UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission file number 0-26542
THE VANTIVE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0266662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2455 Augustine Drive
Santa Clara, California 95054
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (408) 982-5700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing price of the Common Stock on February
27, 1998, as reported on NASDAQ National Market was approximately $640,398,951.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliates status is not necessarily a conclusive determination for other
purposes.
The number of shares of the registrant's $0.001 par value Common Stock
outstanding on February 27, 1998, was 25,433,732.
Part III incorporates by reference from the definitive proxy statement
for the registrant's 1998 annual meeting of stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.
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PART I
This report includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual
results to differ materially from historical results or those anticipated.
In this report, the words "anticipates," "believes," "expects," "intends,"
"future" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
Item 1. Business
The Vantive Corporation ("Vantive" or the "Company") is a leading provider of
front-office automation software that automates sales and marketing, call
centers, field service, help desk and quality assurance operations. These
integrated front- office software applications, called the Vantive Enterprise,
are designed to enable businesses to attract, acquire and retain customers.
The front- office applications comprising Vantive Enterprise are built using a
component-based, multi-tier architecture and a common data model. Vantive
Enterprise applications may also be used through a Web-based browser,
providing the end-user access to the software outside the traditional office
environment. Vantive Enterprise software may be used independently or as
part of an integrated, enterprise-wide, front-office automation system. The
Company believes that businesses implementing an integrated front-office
automation system can better manage customer relationships by sharing valuable
customer information throughout the organization. The Company's front- office
software applications have been deployed by businesses in a broad range of
industries, including software, communications, consumer products, finance,
outsourcing/services, personal computer hardware, healthcare, manufacturing,
medical products, public sector/regulated industry, online services, consumer
goods and retail.
Market Opportunity
Intensifying global competition has increased the need for businesses to focus
on growth by implementing a Customer Asset Management strategy. This strategy
is focused on improving long-term customer loyalty and increasing revenue
through the profitable acquisition and retention of customers. As satisfied
customers are more likely to become repeat and loyal customers, every stage
of the customer life cycle is critical to achieving total customer
satisfaction. According to the Harvard Business Review March-April 1996,
"U.S. corporations (now) lose half of their customers in five years."
Additionally, according to Gartner Group, many businesses report that sales
and marketing expenses required to attract new customers are rising. As a
result of these trends, businesses are focusing on the Customer Asset
Management strategy of attracting, acquiring, retaining and leveraging
customers profitably. Customer Asset Management is based on the axiom that
customers are the most valuable assets of any business. This strategy moves
beyond the traditional management structure of independent, disconnected sales
and marketing, customer service and information systems to integrated
front-office systems. An integrated front-office system can improve the
entire interaction between a business and its customers through the seamless
integration of people, processes and systems.
Throughout the customer life cycle, a business has multiple points of customer
interaction, including sales and marketing, customer support call centers and
field service operations. For example, customers may first come in contact
with an organization through the sales and marketing departments when they
purchase a product. Customers may continue to have contact with the business
through the technical support center and field service departments if support
and service are needed. Customers may also have additional contact with the
sales and marketing and call center departments if they seek to purchase
additional products and services.
Many businesses are recognizing a significant opportunity to collect and
leverage the information gathered at customer interaction points to capitalize
on sales opportunities and improve customer service. In turn, this leads to
increased customer loyalty and revenue opportunities. These businesses are
moving toward replacing their existing, isolated systems with integrated
front-office systems designed to automate sales and marketing, call centers,
field service operations, internal help desk functions and quality assurance.
As the demand for front-office automation systems rises, many independent
software vendors have emerged to provide single point solutions, or solutions
targeted at specific segments of the front-office market such as sales, call
centers, or field service operations. In most cases, these single point
solutions do not allow businesses to adequately leverage and access common
customer information across all customer interaction points.
Instead, businesses are demanding integrated front- office automation software
that allows users to access and leverage critical customer information across
all customer interaction points. For example, businesses are often unable to
effectively address customer issues or capitalize on sales opportunities when
customer contacts occur in independent, disconnected departments that do not
share customer information. As a result, businesses are restructuring their
operations to be more customer-focused, shifting from separate sales and
marketing and customer service functions to a fully integrated front-office
automation system. An integrated front-office system allows a business to
leverage and access common customer information during all customer
interactions. This requires that all departments within the business use a
common base of customer information for all customer interactions.
The Company believes that there are a number of other considerations that
businesses look for in a front-office automation system. For example,
frequently a front-office automation system must be both customizable and
scalable. Businesses seek to customize their front-office automation software
to align with their business processes. Businesses also seek software that is
scalable in order to adapt to business growth and fluctuating numbers of
concurrent users. Businesses are also often looking for front- office systems
that can integrate with back-office, enterprise resource planning (ERP)
systems such as finance, human resources and manufacturing.
The Company believes that businesses are also looking for front-office
automation systems that are Web-enabled. The ability to access front-office
automation software over the Web may simplify the installation and maintenance
of the software, which may reduce total cost of ownership. Web access also
provides greater functionality and access to end- users, allowing them to
electronically request products and services and submit information directly
to the business via the Web. Businesses are also demanding ease of
accessibility to front-office software through mobile, data synchronization and
cellular technology.
The Company believes that the marketplace today seeks an integrated,
Web-enabled, mobile front-office solution that will allow users to leverage
and access real-time customer information from all customer touch points.
Front-office automation, combined with a Customer Asset Management strategy,
allows businesses to move beyond an isolated, departmental view of the
customer and leverage valuable customer information to increase customer
loyalty and revenue.
Vantive Solution
Vantive is a leading software provider in the front-office automation
software market through its integrated suite of software applications called
Vantive Enterprise. Vantive Enterprise enables organizations to address
specific needs of many aspects of customer interaction, on departmental or
enterprise-wide levels, or both. The software applications that comprise
Vantive Enterprise are designed to automate and integrate sales and
marketing, customer support call centers, field service, help desk operations
and quality assurance. Vantive's strategy is to provide its users with an
integrated front-office automation software solution. Vantive also believes
that combining an enterprise- wide Customer Asset Management strategy with an
integrated front-office automation system will enable a business to more
effectively manage each customer interaction.
Complete Suite of Integrated Front-Office Automation Software. Vantive
Enterprise is a complete suite of Web-enabled, client/server software
applications and is the Company's integrated front- office automation
solution. These applications enable businesses to leverage customer
information on an enterprise-wide basis, ensuring that the right customer
information goes to the right person at the right time. Vantive Enterprise
currently includes Vantive Sales, Vantive Support, Vantive FieldService,
Vantive Inventory, Vantive Procurement, Vantive HelpDesk and Vantive Quality.
Each front-office software module provides easy-to-use, "best-in-class"
functionality for each of the respective segments of the front-office market.
Vantive Enterprise provides the customer with a single integrated
front-office solution to help automate and manage the complete customer life
cycle. While Vantive software applications are designed to be implemented
together, each can also be deployed as a stand-alone system for a specific
functional area of the front-office market such as sales and marketing,
customer support call centers, field service, help desk and quality
assurance. In addition, the Company has completed out-of-the-box
integrations with applications marketed by PeopleSoft, Inc. and Oracle
Corporation ("Oracle") which support integrated front-office and back-office
business processes.
Customizable. Vantive Enterprise is highly customizable using Vantive Object
Studio, a set of application-specific customization tools that allows users
to modify their application without changing source code. This enables
businesses to customize applications for their own business models, by
tailoring the user interface, making modifications to the business rules and
processes and extending the application. This capability allows businesses
to capture customer information collected by the business to accommodate
their specific business needs. Additionally, businesses can modify the
applications as their business needs change.
Scalable, Enterprise-Wide Solution. Vantive's products address a wide range
of market needs, from departmental to enterprise-wide requirements, from
single point solutions to fully integrated front- office software
applications. This scalability represents a key competitive advantage in
addressing the front-office automation market by allowing businesses to
deploy applications for a growing number of users, while also fully
maintaining system performance. Vantive Enterprise applications have been
implemented at the departmental and enterprise- wide levels, supporting from
10 to more than 10,000 registered or named users.
Web-Enabled Functionality. The Company's VanWeb product allows access to
Vantive's applications from the World Wide Web. VanWeb leverages the Vantive
Dynamic Dictionary, to preserve workflow rules, data integrity and
permission schemes when executing Vantive applications across the Web.
VanWeb is designed to provide "self service" functionality by allowing
customers to access information and request products and information from the
business through the Web. By leveraging the Web, Vantive Enterprise
extends its usefulness beyond the business, to its most important asset, its
customers.
