of total assets. The Company has
invested its cash in excess of current operating requirements in investment
grade securities. The investments have variable and fixed interest rates and
primarily short-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 $5.2 million and $6.6 million for
the six months ended June 30, 2000 and 1999, respectively. For the six months
ended June 30, 2000, cash generated by operations was primarily attributable to
net income of $1.9 million, adjusted for depreciation and amortization of $5.3
million, loss on the disposal of fixed assets of $0.6 million and provision for
doubtful accounts of $0.4 million, an increase in deferred revenue and accounts
payable of $5.5 million and $0.1 million, respectively, offset by a decrease in
accrued liabilities of $0.7 million and an increase in accounts receivable and
other assets of $6.0 million and $1.8 million, respectively. For the six months
ended June 30, 1999, cash generated by operating activities was primarily
attributable to a net loss of $7.2 million, adjusted for depreciation and
amortization of $3.3 million, provision for doubtful accounts of $0.4 million,
gain on sales of fixed assets of $0.1 million, increases in accounts payable and
deferred revenue of $4.9 million and $2.3 million, respectively, decreases in
accounts receivable of $9.5 million, offset by a decrease in accrued liabilities
of $4.6 million and an increase in other assets of $1.1 million.
For the six months ended June 30, 2000 and 1999, capital expenditures were $8.7
million and $13.5 million, respectively. Capital expenditures for the six months
ended June 30, 2000 and 1999, were primarily for computer equipment, office
furniture and leasehold improvements related to the new office facility
described below, as well as expenditures for computer software applications
related to changes and improvements made in the Company's information systems.
In April 2000, the Company purchased 400,000 shares of Series B Preferred Stock
in an Application Service Provider for $2.0 million.
As of June 30, 2000, the Company received $16.0 million and $1.4 million in
proceeds from employee stock option exercises and employee stock purchase plan
purchases, respectively.
In June 1998, the Company signed and made a deposit of $2.5 million to lease
approximately 122,000 square feet and 63,000 square feet in Pleasanton,
California beginning in June 1999 and November 1999, respectively, and expiring
in May 2005 and March 2006, respectively. In January 2000, the Company signed an
amendment to the existing leases, which provides for the rental of an additional
37,138 square feet of space, beginning July 2000 and expiring in March 2006. The
Pleasanton, California space serves as the Company's headquarters and contains
the principal administrative, engineering, marketing and sales facilities. The
Company has made and will continue to make significant capital purchases related
to leasehold improvements and office furniture for new facilities. The Company
currently has no other significant capital spending or purchase commitments
other than normal purchase commitments and commitments under facilities and
capital leases.
In August 1999, the Company entered into an unsecured revolving line of credit
agreement with a bank (the "Facility"). The Facility allows for borrowings of up
to $20 million bearing interest at the Company's option of either: (1) the
bank's prime rate or (2) the LIBOR rate plus 1.50%. This line of credit expires
on July 30, 2001. The Company must comply with certain financial covenants and
conditions as described in the Facility. The Company did not have any borrowings
outstanding under this line of credit as of June 30, 2000.
In 1999, the Company entered into two capital lease agreements under a sale-
leaseback arrangement for the rental of computer equipment in the amount of
$292,000 and $171,000. The lease agreements require quarterly principal and
interest payments in the amount of $37,000 and $22,000, respectively. The leases
have interest rates of 1.66% and 2.605% and maturity dates of July 2001 and
September 2001, respectively.
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The Company believes that its existing cash, cash equivalents and short-term
investment balances, its 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 twelve
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 periodically evaluates, in the ordinary course of
business, potential investments such as businesses, products or technologies.
See "Risk Factors - Risks Associated with Acquisitions".
Risk Factors
Uncertainty of Future Operating Results. Our future operating results may vary
significantly and are difficult to predict due to a number of factors, of which
many are beyond our control. These factors include:
. demand for our products;
. the level of product and price competition;
. the length of our sales cycle;
. the size and timing of individual license transactions;
. the delay or deferral of customer implementations;
. our success in expanding our customer support organization, direct sales
force and indirect distribution channels;
. the timing of new product introductions and product enhancements;
. changes in our pricing policy;
. the publication of opinions concerning us, our products or technology by
industry analysts;
. 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;
. our ability to develop and market new products and control costs; and
. domestic and international economic and political conditions.