Mobile Solutions. In addition to supporting LAN, WAN and Internet access,
Vantive Enterprise also supports mobile users through Vantive On-The-Go and
Vantive MiniVan. Mobile users may seamlessly access Vantive Sales through
Vantive On-The-Go, enabling mobile users to benefit from the same
functionality, performance, real-time upgrades and data access capabilities
as individuals on the internal corporate network. Upon reconnecting with the
corporate network, the Company's software will automatically reconcile
differences between the data on the mobile users' client and the corporate
database. The Company's applications also can be accessed through Vantive
MiniVan, which is enabled by Unwired Planet, Inc.'s character-based Web
browser that operates on Cellular Digital Packet Data (CDPD) enabled cellular
telephones and the 3Com Corporation PalmPilot with a wireless modem. The
Company believes that using this technology will further enhance the ability
of mobile users to easily access key customer information.
Strategy
Vantive's strategy is to become the leading supplier of front-office
automation software that enables businesses to improve customer acquisition
and retention. The following are the key elements of the Company's strategy.
Increase the Depth and Breadth of Front-Office Automation Applications.
Vantive has, since its inception, focused on customer support, help desk and
quality assurance applications. Recently, the Company has developed and
released broader functionality in its sales, marketing and field service
applications to enhance its front-office automation product offering. The
Company believes it has made significant advances in sales and field service
functionality with the release of Vantive Sales 7 and the acquisition of
Innovative Computer Concepts, Inc. ("ICC"). Additional sales functionality
provided by Vantive Sales 7 includes automatic information distribution
through Web-based "push" technology, "best-of-breed" personal information
management integration and enterprise reporting. Additional field service
functionality provided by the ICC acquisition includes spare parts, inventory
and procurement management. Vantive believes that its technology
architecture and common data model provide a competitive advantage when
adding and integrating key functionality to Vantive Enterprise. The
Company's strategy also includes continuing to add new functionality to its
core suite through internal development as well as through licensing
"best-of-breed" third party technology. To qualify as "best-of-breed," the
Company must determine that the technology has a clear future market
direction, is extremely robust and is commercially supported.
Expand Distribution Channels, Leverage Third Party Relationships and Build
the Vantive Alliance. Vantive's sales and marketing strategy is to
simultaneously expand its direct sales force and develop additional
relationships with third party system integrators, consultants, outsourcers,
resellers and software and hardware suppliers. By increasing the number of
direct field sales representatives, the Company intends to improve its
geographic reach and existing account coverage. The Company has also
developed relationships with several high-end integrators and resellers,
including Deloitte & Touche, LLP, The Bentley Company, Cambridge Technology
Partners, EDS, HBO and Company, Lucent Technologies, KPMG Peat Marwick, LLP,
Price Waterhouse, LLP and Renaissance Worldwide. The Company intends to
continue to develop relationships with other third party resellers in the
future. In addition, the Company will focus certain field sales
representatives and leverage its relationships with third parties into
vertical markets that the Company believes value Vantive's general, or
"horizontal," functionality as well as the Company's and its partners'
industry expertise in implementing front- office automation systems in
vertical markets. Examples of such markets include healthcare, finance,
communications and utilities. The Company intends to continue to develop
relationships with other strategic business partners in order to grow the
Vantive Alliance. The Vantive Alliance is the Company's partner strategy of
building an alliance of industry- leading companies around its front-office
software products in order to deliver value-added products, services and
technology to the front-office market. The Vantive Alliance is currently
made up of over 100 system integrators, consultants, outsourcers, resellers,
software and hardware suppliers.
Extend Enterprise Integration. Vantive's strategy is to enable its
front-office automation software applications to be easily integrated with
back-office systems, such as finance, manufacturing and human resources,
through strategic partnerships with ERP vendors and through internal
development. The Company has completed integrations with leading back-office
vendors such as PeopleSoft and Oracle. The Company's strategy also includes
working with third party integrators such as Cambridge Technology Partners,
EDS, Lucent Technologies and Renaissance Worldwide as well as working with
third party providers of integration software, such as CrossWorlds Software,
Inc. and Active Software, Inc. which will provide customers the ability to
link the Vantive Enterprise to a broad range of applications. The Company
intends to continue to integrate back-office applications with other Vantive
front-office software applications. The Company has also developed
relationships with several high-end integrators to further facilitate
integration between Vantive's applications and other applications. The
Company is also a member of the Cooperative Applications Initiative of Oracle
Corporation.
Leverage Scalability. The Company's strategy is to continue to develop
scalable front-office applications that may be effectively utilized by
businesses of virtually all sizes, with varying number of users,
applications and levels of integration. In addition, to effectively maintain
the scalability of its solutions, the Company's long-term strategy is to
design component-based software that leverages additional transaction
processing capabilities into its solutions as the industry evolves in that
direction.
Leverage the World Wide Web. As the Web continues to increase in importance
for businesses and their customers, Vantive's strategy is to continue to
leverage Web-enabled functionality in its front-office automation software
applications. Vantive released VanWeb 3 and a set of front-office applets in
1997 based on Java, a software language developed by Sun Microsystems. The
Company believes these new technologies will enhance the functionality,
scalability and customizability of the Company's Web- based front-office
automation software applications as well as expand its "self service" and
"assisted buying" application capabilities. They will also allow the
Company's customers to more easily take advantage of new network computer
architectures from companies such as Oracle Corporation, Sun Microsystems,
Microsoft Corporation and Netscape Communications Corporation. The Company
has recently announced Vantive Partner Desktop, the Company's Web strategy
for building customized "Web channels" for partners, sales professionals and
prospects. The Company believes that this strategy will allow a business to
deliver personalized information to its partners, employees and prospects
through an industry- standard Web browser.
Extend Mobility of User. The Company, recognizing that businesses are
demanding the availability of front-office automation software for their
mobile users, extended the reach of its Vantive Sales product to the mobile
user through Vantive On-The-Go and Vantive MiniVan. Users can also access
Vantive database information through a character-based Web browser developed
by Unwired Planet, Inc. operating through CDPD-enabled cellular telephones
or a PalmPilot with a wireless modem. Each of these solutions has further
enhanced the ability of users to be mobile when accessing the Company's
front-office automation software applications. Vantive's strategy is to
further benefit mobile users by applying these benefits to each of its other
applications.
Enable Rapid Application Deployment. Vantive's strategy is to continue to
use and enhance the methodology developed for its own consultants, third
parties and customers to rapidly deploy front-office automation software
applications. Vantive Enterprise front-office applications are designed to
be easily customized. As a result, a business can deploy applications
quickly, typically in a few months, and still refine the applications as
their business needs change. The customization of an application can be
done using the Vantive Object Studio as well as with third party technology
such as Visual Basic for Applications. User interface customizations are
done using VanDesign, a layout tool designed to customize the look and feel
of Vantive applications without additional coding. VanDesign also supports
ActiveX, a software architecture for building software components developed
by Microsoft Corporation. Through ActiveX, Vantive applications can easily
incorporate third party software components developed to the ActiveX
standard. The Company believes that these new technologies will enable the
rapid development of more sophisticated and ergonomic software.
The foregoing statements regarding the Company's strategy, expectations and
intentions are forward- looking statements and actual results and activities
may vary substantially depending upon a variety of factors, including the
development of emerging markets for front-office automation software,
competition, technological change, changing customer needs, evolving
industry standards, any product development delays and the ability of the
Company to manage any future growth and new distribution channels. Please
see the "Risk Factors" section for further information.
Products and Technology
The Vantive Enterprise is an integrated suite of front-office software that
automates sales and marketing, customer support call centers, field service,
help desk and quality assurance operations. Vantive designed Vantive
Enterprise to be fully scalable and customizable to evolve and align with the
growth and processes of different businesses. Vantive Enterprise products
share a common database and application architecture along with common
facilities for intelligent workflow routing, advanced problem solving and
measurement reporting. By building the applications using a component-based,
multi-tier, application architecture, Vantive believes its applications are
more scalable and easier to maintain than competing two-tier implementations.
This architecture also results in a thinner client, less network traffic,
more efficient use of database resources and is well suited for Web-based
applications. Vantive Enterprise consists of the following applications,
each of which can be purchased and implemented separately or integrated in
any combination.