One or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly. For example, during the first nine
months of fiscal year 1999, the Company's revenue was significantly lower than
expected. As a result of the relatively fixed nature of the Company's expenses,
the Company experienced a net loss for that period. Based on the preceding
factors, we may experience a shortfall in revenue or earnings or otherwise fail
to meet public market expectations, which could materially harm our business,
financial condition and the market price of our common stock.
Fluctuations in Quarterly Operating Results. Our net revenue and operating
results may vary drastically from quarter to quarter because of numerous factors
largely beyond our control, including the following:
. the potential delay in recognizing revenue from license transactions;
. the discretionary nature of our customers' budget and purchase cycles;
. variations in our customers' fiscal or quarterly cycles;
. the size and complexity of our license transactions;
. the timing of new product releases;
. seasonal variations in operating results; and
. the tendency to realize a substantial amount of revenue in the last weeks,
or even days, of each quarter.
Each customer makes a discretionary decision to implement our products that is
subject to its resources and budget cycles. Additionally, our license sales
generally reflect a relatively high amount of revenue per order, and as a
result, the loss or delay of individual orders, could have a significant impact
on quarterly operating results and revenue. During the first half of 1999 we had
a number of customers delay orders, resulting in revenue below our
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expectations. Furthermore, the timing of license revenue is difficult to predict
because of the length of our sales cycle, which typically ranges from six to
twelve months from initial contact. Also, our strategy of providing customers
with complete content management solutions typically results in software
licenses being bundled with services. In these cases, the delivery of services
may delay recognition of license revenue. Because our operating expenses are
based on anticipated revenue trends and because a high percentage of these
expenses is relatively fixed, any shortfall from anticipated revenue or a delay
in the recognition of revenue from license transactions could cause significant
variations in operating results from quarter to quarter and could result in
operating losses. If these expenses precede, or are not followed by, increased
revenue, our operating results could be materially harmed.
As a result of the foregoing and other factors, operating results for any
quarter are subject to significant variation, and we believe that period-to-
period comparisons of our results of operations are not necessarily meaningful
in terms of their relation to future performance. You should not rely upon these
comparisons as indications of future performance. Furthermore, it is likely that
our future quarterly operating results from time to time will not meet the
expectations of public market analysts or investors, in which case there would
likely be a drop in the price of our common stock.
Lengthy Sales and Implementation Cycles. In general, the timing of the sales and
implementation of our products is lengthy and not predictable with any degree of
certainty. You should not rely on prior sales and implementation cycles as an
indication of future cycles.
The licensing of our software products is often an enterprise-wide decision by
prospective customers and generally requires us to engage in a lengthy sales
cycle (generally between six and twelve months) to provide a significant level
of education to prospective customers regarding the use and benefits of our
products. We are starting to see shorter sales cycles (two to three months) as
customers purchase our software to help bring their businesses on-line.
Additionally, the size and complexity of any particular transaction can also
cause delays in the sales cycle. The implementation of our products can involve
a significant commitment of resources by customers over an extended period of
time and is commonly associated with substantial reengineering efforts by the
customer. For these and other reasons, the sales and customer implementation
cycles are subject to a number of significant delays over which we have little
or no control. A delay in the sale or customer implementation of even a limited
number of license transactions could harm our business, financial condition and
operations and cause our operating results to vary significantly from quarter to
quarter.
Product Concentration. To date, substantially all of our revenue has been
attributable to sales of licenses of the Documentum EDMS and Documentum 4i
family of products and related services. We expect that Documentum 4i and
related products and services will account for a substantial majority of our
future revenue. As a result, factors adversely affecting the pricing of or
demand for such products, such as competition or technological change, harm our
business, financial condition and results of operations.
New Versions, New Products and Rapid Technological Change. The content
management software and services market in which we compete is characterized by
(1) rapid technological change, (2) frequent introduction of new products and
enhancements, (3) changing customer needs, and (4) evolving 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 our products are difficult to estimate. To keep
pace with technological developments, evolving industry standards and changing
customer needs, we must support existing products and develop new products. Our
future success also depends in part on our abilities to execute on our strategy
of developing web content management and business-to-business solutions and to
maintain and enhance relations with technology partners, including RDBMS
vendors, in order to provide our customers with integrated product solutions.
We may not be successful in maintaining and enhancing the aforementioned
relationships or in developing, marketing and releasing new products or new
versions of our products that respond to technological developments, evolving
industry standards or changing customer requirements. We may also experience
difficulties that could delay or prevent the successful development,
introduction and sale of these enhancements. In addition, these enhancements may
not adequately meet the requirements of the marketplace and may not achieve any
significant degree of market acceptance. If we fail to successfully maintain or
enhance relationships with our technology
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partners or to execute on our integrated product solution strategy, or if
release dates of any future products or enhancements are delayed, or if these
products or enhancements fail to achieve market acceptance when released, our
business, operating results and financial condition could be harmed. We have in
the past experienced delays in the release dates of enhancements to our
products. While the delays we have experienced to date have been minor (not
exceeding six months), there can be no assurance that we will not experience
significant future delays in product introduction.
Dependence on Emerging Markets. The market for content management software and
services is intensely competitive, highly fragmented and rapidly changing. Our
future financial performance will depend primarily on the continued growth of
the market for content management software and services and the adoption of our
products by organizations in this market. If the content management software and
services market fails to grow or grows more slowly than we currently anticipate,
our business, financial condition and operating results would be harmed.
Intense Competition. Our products target the emerging market for Web-based and
client/server software solutions. This market is intensely competitive, rapidly
changing and significantly affected by new product introductions and other
market activities of industry participants. We encounter direct competition from
a number of public and private companies that offer a variety of products and
services addressing this market. These companies include FileNet, OpenText,
Interwoven and Vignette. Additionally, several other enterprise software
vendors, such as Microsoft, Oracle and Lotus (a division of IBM) are potential
competitors in the future. Many of these current and potential competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources, significantly greater name recognition and a
larger installed base of customers than we do. In addition, several of these
companies, including Microsoft, Oracle, Lotus and others, have well-established
relationships with our current and potential customers and strategic partners,
as well as extensive resources and knowledge of the enterprise software industry
that may enable them to more easily offer a single-vendor solution. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than we can.
We also face indirect competition from systems integrators. We rely on a number
of systems consulting and systems integration firms for implementation and other
customer support services, as well as for recommendations of our products during
the evaluation stage of the purchase process. Although we seek to maintain close
relationships with these service providers, many of them have similar, and often
more established, relationships with our competitors. If we are unable to
develop and maintain effective, long-term relationships with these third
parties, our competitive position would be materially and adversely affected.
Further, many of these third parties possess industry-specific expertise and
have significantly greater resources than we do, and may market software
products that compete with us in the future.
There are many factors that may increase competition in the market for Web-based
and client/server software solutions, including (1) entry of new competitors,
(2) alliances among existing competitors and (3) consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could harm our business,
financial condition and operating results. If we cannot compete successfully
against current and future competitors or overcome competitive pressures, our
business, operating results and financial condition may be harmed.
End-User Customer and Industry Concentration. Our success depends on maintaining
relationships with our existing customers. A relatively small number of
customers have accounted for a significant percentage of our revenue. For the
three months ended June 30, 2000 and 1999, sales to our five largest customers
accounted for 29% and 15% of license revenue, respectively and for the six
months ended June 30, 2000 and 1999, sales to our five largest customers
accounted for 21% and 11% of license revenue, respectively. Additionally, our
customers are somewhat concentrated in the process and discrete manufacturing,
pharmaceutical and architectural engineering and construction industries. We
expect that sales of our products to a limited number of customers and industry
segments will continue to account for a significant percentage of revenue for
the foreseeable future. The loss of a small number of customers or any reduction
or delay in orders by any such customer, or our failure to market successfully
our products to new customers and new industry segments could harm our business,
financial condition and operating results.