Vantive Sales is a front-office software application designed to automate the
entire sales and marketing process. Vantive Sales enables companies to
practice Knowledge-Enabled Selling. Knowledge-Enabled Selling is the
Company's sales solution for distributing the collective knowledge,
information, experience and expertise of top sales performers to the entire
sales force. The Company believes that Knowledge-Enabled Selling can enhance
sales performance through effective knowledge sharing, informed decision
making and improved understanding of the customer. Vantive Sales also
enables sales representatives to align their selling cycles with their
customer's buying process, provides sales knowledge-on-demand and increases
sales effectiveness. Vantive Sales delivers up-to-the-minute sales, product
and customer information with the Vantive Encyclopedia and provides a single
source for managing tasks, contacts, opportunities and scheduling through bi-
directional integration with Microsoft Outlook. Vantive Sales functionality
includes pipeline and forecast management, account and territory planning,
quote/product configurations and channel management. Marketing campaign
management, telesales and lead tracking are also provided by Vantive Sales.
Vantive Sales is also Web-enabled through VanWeb, which enables customers,
prospects and business partners to use a standard Web browser to respond to
marketing campaigns, access sales and product information and self-enroll in
sales and marketing events. Using Vantive On-The-Go, mobile Vantive Sales
users can access and synchronize data with the corporate database. Vantive
MiniVan allows mobile users to access Vantive Sales via a CDPD-enabled
cellular phone or PalmPilot with a wireless modem. Vantive Sales can be
used independently or as part of an integrated, enterprise-wide front-office
automation system.
Vantive Support is a front-office software application designed to automate
and provide end-to- end management of call center and customer support
operations. Vantive Support is designed to help companies improve customer
retention, build customer loyalty and increase call center revenue. Vantive
Support provides a complete solution for customer service call centers
including automated call tracking, entitlement processing, workflow, problem
resolution, revenue generation, performance measurement, advanced research
tools and service management. Vantive Support also logs and tracks customer
issues and requests, routes leads to sales and marketing departments and
supports customer access via phone, fax, email and the Web. Business rules
in Vantive Support automatically route customers to the right call center
agent and provide automatic escalations and notifications. Vantive Support
can also be used to generate call center revenue through proactive service
contract renewals, upgrades and cross-selling functionality. Vantive Support
also provides Web-based, self-service options through VanWeb, which may
increase call center agent productivity by reducing the number of calls to
the call center. Using VanWeb, customers can use a standard Web browser to
search for resolutions and submit a case within Vantive Support. Vantive
Support can be used independently or as part of an integrated,
enterprise-wide front-office automation system.
Vantive FieldService, Vantive Inventory and Vantive Procurement are
front-office automation software modules designed to manage and enhance field
service operations. Vantive field service solutions are designed to provide
the right people, with the right parts, at the right time, to service and fix
problems quickly with minimal intrusion on customers. Vantive's three field
service modules each play an integral role as part of a complete field
service solution and can be purchased and used separately or together.
Vantive FieldService manages the allocation, scheduling and dispatching of
service technicians, service providers and resources. Vantive FieldService
allows a business to create detailed work plans that permit users to evaluate
tasks, materials and skills and then group them into different types of
services. Vantive FieldService also generates work orders that create a
single, detailed information source for notification, billing and tracking
purposes. Customer configurations and Return Material Authorizations (RMAs)
are also key features in Vantive FieldService. Field technicians can also
log and track tasks, time, materials and expenses into Vantive FieldService
from the road using VanWeb.
Vantive Inventory automates the control, management, tracking and status of
spare parts inventory. Vantive Inventory tracks inventory costs such as
weighted average, standard costs, last purchase cost, LIFO and FIFO. It also
provides up-to- the minute stock status information and complete inventory
analysis and usage models, which allow users to make informed decisions about
managing spare parts. Vantive Inventory is specifically designed to support
businesses with multiple product lines by providing cataloging and
cross-referencing functionality and tools for locating part status and
supporting multiple transaction types.
Vantive Procurement manages and streamlines the purchase and receipt of spare
parts from external departments and suppliers. Vantive Procurement provides
spare parts status, vendor availability and detailed goods information to
assist in the requisition and procurement process. The Vantive Procurement
event tracking system automatically generates orders to fill requisitions and
tracks purchase orders placed against the request. Vantive Procurement also
streamlines the purchase order process by bringing together on-line master
records, requirements and requisitions in real-time. Purchase orders can be
generated through requirements, requisitions, manually or through an external
system interface. Vantive Procurement also allows users to track
requisitions through general requirement functions, which determine whether
combined orders can take advantage of cost-saving options such as volume
discounts and joint shipping.
The Vantive field service software modules support complex global
organizations through advanced logistics functionality that allows users to
track centralized and regional operations at different levels. Businesses
can also create "cross- hierarchical business entities" that allow two similar
departments' warehouses in two different divisions to be treated as one
department in the Vantive system. Vantive field service modules also
integrate with back-office systems such as manufacturing, distribution and
accounting to provide a "full-view" of a business's global field service
operations.
Vantive HelpDesk is a front-office software solution designed to automate
internal help desk operations. Vantive HelpDesk enhances customer
interactions by improving employee productivity, satisfaction and retention.
Vantive HelpDesk tracks and resolves employee issues, suggestions and
requests for assistance. Vantive HelpDesk manages hardware and software
configurations, catalogs and tracks company assets and supports third party
"knowledge packs." Vantive HelpDesk maintains employee history, provides
Web-enabled self-service options and supports the entire enterprise
infrastructure including mainframe systems, client/server systems, networks
and telecommunications equipment. Vantive HelpDesk enables end-to-end
management of technical support issues by providing a single information
repository that includes data, business rules and workflow. Vantive
HelpDesk can be used independently or as part of an integrated,
enterprise-wide front-office automation system.
Vantive Quality is a front-office software solution designed to collect and
leverage customer feedback on products and services. This feedback can be
leveraged to design, build and deliver high-quality, customer- aligned
products and services. Vantive Quality integrates product quality and
enhancement processes across the entire enterprise, allowing engineering and
information technology departments to track and resolve product defects. The
software is used to identify product failures and defects, create
enhancement requests and build documentation and track product information.
Vantive Quality also assists companies with ISO 9000 compliance by providing
data and information on product fault, fix, ownership and action history.
Vantive Quality can be used independently or as part of an integrated,
enterprise- wide front-office automation system.
Vantive also offers several other software products and technologies that
enhance the functionality and facilitate the implementation, integration and
modification of Vantive Enterprise front-office automation software
applications.
VanWeb is a front-office software application designed to enable anyone with
an industry-standard Web browser to access Vantive Enterprise applications
through the World Wide Web. VanWeb empowers businesses to use the Web to
attract, retain and leverage customers by using the Web to collect leads and
provide self-service options for Vantive Enterprise products. VanWeb can be
combined with Vantive Sales to enhance a company's sales and marketing
strategies by automatically distributing leads generated on a company's Web
site to its sales force. VanWeb also allows customers, prospects and
business partners to use a standard Web browser to respond to marketing
campaigns, access sales and product information and interact with customer
service call centers. Combined with Vantive Support and Vantive HelpDesk,
the company believes that VanWeb can significantly improve customer
satisfaction through Web-based self-service options. VanWeb allows
authorized customers and employees to resolve open support cases, review
product availability and access competitive information via their Web
browsers.
Vantive On-The-Go is Vantive's mobile computing product. Vantive On-The-Go
seamlessly accesses corporate database information, enabling mobile users to
experience the same functionality, performance, real-time upgrades and data
access capabilities as individuals working on the internal corporate
network. Vantive On-The-Go handles complex data synchronization and conflict
management, ensuring accurate and complete customer data. Designed with the
industry leading mobile database technology, SQLAnywhere, instead of
proprietary data synchronization engines, Vantive On-The-Go provides
significantly faster data synchronization than competing mobile applications.
Vantive MiniVan is a software application designed to give mobile users
access to Vantive Enterprise applications from a CDPD-enabled cellular phone
or PalmPilot with a wireless modem. Mobile Vantive users can access
contacts, opportunities, tasks and sales leads without the typical
constraints of laptop PCs and tethered modem connections. Vantive MiniVan
enables users to access, query and update customer and prospect information
captured and maintained in the Vantive Enterprise.
Vantive Object Studio is a software package designed to help customize,
deploy and administer Vantive Enterprise software applications. The Vantive
Object Studio leverages ActiveX Control technology, provides a
"drag-and-drop" design environment and allows a company to develop Vantive
applications once and deploy them universally to tethered, mobile and Web
clients. The Vantive Object Studio includes two software tools: VanDesign
and VanTools. VanDesign is an advanced graphical object builder that allows
companies to easily develop and customize Vantive Enterprise software.
VanTools is a graphic deployment environment that makes it easy to maintain
system security, add and delete users and modify workflow and reports.
Vantive Object Architecture is a component-based, multi-tier architecture that
serves as the foundation for all Vantive software applications and technology.
The Vantive Object Architecture provides proven reliability and scalability to
protect mission-critical systems and software. The Vantive Object Architecture
is designed to reduce network traffic, increase system performance and enhance
employee productivity. Vantive has also pioneered a component-based software
approach that allows for rapid delivery and deployment of the latest,
best-of-breed software technology to the desktop. The component-based approach
also allows Vantive to deliver state-of-the-art, ergonomic interfaces for all
Vantive software solutions.
Multi-Tier Computing. The Vantive Object Architecture utilizes a multi-tier
approach that allows the application processing to be partitioned on the
appropriate tier. The architecture provides a clean break between the
presentation services, application business processing and database services.
The Company believes that this approach enhances system performance and
scalability and is production-proven with hundreds of production sites, many
supporting thousands of concurrent users.
Intelligent Components. The Vantive Object Architecture is an object-based
infrastructure that enables the integration of front- office software
components. The Company believes that this component-based approach provides
Vantive and its customers with the ability to rapidly develop and deploy
critical business solutions. These intelligent components encourage reuse
and provide an integration infrastructure that allows other systems to
leverage Vantive functionality via a variety of programming languages.
Ergonomic Interface. The Vantive Object Architecture provides for
state-of-the-art, ergonomic interfaces on a variety of computing devices. This
allows Vantive Enterprise to be provided on the form factor that best fits the
individual needs of the user. The interface options include the Web, mobile,
tethered LAN/WAN users, cellular phones and PDAs such as the PalmPilot and
Microsoft CE devices.
VanAPI is an applications program interface designed to facilitate integration
with new technologies and legacy and back- office systems. VanAPI provides a
simple, user-friendly programming interface that allows a company to establish
interactive, bi-directional connections between Vantive Enterprise products and
other software applications such as manufacturing, finance and accounting
systems. Standard programming languages such as C, C++, Java, Perl and Visual
Basic can use VanAPI.
Sales and Marketing
The Company markets and sells its software and services in the United States
primarily through a direct sales organization. To support its sales force, the
Company conducts comprehensive marketing programs which include direct mail,
public relations, Web-based lead generation, advertising, trade shows,
seminars, ongoing customer communications programs and an annual,
international user group conference. The Company also participates in
industry programs and forums and establishes and maintains close
relationships with recognized industry analysts.
The Company's sales cycle begins with the generation of a sales lead, which is
followed by qualification of the lead, an analysis of the prospective
customer's needs, multiple presentations and/or product demonstrations to the
prospective customer and ends with contract negotiation and commitment.
While the duration of the sales cycle varies substantially from customer to
customer, it frequently lasts between six and nine months.
The Company markets its products outside of the United States through
wholly-owned subsidiaries and independent distributors. As of December 31,
1997, the Company had wholly-owned subsidiaries in Australia, Canada, France,
Germany, the Netherlands, Singapore and the United Kingdom and distributors
in Argentina, Brazil, Chile, Columbia, Israel, Japan, Mexico, New Zealand,
Scandinavia, South Korea, Spain and Venezuela. In addition to marketing and
selling the Company's products, the distributors provide technical support to
their customers.
The sales and marketing organization consisted of 211 employees as of December
31, 1997. The domestic sales staff is based at the Company's corporate
headquarters in Santa Clara, California and more than 15 field sales offices
located in Atlanta, Georgia; Baltimore, Maryland; Bethel, Connecticut; Boston,
Massachusetts; Boulder, Colorado; Chicago, Illinois; Columbus, Ohio; Dallas,
Texas; Denver, Colorado; Iselin, New Jersey; Irvine, California; King of
Prussia, Pennsylvania; Los Angeles, California; Manchester, New Hampshire;
McLean, Virginia; Newport Beach, California; New York, New York; Orem, Utah;
Overland Park, Kansas; Portland, Oregon; San Diego, California; Seattle,
Washington; and Washington, D.C.
An important element of the Company's distribution strategy is
to expand its direct sales force, to create additional
relationships with third parties, to dedicate certain direct sales
resources and leverage third party relationships for greater
access into certain vertical markets. The ability of the Company
to achieve significant revenue growth in the future will depend,
in part, on its success in executing this strategy. The Company
is currently investing and intends to continue to invest
significant resources to develop its sales strategy, which could
adversely affect the Company's operating margins. In this regard,
the Company has recently hired and continues to hire significant
numbers of direct sales personnel and has developed relationships
with several high-end integrators and resellers, including
Deloitte & Touche, LLP, The Bentley Company, Cambridge Technology
Partners, EDS, HBO and Company, Lucent Technologies, KPMG Peat
Marwick, LLP, Price Waterhouse, LLP and Renaissance Worldwide.
Competition for sales personnel is intense and there can be no
assurance that the Company can retain its existing sales personnel
or that it can attract, assimilate and retain additional highly
qualified sales personnel in the future. The strategy also
depends, in large part, on attracting and retaining appropriate
third party relationships. There also can be no assurance that
the Company will be able to attract and retain appropriate high-
end integrators, resellers and other third party distributors to
market the Company's products effectively. In addition, the
Company's agreements with these third parties are not exclusive
and in many cases may be terminated by either party without cause
and many of these third parties sell or co-market competing
product lines. Therefore, there can be no assurance that any of
these parties will continue to represent or recommend the
Company's products. There also can be no assurance that the
Company will effectively identify key vertical markets. The
inability to recruit, or the loss of, important direct sales
personnel, high-end integrators, resellers or other third party
distributors, or the failure to effectively identify key vertical
markets could have a material adverse effect on the Company's
business, results of operations and financial condition.
The foregoing statements regarding the Company's intention to
expand its distribution channels are forward-looking statements;
and actual results and activities may vary substantially depending
upon a variety of factors, including but not limited to, those
contained in this paragraph.
Product Development
The Company has historically developed and expects to continue
to develop its products in conjunction with its existing and
potential customers. Several products and enhancements to
existing products are currently in development. The evolution to
component based software will also significantly influence
Vantive's future product direction. The Company believes
businesses will expect to be able to utilize portions of the
Company's integrated front-office software solution and
effectively integrate them with software objects developed by
other software vendors.
As of December 31, 1997, there were 117 employees on the
Company's product development staff. In addition, the Company
regularly supplements its workforce with consultants. The
Company's research and development expenditures in 1995, 1996 and
1997 were $3.3 million, $7.3 million and $17.5 million,
respectively and represented 13.2%, 11.3% and 14.9% of revenues,
respectively. The Company expects that it will continue to commit
substantial resources to product development in the future.
The front-office automation software market is subject to
rapid technological change, changing customer needs and frequent
new product introductions and evolving industry standards that may
render existing products and services obsolete. As a result, the
Company's position in its existing markets or other markets that
it may enter could be eroded rapidly by product advances. The
life cycles of the Company's products are difficult to estimate.
The Company's growth and future financial performance will depend
in part upon its ability to enhance existing applications, develop
and introduce new applications that keep pace with technological
advances, meet changing customer requirements, respond to
competitive products and achieve market acceptance. For example,
the Company's customers have adopted a wide variety of hardware,
software, database, Internet-based and networking platforms and as
a result, to gain broad market acceptance, the Company must
continue to support and maintain its products on a variety of such
platforms. The Company's future success will depend, in part, on
its ability to address the increasingly sophisticated needs of its
customers by supporting existing and emerging hardware, software,
database, Internet-based and networking platforms and by
developing and introducing enhancements to its products and new
products on a timely basis that keep pace with technological
developments, evolving industry standards and changing customer
requirements. There can be no assurance that the Company will be
able to successfully change other aspects of its business, such as
its distribution channels or cost structure, if technological
changes in its market, including distribution through the
Internet, require such change. The Company's product development
efforts are expected to require substantial investments by the
Company in product development and testing. There can be no
assurance that the Company will have sufficient resources to make
the necessary investments. The Company has in the past
experienced development delays and there can be no assurance that
the Company will not experience such delays in the future. There
can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful
development, introduction or marketing of new or enhanced
products, including but not limited to Vantive Enterprise 7.5,
Vantive Enterprise 8 and VanWeb 4. In addition, there can be no
assurance that such products will meet the requirements of the
marketplace and achieve market acceptance or that the Company's
current or future products will conform to industry requirements.
If the Company is unable, for technological reasons, to develop
and introduce new and enhanced products in a timely manner, the
Company's business, results of operations and financial condition
could be materially adversely affected.
Software products as complex as those offered by the Company
may contain errors that may be detected at any point in the
products' life cycles. The Company has in the past discovered
software errors in certain of its products and has experienced
delays in shipment of products during the period required to
correct these errors. There can be no assurance that, despite
testing by the Company and by current and potential customers,
errors will not be found, resulting in loss of, or delay in,
market acceptance and sales, diversion of development resources,
injury to the Company's reputation, or increased service and
warranty costs, any of which could have a material adverse effect
on the Company's business, results of operations and financial
condition.