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Reliance on Certain Relationships. We have established strategic relationships
with a number of organizations that we believe are important to our sales,
marketing and support activities and the implementation of our products. We
believe that our relationships with these organizations, including indirect
channel partners and other consultants, provide marketing and sales
opportunities for our direct sales force, expand the distribution of our
products and broaden our product offerings through product bundling. These
relationships allow us to keep pace with the technological and marketing
developments of major software vendors and provide us with technical assistance
for our product development efforts. Our failure to maintain these
relationships, or to establish new relationships in the future, could harm our
business, financial condition and results of operations.
Dependence on Key Personnel. Our future performance depends in significant part
on the continued service of our key technical, sales and senior management
personnel, none of whom is bound by an employment agreement with us. The loss of
services of one or more of our executive officers or key technical personnel
could harm our business, operating results and financial condition.
Our future success also depends on our continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that we can retain key
employees or that we can attract, assimilate or retain other highly qualified
personnel in the future.
International Operations. Our revenue is primarily derived from large multi-
national companies. To service the needs of these companies, we must provide
worldwide product support services. The Company has offices in London, Paris,
Munich, Tokyo, Melbourne and Seoul. The Company operates its international
technical support operations in the London, Munich and Melbourne offices. We
have expanded, and intend to continue expanding, our international operations
and enter additional international markets. This will require significant
management attention and financial resources that could adversely affect our
operating margins and earnings. We may not be able to maintain or increase
international market demand for our products. If we do not, our international
sales will be limited, and our business, operating results and financial
condition could be harmed.
Our international operations are subject to a variety of risks, including (1)
foreign currency fluctuations, (2) economic or political instability, (3)
shipping delays, (4) various trade restrictions, (5) our limited experience in,
and the costs of, localizing products for foreign countries, (6) longer accounts
receivable payment cycles and (7) difficulties in managing international
operations, including, among other things, the burden of complying with a wide
variety of foreign laws.
Dependence on Proprietary Technology and Risks of Infringement. We rely
primarily on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect our proprietary
rights. We also believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position. We seek to
protect our software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult,
and while we are unable to determine the extent to which piracy of our products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect our proprietary rights as
fully as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate.
Additionally, our competition may independently develop similar technology.
Although we do not believe that we are infringing any proprietary rights of
others, third parties may claim that we have infringed their intellectual
property rights. Furthermore, former employers of our former, current or future
employees may assert claims that such employees have improperly disclosed to us
the confidential or proprietary information of such former employers. Any such
claims, with or without merit, could (1) be time-consuming to defend, (2) result
in costly litigation, (3) divert management's attention and resources, (4) cause
product shipment delays, and (5) require us to pay money damages or enter into
royalty or licensing agreements. A successful claim of
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intellectual property infringement against us and our failure or inability to
license or create a workaround for such infringed or similar technology may harm
our business, operating results and financial condition.
We license certain software from third parties, including software that is
integrated with internally developed software and used in our products to
perform key functions. These third-party software licenses may not continue to
be available to us on acceptable terms. The loss of, or inability to maintain,
any of these software licenses could result in shipment delays or reductions.
This could harm our business, operating results and financial condition.
Product Liability. Our license agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in our license agreements may not be effective under the laws of certain
jurisdictions. A successful product liability claim brought against us could
harm our business, financial condition and results of operations.
Risk of Product Defects. Software products frequently contain errors or
failures, especially when first introduced or when new versions are released.
Also, new products or enhancements may contain undetected errors, or "bugs," or
performance problems that, despite testing, are discovered only after a product
has been installed and used by customers. Errors or performance problems could
cause delays in product introduction and shipments or require design
modifications, either of which could lead to a loss in or delay in recognition
of revenue.
Our products are typically intended for use in applications that may be critical
to a customer's business. As a result, we expect that our customers and
potential customers will have a greater sensitivity to product defects than the
market for software products generally. Despite extensive testing by us and by
current and potential customers, errors may be found in new products or releases
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, damage to our reputation, diversion of development
resources, the payment of monetary damages or increased service or warranty
costs, any of which could harm our business, operating results and financial
condition.
Risks Associated with Acquisitions. As part of our business strategy, we
frequently evaluate strategic opportunities available to us and expect to make
acquisitions of, or significant investments in, businesses that offer
complementary products and technologies. Such acquisitions or investments would
expose us to the risks commonly encountered in acquisitions of businesses.
Future acquisitions of complementary technologies, products or businesses will
result in the diversion of management's attention from the day-to-day operations
of our business and the potential disruption of our ongoing business.
Additionally, such acquisitions may include numerous other risks, including
difficulties in the integration of the operations, products and personnel of the
acquired companies. Future acquisitions may also result in dilutive issuances of
equity securities, the incurrence of debt and amortization expenses related to
goodwill and other intangible assets. Our failure to successfully manage future
acquisitions may harm our business and financial results.
Possible Volatility of Stock Price. The trading price of our common stock is
subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant orders, changes in earning
estimates by analysts, announcements of technological innovations or new
products by us or our competitors, general conditions in the software and
computer industries and other events or factors. In addition, the stock market
in general has experienced extreme price and volume fluctuations which have
affected the market price for many companies in industries similar or related to
ours and which have been unrelated to the operating performance of these
companies. These market fluctuations may decrease the market price of our common
stock.
Effects of Certain Charter Document Provisions that may Prevent Certain
Corporate Actions. Our Board of Directors is authorized to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further approval by our stockholders. The preferred stock could be issued
with voting, liquidation, dividend and other rights superior to those of the
common stock. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire a majority of our outstanding voting stock. We have instituted a
classified Board of Directors in our Amended and Restated Certificate of
Incorporation. We have
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also implemented a Share Purchase Plan (or "Rights Plan") under which all
stockholders of record as of February 24, 1999 received rights to purchase
shares of a new series of preferred stock. The rights are exercisable only if a
person or group acquires 20% or more of our common stock or announces a tender
offer for 20% or more of the common stock. These provisions and certain other
provisions of our Amended and Restated Certificate of Incorporation and certain
provisions of our Amended and Restated Bylaws and of Delaware law, could delay
or make more difficult a merger, tender offer or proxy contest.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Interest
Rate Risk
As of June 30, 2000 the Company's investment portfolio includes $60.6 million of
short-term corporate and municipal bonds which are subject to no interest rate
risk when held to maturity but may increase or decrease in value if interest
rates change prior to maturity. The remaining $16.0 million of short-term
investments are held in short-term securities bearing stated interest rates and
are therefore subject to no interest rate risk. An immediate 10% change in
interest rates would be immaterial to the Company's financial condition or
results of operations.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of stockholders was held on May 25, 2000 (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,
Michael Pehl and Edward J. Zander as directors of the Company to
serve until the 2003 annual meeting of stockholders. The votes cast
and withheld for such nominees were as follow:
Names For Withheld
----- --- --------
Michael Pehl 15,519,595 364,676
Edward J. Zander 12,513,964 3,370,307
(ii) The second matter related to the approval of an amendment of the
Company's 1993 Equity Incentive Plan, to increases the aggregate
number of shares of Common Stock authorized for issuance under such
plan to 500,000 shares. 5,556,011 votes were cast for approval,
8,209,185 were cast against approval, and there were 14,234
abstentions and 2,104,841 broker non-votes.
(iii) The third matter related to the approval of an amendment of the
Company's Employee Stock Purchase Plan, to increase the aggregate
number of shares of Common Stock authorized for issuance under such
plan by 250,000 shares and to add provisions to automatically
increase the number of shares reserved under such plan on an annual
basis. 7,948,875 votes were cast for approval, 5,811,746 were cast
against approval, and there were 19,259 abstentions and 2,104,391
broker non-votes.
(iv) The fourth matter related 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. 7,848,392 votes were cast for approval, 5,913,374
were cast against approval, and there were 17,664 abstentions and
2,104,841 broker non-votes.
(v) The fifth matter related to the ratification of the appointment of
Arthur Andersen LLP as the independent auditors of the Company for
its fiscal year ending December 31, 2000. 15,867,598 votes were cast
for ratification, 8,284 votes were cast against ratification and
there were 8,389 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
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NUMBER DESCRIPTION
------ -----------
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June
30, 2000.
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, on this 11th day of August, 2000.
DOCUMENTUM, INC.
(Registrant)
By: /s/ Bob L. Corey
----------------
Bob L. Corey
Executive Vice President &
Chief Financial Officer
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