The foregoing statements regarding introductions of the
Company's products under development, proposed enhancements and
the features included in such products or enhancements are
forward-looking statements, and the actual release dates for such
products or enhancements could differ materially from those
projected as a result of a variety of factors, including but not
limited to, those contained in the following paragraphs.
Competition
The front-office automation software market is intensely
competitive, highly fragmented and subject to rapid change.
Because the Company offers multiple applications that can be
purchased separately or integrated as part of Vantive Enterprise,
the Company competes with a variety of other businesses depending
on the target market for their applications software products.
These competitors include a select number of businesses targeting
the enterprise-level and department-level front-office markets,
such as Astea International, Inc., Aurum Software, Inc. (a
subsidiary of The Baan Company), Clarify, Inc., Onyx Software,
Scopus Technology, Inc. and Siebel Systems, Inc. In March 1998,
Siebel Systems, Inc. and Scopus Technology, Inc. announced that
they had entered into a definitive agreement for Siebel to acquire
all of the outstanding shares of Scopus Technology, Inc.
The Company also competes with a substantial number of
businesses that offer products targeted at one or more specific
markets, including the customer support market, the help desk
market, the quality assurance market and the sales and marketing
automation market, such as Remedy Corporation and Software
Artistry, Inc. (which was recently acquired by the IBM
subsidiary, Tivoli Systems, Inc.). The Company believes that such
point solution providers may expand their product offerings, which
could provide increased competition for the company across its
market segments. The Company also competes with third party
professional service organizations that develop custom software
and with internal information technology departments of customers
that develop customer interaction applications. Among the
Company's current and potential competitors are also a number of
large hardware and software businesses that may develop or acquire
products that compete with the Company's products. In this
regard, SAP AG, Oracle and The Baan Company have each introduced
sales automation and/or customer support modules as part of their
application suites. Oracle has announced the creation of a
network of third party dealers that will sell Oracle's application
suites exclusively to medium-sized businesses.
The Company expects that large software vendors in the
enterprise resource planning market will continue to enter and
pursue the front-office automation market. These competitors have
significantly greater financial, marketing, service, support,
technical and other resources than the Company.
The Company also expects that competition will increase as a
result of software industry consolidations. 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. The Company also
expects that competition may increase as a result of both new
software start ups entering the market as well as existing
software industry vendors which may be planning to enter the
market for front-office applications. Increased competition is
likely to result in price reductions, reduced operating margins
and loss of market share, any of which could materially adversely
affect the Company's business, results of operations and financial
condition. Many of the Company's current and potential
competitors have significantly greater financial, marketing,
service, support, technical and other resources than the Company.
As a result, they 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, service
and sale of their products than can the Company. 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 adversely
affect its business, results of operations and financial
condition.
The Company believes that the principal competitive factors
affecting its market include product features such as
adaptability, scalability, ability to integrate with products
produced by other vendors, functionality, ease of use and such
other factors as product reputation, quality, performance, price,
customer service and support, the effectiveness of sales and
marketing efforts and company reputation. Although the Company
believes that its products currently compete favorably with
respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and
potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other
resources.
Intellectual Property and Other Proprietary Rights
The Company's success is heavily dependent upon proprietary technology. The
company relies primarily on a combination of copyright, trademark and trade
secrets laws, as well as confidentiality procedures and contractual
provisions to protect its proprietary rights. There can be no assurance that
such measures will be adequate to protect the Company from infringement of
its technology. The Company presently has no patents or patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
attempts may be made to copy aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. In particular,
as the Company provides its licensees with access to the proprietary
information underlying the Company's licensed applications, there can be no
assurance that licensees or others will not develop products which infringe
the Company's proprietary rights. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the
extent to which piracy of its software products exists, software piracy can
be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to as great
an extent as do the laws of the United States. 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 believes that competitors regularly evaluate
and try to emulate its products. The Company is not aware that any of its
products infringe the proprietary rights of third parties, although the
Company has in the past, and may in the future, receive communications
alleging possible infringement of third party intellectual property rights.
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 target markets grows and the functionality of products in such
markets 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, results of operations and financial
condition.
<PAGE>
Employees
As of December 31, 1997, the Company had 451 full-time
employees, including 211 in sales and marketing, 29 in consulting,
117 in research and development, 60 in general and administration
and 34 in client services. Of these employees, 42 were located
outside the United States, principally in the United Kingdom,
France, the Netherlands and Germany. The remaining employees were
located in the United States. None of the Company's employees is
represented by a labor union. The Company has experienced no work
stoppages and believes its relationship with its employees is good.
In addition, the Company regularly supplements its workforce with
consultants. As of December 31, 1997, the Company employed 48
full-time equivalent consultants.
Competition for qualified personnel in the Company's industry is
intense. The Company believes that its future success will depend
in part on its continued ability to hire, assimilate and retain
qualified personnel.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of January 31, 1998, the Company's directors and executive officers
were as follows:
<TABLE>
<CAPTION>
Director
or
Officer
Name Age Position Since
- ---------------------- ------ ---------------------------------------- -------
<S> <C> <C> <C>
John R. Luongo 48 President, Chief Executive Officer 1993
and Director
Roger J. Sippl 43 Chairman of the Board of Directors 1990
Aneel Bhusri 32 Director 1996
William H. Davidow 62 Director 1991
Kevin G. Hall 39 Director 1994
Raymond L. Ocampo Jr. 45 Director 1997
Peter A. Roshko 39 Director 1991
John M. Jack 43 Chief Operating Officer 1995
Christopher W. Lochhead 29 Executive Vice President of Strategic 1996
Marketing
Garry Hallee 37 Executive Vice President of Engineering 1996
Kathleen A. Murphy 51 Chief Financial Officer 1995
Michael M. Loo 41 Vice President, Finance 1993
David Schellhase 34 Vice President and General Counsel 1997
David Jodoin 33 Executive Vice President of Corporate 1997
Development
Mary Egan Lorigan 37 Vice President,North America Sales 1998
Marie Alexander 39 Vice President of Client Services 1998
</TABLE>
<PAGE>
John R. Luongo has served as President, Chief Executive Officer
and a director of the Company since June 1993. He was an
independent consultant from November 1992 to June 1993, President,
Chief Executive Officer and Chairman of the Board of Trifox, Inc.,
a software company, from September 1991 to November 1992, Senior
Consultant at Merrill, Pickard, Anderson and Eyre, a venture
capital firm, from September 1990 to June 1991 and Senior Vice
President International Division at Oracle Corporation from July
1982 to July 1990.
Roger J. Sippl is a co-founder of the Company and has served as
a director of the Company since December 1990 and as Chairman of
the Board since 1996. Mr. Sippl is the founder of Visigenic
Software, Inc., where he served as Chief Executive Officer from
January 1993 until its acquisition by Borland International, Inc.
in March 1998. Since March 1998, Mr. Sippl has been Chief
Technology Officer of Borland International, Inc. Prior to his
relationship with Visigenic Software, Mr. Sippl founded Informix
Software in 1980 and served as that company's Chairman of the Board
until 1992.
Aneel Bhusri has served as a director of the Company since
December 1996. He has served in several capacities with
PeopleSoft, Inc. since August 1993, currently as its Senior Vice
President of Product Strategy. From June 1992 to March 1993, Mr.
Bhusri served as an associate at Norwest Venture Capital. From
1988 to 1991 he was a financial analyst in Morgan Stanley's
Corporate Finance Department.
William H. Davidow has served as a director of the Company since
July 1991. He has been a General Partner at Mohr, Davidow Ventures
since May 1985. From 1973 to 1985, he held a number of management
positions at Intel Corporation including Senior Vice President of
Marketing and Sales. He also serves as Chairman of the Board of
Rambus, Inc. and is a director of Power Integrations, Inc. and
several private companies.
Kevin G. Hall has served as a director of the Company since May
1994. He has served as a General Partner of Norwest Equity
Partners, IV since August 1993. Prior to his relationship with
Norwest Equity Partners, IV, he served as a principal in Brentwood
Associates, a venture capital firm, from June 1988 to August 1993.
Raymond L. Ocampo Jr. has served as a director of the Company
since January 1997. He currently serves as an independent mediator
of disputes among high technology corporations and is Executive
Director of the Berkeley Center for Law and Technology. He served
in several capacities with Oracle Corporation from July 1986 to
November 1996, primarily and most recently as its Senior Vice
President, General Counsel and Corporate Secretary. He is a member
of the board of KQED, the Bay Area public television affiliate, as
well as several private companies.
Peter A. Roshko has served as a director of the Company since
July 1991. Mr. Roshko co-founded and has been a co-member of
Granite Investments, an investment company, since August 1995.
From December 1993 to August 1995, Mr. Roshko was a General Partner
at Cottonwood Ventures, a venture capital firm. From June 1993 to
December 1993, Mr. Roshko was an independent investor and
consultant in the venture capital industry. Mr. Roshko was a
General Partner at Mohr, Davidow Ventures from March 1987 to June
1993.
John M. Jack has served as Chief Operating Officer since January
1997 and was Vice President, Worldwide Sales of the Company from
May 1995 to January 1997. He served as Vice President, Western
Regional Sales at Sybase Corporation, a client/server software
company, from April 1991 to April 1995. From November 1986 to
April 1991, he held various sales management and sales positions at
Sybase Corporation.
Christopher W. Lochhead has served as Executive Vice President
of Strategic Marketing of the Company since June 1996. He served
as President and Chief Executive Officer of Always An Adventure, a
strategy consulting company, from November 1993 to June 1996 where
he coined the term "Customer Asset Management." From September
1991 to November 1993, he was Director of Canada at Platinum
Software Corporation, a software company.
Garry Hallee has served as Executive Vice President of
Engineering of the Company since October 1996. He served as Vice
President and General Manager at Platinum Technology, a software
company, from December 1995 to October 1996. From July 1992 to
December 1995, he served as Director, Product Development at
Trinzic, a software company. From May 1984 to July 1992, he served
as Chief Technology Officer and Development Manager at Aion, a
software company.
Kathleen A. Murphy has served as Chief Financial Officer of the
Company since August 1995. She served as Chief Financial Officer
at The ImagiNation Network, an entertainment software company from
April 1994 to August 1995 and as Chief Financial Officer of Verity,
Inc., an information retrieval software company, from April 1989 to
March 1994. She previously served as Chief Financial Officer for
Automation Technology Products and Software Publishing Corporation,
as well as in various positions at Hewlett-Packard Corporation.
Michael M. Loo has served as Vice President, Finance of the
Company since May 1995. He initially served as its Director of
Finance and Administration from October 1993 to May 1995.
Previously, he served in various financial and accounting
positions, most recently as Controller, Worldwide Field Operations,
at Sybase Corporation, a client/server software company, from
January 1990 to October 1993. Prior to that he held a number of
positions with Oracle Corporation and ROLM Corporation.
David R. Schellhase has served as Vice President and General
Counsel of the Company since August 1997. He was General Counsel
of Premenos Technology Corp. from November 1995 to August 1997.
From July 1993 to November 1995 he was Corporate Counsel at Oracle
Corporation. From September 1990 to June 1993 he was an associate
with the law firm of Brobeck, Phleger & Harrison. He is an adjunct
faculty member at the Golden Gate University School of Law.
David Jodoin has served as Executive Vice President, Corporate
Development of the Company since January 1998. From August 1997 to
January 1998, he was Executive Vice President, Field Services of
the Company. He was the founder of Innovative Computer Concepts,
Inc. and served as its President and Chief Executive Officer from
July 1994 until its acquisition by the Company in September 1997.
Previously, he served in several capacities for CODA Incorporated
from January 1990 until July 1994, most recently as Director of
Development for CODA Group Limited.
Mary Egan Lorigan has served as Vice President, North America
Sales of the Company since November 1997. She was Vice President,
North America Vertical and Channels with the Company from January
1997 to November 1997 and was Vice President, Western Region from
November 1993 through December 1997. Previously, she served in
sales and sales management positions with Informix Software, Inc.,
most recently as Director, Northeastern Region from January 1990 to
May 1993 and Director of Channel Marketing and Strategic VAR Sales
from May 1993 to October 1993.
Marie Alexander has served as Vice President of Client Services
of the Company since August 1994. She was Senior Director of
Client Services at Harbinger Corporation from January 1992 to
August 1994.
Item 2. Properties
The Company's principal administrative, engineering,
manufacturing, marketing and sales facilities total approximately
72,000 square feet and are located in two buildings in Santa Clara,
California under leases which expire in May 2001 and December 2003.
In addition, the Company leases offices in approximately 25 cities
in Asia, Australia, Europe, North America and South America.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's stock has been traded on the NASDAQ National
Market System since the Company's initial public offering on
August 14, 1995, under the NASDAQ symbol VNTV. The following table
sets forth, for the periods indicated, the high and low closing
sales prices for the Company's common stock as reported by NASDAQ:
HIGH LOW
-------- --------
Year Ended December 31, 1996
- --------------------------------------
First Quarter $12.250 $9.500
Second Quarter $19.750 $11.000
Third Quarter $32.380 $12.750
Fourth Quarter $42.250 $24.750
Year Ended December 31, 1997
- --------------------------------------
First Quarter $34.250 $19.000
Second Quarter $30.875 $14.500
Third Quarter $38.000 $21.750
Fourth Quarter $30.625 $21.375
All sales prices have been adjusted for a 2-for-1 stock dividend
paid in the form of a 100% stock dividend in October 1996. As of
December 31, 1997, there were approximately 365 holders of record
of the Company's common stock.
The Company has never paid cash dividends on its common stock.
The Company currently intends to retain earnings, if any, for use
in its business and does not anticipate paying any cash dividends
in the foreseeable future.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE VANTIVE CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License . . . . . . . . . . . . . . $1,900 $7,141 $16,631 $41,513 $76,471
Service . . . . . . . . . . . . . . 613 3,073 8,404 22,761 40,875
--------- --------- --------- --------- ---------
Total revenues . . . . . . 2,513 10,214 25,035 64,274 117,346
Cost of Revenues:
License . . . . . . . . . . . . . . 50 110 163 392 736
Service . . . . . . . . . . . . . . 1,227 2,383 5,968 12,263 22,748
--------- --------- --------- --------- ---------
Total cost of revenues . . . . 1,277 2,493 6,131 12,655 23,484
--------- --------- --------- --------- ---------
Gross margin . . . . . . . . . . . . . 1,236 7,721 18,904 51,619 93,862
Operating Expenses:
Sales and marketing . . . . . . . . 2,142 5,068 11,582 24,676 45,811
Research and development . . . . . 1,726 2,072 3,319 7,261 17,508
General and administrative . . . . . 908 1,099 2,167 5,389 9,377
Acquired in-process research
and development . . . . . . . . . -- -- -- -- 21,121
--------- --------- --------- --------- ---------
Total operating expenses . . . 4,776 8,239 17,068 37,326 93,817
--------- --------- --------- --------- ---------
Income (loss) from operations . . . . (3,540) (518) 1,836 14,293 45
Other income (expense), net . . . . . (92) (30) 439 1,286 1,305
--------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes . . . . . . . . . . . . (3,632) (548) 2,275 15,579 1,350
Provision for income taxes . . . . . . -- -- 232 4,674 8,308
--------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . . ($3,632) ($548) $2,043 $10,905 ($6,958)
========= ========= ========= ========= =========
Net income (loss) per basic share* . . ($1.14) ($0.14) $0.10 $0.45 ($0.28)
========= ========= ========= ========= =========
Net income (loss) per diluted share* . ($1.14) ($0.14) $0.09 $0.42 ($0.28)
========= ========= ========= ========= =========
Basic - Shares used in per share
computation*. . . . . . . . . . . . 3,175 4,038 21,034 24,008 24,570
========= ========= ========= ========= =========
Diluted- Shares used in per share
computation*. . . . . . . . . . . . 3,175 4,038 23,012 25,847 24,570
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital . . . . . . . . . . . $1,553 $3,438 $24,463 $32,959 $108,929
Total assets . . . . . . . . . . . . . 3,365 7,457 34,587 58,364 162,739
Total liabilities . . . . . . . . . . 1,325 3,321 7,930 18,933 107,007
Mandatorily redeemable convertible
preferred stock. . . . . . . . . . . 8,244 10,801 -- -- --
Stockholders' equity
( deficit). . . . . . . . ($6,204) ($6,665) $26,657 $39,431 $55,732
</TABLE>
*Net income (loss) per share in 1993, 1994 and 1995 have been restated in
accordance with the requirements of SFAS No. 128, "Earnings Per Share" and SEC
Staff Accounting Bulletin No. 98.
<PAGE>
THE VANTIVE CORPORATION
QUARTERLY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License . . . . . . . . . . $7,088 $9,914 $11,102 $13,409 $15,026 $16,893 $19,889 $24,663
Service . . . . . . . . . . 3,725 5,287 6,147 7,602 7,497 9,117 11,199 13,062
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues . . . . . 10,813 15,201 17,249 21,011 22,523 26,010 31,088 37,725
Cost of revenues:
License . . . . . . . . . . 56 97 113 126 120 182 210 224
Service . . . . . . . . . . 2,322 2,769 3,316 3,856 4,044 4,975 6,444 7,285
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of revenues . 2,378 2,866 3,429 3,982 4,164 5,157 6,654 7,509
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin . . . . . . . . . 8,435 12,335 13,820 17,029 18,359 20,853 24,434 30,216
Operating expenses:
Sales and marketing . . . . 4,826 5,100 6,462 8,288 9,662 10,674 11,811 13,664
Research and development . . 1,102 1,403 1,694 3,062 3,299 3,610 4,689 5,910
General and administrative . 1,079 1,136 1,511 1,663 1,719 2,037 2,413 3,208
Acquired in-process research
and development . . . . . -- -- -- -- -- -- 21,121 --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses. 7,007 7,639 9,667 13,013 14,680 16,321 40,034 22,782
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations . 1,428 4,696 4,153 4,016 3,679 4,532 (15,600) 7,434
Other income . . . . . . . . . . 272 287 370 357 367 390 376 172
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision
for income taxes . . . . . . . 1,700 4,983 4,523 4,373 4,046 4,922 (15,224) 7,606
Provision for income taxes . . . 340 1,665 1,357 1,312 1497 1,817 2,178 2,816
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss). . . . . . . . $1,360 $3,318 $3,166 $3,061 $2,549 $3,105 ($17,402) $4,790
========= ========= ========= ========= ========= ========= ========= =========
Net income (loss) per
basic share. . . . . . . . . $0.06 $0.14 $0.13 $0.13 $0.11 $0.13 ($0.71) $0.19
========= ========= ========= ========= ========= ========= ========= =========
Net income (loss) per
diluted share. . . . . . . . . $0.05 $0.13 $0.12 $0.12 $0.10 $0.12 ($0.71) $0.19
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenues
-------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License . . . . . . . . . . 65.6% 65.2% 64.4% 63.8% 66.7% 64.9% 64.0% 65.4%
Service . . . . . . . . . . 34.4% 34.8% 35.6% 36.2% 33.3% 35.1% 36.0% 34.6%
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
License . . . . . . . . . . 0.5% 0.7% 0.7% 0.6% 0.5% 0.7% 0.7% 0.6%
Service . . . . . . . . . . 21.5% 18.2% 19.2% 18.4% 18.0% 19.1% 20.7% 19.3%
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of revenues . 22.0% 18.9% 19.9% 19.0% 18.5% 19.8% 21.4% 19.9%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin . . . . . . . . . 78.0% 81.1% 80.1% 81.0% 81.5% 80.2% 78.6% 80.1%
Operating expenses:
Sales and marketing . . . . 44.6% 33.6% 37.5% 39.4% 42.9% 41.0% 38.0% 36.2%
Research and development . . 10.2% 9.2% 9.8% 14.6% 14.7% 13.9% 15.1% 15.7%
General and administrative . 10.0% 7.5% 8.8% 7.9% 7.6% 7.8% 7.8% 8.5%
Acquired in-process research
and development . . . . . -- -- -- -- -- -- 67.9% --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses. 64.8% 50.3% 56.1% 61.9% 65.2% 62.7% 128.8% 60.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations . 13.2% 30.8% 24.0% 19.1% 16.3% 17.5% -50.2% 19.7%
Other income . . . . . . . . . . 2.5% 1.9% 2.1% 1.7% 1.6% 1.4% 1.2% 0.5%
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision
for income taxes . . . . . . . 15.7% 32.7% 26.1% 20.8% 17.9% 18.9% -49.0% 20.2%
Provision for income taxes . . . 3.1% 10.9% 7.8% 6.2% 6.6% 7.0% 7.0% 7.5%
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss). . . . . . . . 12.6% 21.8% 18.3% 14.6% 11.3% 11.9% -56.0% 12.7%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company was founded in October 1990 to develop software to
enable businesses to improve their customer service. The Company
was engaged principally in research and development from inception
through December 31, 1992. The Company's suite of products
addresses the front-office automation market and is called the
Vantive Enterprise. The Vantive Enterprise consists of the
following applications: Vantive Sales, Vantive Support, Vantive
FieldService, Vantive Inventory, Vantive Procurement, Vantive
HelpDesk and Vantive Quality. The release of Vantive Enterprise 7
in the third quarter of 1997 contains significant enhancements to
all applications and a new development environment, Vantive Object
Studio, which allows for rapid customization, deployment and
administration of the Vantive Enterprise. License fees for the
Company's software products consist of (i) a per server fee based
on the specific Vantive Enterprise application(s) licensed and
(ii) a fee based on the maximum number of concurrent, named or
mobile users allowed to access those applications. Most of the
Company's revenues to date have resulted from non-recurring
license fees based on sales of concurrent user licenses. The
remaining revenues are primarily attributable to service revenues,
which include customer support, consulting and training revenue.
Of these service revenues, only customer support revenues are
expected to be recurring. Customer support revenues accounted for
approximately 9.3%, 12.1% and 13.5% of total revenues, in 1995,
1996 and 1997, respectively. Because concurrent user fees are not
application-specific, the Company cannot precisely determine the
breakdown of revenues attributable to specific applications for
customers that have purchased more than one application. However,
the Company believes that most of its revenues have been derived
from fees associated with Vantive Support, Vantive HelpDesk and,
to a lesser degree, Vantive Sales. In any period, a significant
portion of the Company's revenues may be derived from large sales
to a limited number of customers. However, no customer accounted
for over 10% of total revenues during 1995, 1996 or 1997. As
significant sales to a particular customer are typically
non-recurring, the Company does not believe its future results are
dependent on recurring revenues from any particular customer.
The Company's revenues are derived from software license fees
and fees for its services. License revenues consist of license
fees for the Company's products as well as fees from sublicensing
third party software products. The Company generally recognizes
license fees upon shipment of software products if collection is
probable, the license agreement requires payment within one year,
the fee is fixed or determinable and vendor specific evidence
exists to allocate the total fee to all elements of the
arrangement. If significant post-delivery obligations exist or if
a product is subject to customer acceptance, revenues are deferred
until no significant obligations remain or acceptance has
occurred. Revenues from services have to date consisted primarily
of consulting revenues, customer support revenues and, to a lesser
extent, training revenues. Consulting and training revenues
generally are recognized as services are performed. Customer
support revenues are recognized ratably over the term of the
support period, which is typically one year. If customer support
services are included free or at a discount in a license
agreement, such amounts are allocated out of the license fee at
their fair market value based on the value established by
independent sale of such customer support services to customers.
If a transaction includes both license and service elements,
license fee revenue is recognized upon shipment of the software,
provided services do not include significant customization or
modification of the base product and the payment terms for
licenses are not subject to acceptance criteria. In cases where
license fee payments are contingent upon the acceptance of
services, revenues from both the license and the service elements
are deferred until the acceptance criteria are met. See Note 2 of
Notes to Consolidated Financial Statements.
International revenues, or revenues derived from sales to customers in
foreign countries, primarily in Europe, accounted for approximately 9.8%,
9.3% and 16.0% of the Company's revenue in 1995, 1996 and 1997, respectively.
The Company believes that its continued growth and profitability will
require further expansion of its international operations. To successfully
expand international sales, the Company must establish additional foreign
operations, hire additional personnel and recruit additional international
resellers. To the extent that the Company is unable to do so in a timely
manner, the Company's growth in international sales, if any, will be limited
and the Company's business, results of operations and financial condition
could be materially adversely affected. There are certain risks inherent in
doing business on an international level, such as unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade
barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, problems in collecting accounts receivable, political
instability, changes in foreign economic conditions, fluctuations in currency
exchange rates, seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world and potentially adverse
tax consequences, any of which could adversely impact the success of the
Company's international operations. The Company's foreign subsidiaries
operate primarily in local currencies, and their results are translated into
US dollars. If the value of the US dollar increases relative to foreign
currencies, the Company's operating results could be materially adversely
affected. In particular, revenue from sales in the Pacific Rim could be
adversely affected by declines in the value of such currencies against the
dollar. In addition, the overall weakness of these economies could adversely
affect revenue from the Pacific Rim. Although the Company has not
experienced these effects in a meaningful way to date, there can be no
assurance that it will not experience them in the future. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
its business, operating results and financial condition.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes a number of forward- looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks
and uncertainties, including those discussed below that could cause actual
results to differ materially from historical results or those anticipated.
In this report, the words "anticipate," "believes," "expects," "future,"
"intends," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages that income statement
items are to total revenues for the years ended December 31, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
License ................................ 66.4% 64.6% 65.2%
Service ................................ 33.6% 35.4% 34.8%
---------- ---------- ----------
Total revenues................. 100.0% 100.0% 100.0%
COST OF REVENUES:
License ................................ 0.7% 0.6% 0.6%
Service ................................ 23.8% 19.1% 19.4%
---------- ---------- ----------
Total cost of revenues......... 24.5% 19.7% 20.0%
---------- ---------- ----------
GROSS MARGIN.............................. 75.5% 80.3% 80.0%
OPERATING EXPENSES:
Sales and marketing..................... 46.3% 38.4% 39.0%
Research and development................ 13.2% 11.3% 14.9%
General and administrative ............. 8.7% 8.4% 8.0%
Acquired in-process research
and development....................... -- -- 18.0%
---------- ---------- ----------
Total operating expenses....... 68.2% 58.1% 79.9%
---------- ---------- ----------
Operating Income......................... 7.3% 22.2% 0.1%
---------- ---------- ----------
OTHER INCOME: 1.8% 2.0% 1.1%
---------- ---------- ----------
INCOME BEFORE PROVISION
FOR INCOME TAXES........................ 9.1% 24.2% 1.2%
PROVISION FOR INCOME TAXES................ 0.9% 7.3% 7.1%
---------- ---------- ----------
NET INCOME (LOSS)......................... 8.2% 16.9% -5.9%
========== ========== ==========
</TABLE>
Revenues
License. The Company increased its license revenues by 149.6%
from $16.6 million in 1995 to $41.5 million in 1996 and by 84.2% to
$76.5 million in 1997. These increases were due to the market's
growing acceptance of the Company's products and the release of
Vantive Enterprise 7 in the third quarter of 1997. The Company
does not believe that the historical growth rates of license
revenues will be sustainable or are indicative of future results.
Service. Service revenues are primarily comprised of fees from
consulting, customer support and, to a lesser extent, training
services. Service revenues increased by 170.8% from $8.4 million
in 1995 to $22.8 million in 1996 and by 79.4% to $40.9 million in
1997. The increase in service revenues was primarily due to the
increase in consulting, customer support and, to a lesser extent,
training services associated with increased sales of the Company's
applications. As the Company implements its strategy of
encouraging third party organizations such as systems integrators
to become proficient in implementing the Company's products,
consulting revenues as a percentage of total revenues may decrease.
Cost of Revenues
License. Cost of license revenues includes the cost of product
media, product duplication and manuals. Cost of license revenues
increased from $163,000, or 1.0% of related license revenues, in
1995, to $392,000, or 0.9% of related license revenues, in 1996 and
to $736,000, or 1.0% of related license revenues, in 1997. The
increase in absolute dollars in cost of license revenues was
primarily due to the increase in volume shipments of the Company's
software applications and the cost of sublicensing third-party
software.
Service. Cost of service revenues is primarily comprised of
employee-related costs and fees for third-party consultants
incurred in providing consulting, customer support and training
services. Cost of service revenues increased from $6.0 million, or
71.0% of related service revenues, in 1995, to $12.3 million, or
53.9% of related service revenues, in 1996 and to $22.7 million, or
55.7% of related service revenues, in 1997. These increases in
absolute dollars were due primarily to increases in consulting,
support and training personnel and third-party service providers
during these periods. The increase in cost of service revenues as
a percentage of the related service revenues from 1996 to 1997 was
primarily due to the variation in the resources used during the
period. The decrease in cost of service revenues as a percentage
of the related service revenues from 1995 to 1996 was primarily due
to economies of scale realized as a result of a higher level of
service activity and due to customer support revenues constituting
a higher proportion of total service revenues. The cost of
services as a percentage of service revenues may vary between
periods due to the mix of services provided by the Company and the
resources used to provide these services.
Operating Expenses
Sales and marketing. Sales and marketing expenses increased
from $11.6 million, or 46.3% of revenues, in 1995 to $24.7 million,
or 38.4% of revenues, in 1996 and to $45.8 million, or 39.0% of
revenues, in 1997. These increases in absolute dollars were
primarily related to the expansion of the Company's sales and
marketing resources, increased commissions expenses as a result of
higher sales levels and increased marketing activities, including
trade show, direct mail and other promotional expenses. The
Company plans to continue to invest heavily in expanding its sales
and marketing activities. Accordingly, sales and marketing
expenses are anticipated to increase both in absolute dollars and
as a percentage of revenues over the coming year.
Research and development. Research and development expenses
increased from $3.3 million, or 13.2% of revenues, in 1995 to
$7.3 million, or 11.3% of revenues, in 1996 and to $17.5 million,
or 14.9% of revenues in 1997. Research and development expenses
increased in absolute dollars between the years primarily as a
result of an increase in personnel and outside contractors to
support the Company's product development activities. In addition,
research and development expenses increased as a percentage of
revenues in 1997 compared to 1996 primarily due to product releases
which includes Vantive Enterprise 7, VanWeb, Vantive On-The-Go,
Vantive Inventory, and Vantive Procurement. Over the coming
years, the Company plans to continue to invest heavily in research
and development. As a result, research and development expenses
are anticipated to increase in absolute dollars over the coming
year.
Research and development expenses are generally charged to
operations as incurred. In accordance with Statement of Financial
Accounting Standards No. 86, internally-generated costs which were
eligible for capitalization for these periods were insignificant
and the Company charged all software development costs to research
and development expense.
General and administrative. General and administrative expenses
increased from $2.2 million, or 8.7% of revenues, in 1995 to
$5.4 million, or 8.4% of revenues, in 1996 and to $9.4 million, or
8.0% of revenues in 1997. General and administrative expenses
increased in absolute dollars during these periods primarily due to
the addition of staff and information system investments to support
the growth of the Company's business during these periods. The
Company expects general and administrative expenses will increase
in absolute dollars over the coming year.
Acquired in-process research and development. On August 26,
1997, the Company completed the acquisition of Innovative Computer
Concepts, Inc. ("ICC"), a leading developer of software that
improves spare parts procurement and management for field service
applications (the "Merger"). The Company paid $125,000 in cash
and issued 655,571 shares of its common stock in exchange for all
outstanding shares of ICC. The Company also assumed all
outstanding ICC options, which were converted to options to
purchase approximately 32,381 shares of the Company's common stock,
resulting in a total purchase price of $21 million (including
direct costs of the acquisition). The Merger was recorded under
the purchase method of accounting and therefore the results of
operations of ICC and the fair value of the acquired assets and
liabilities were included in the Company's financial statements
beginning on the acquisition date. Upon consummation of the
Merger, ICC became a wholly owned subsidiary of the Company. In
connection with the acquisition, the Company received an appraisal
of the intangible assets, which indicated that approximately $21.1
million represented in-process research and development. The
acquired in-process research and development was expensed in the
quarter ended September 30, 1997. In addition, the Company has
recorded goodwill of approximately $680,000 that will be amortized
on a straight-line basis over five years.
Provision for income taxes. The Company's provision for
federal, state and foreign income taxes for fiscal 1997 was $8.3
million. The effective tax rate for fiscal 1997 was negatively
affected due to the non-deductibility of the charges related to the
acquired in-process research and development that resulted from the
Merger. Excluding the effect of these charges, the effective tax
rate for fiscal 1997 would have been 37%, compared to an effective
tax rate of 30% for fiscal 1996. The primary reason for the
increase in the effective tax rate is that the Company utilized
its remaining domestic net operating loss carryforwards during
1996 and used $430,000 of operating loss carryforwards to benefit
1997. The remaining net operating loss carryforwards available to
benefit future years are approximately $451,000 at December 31,
1997. See Note 11 of the Notes to Consolidated Financial
Statements.
Net income (loss) and earnings (loss) per share. Net income
(loss) was $2.0 million, $10.9 million and $(7.0) million for the
years ended December 31, 1995, 1996 and 1997, respectively. Net
income (loss) per basic share was $0.10, $0.45 and $(0.28) for the
years ended December 31, 1995, 1996 and 1997, respectively. Net
income (loss) per diluted share was $0.09, $0.42 and $(0.28) for
the years ended December 31, 1995, 1996 and 1997, respectively.
Excluding the financial statement effects of the Merger, net
income for the year ended December 31, 1997, would have been $14.2
million, or $0.55 per diluted share.
Financial Condition
Total assets as of December 31, 1997 increased $104.4 million
from December 31, 1996. The increase was primarily due to
increases in cash, cash equivalents and short-term investments,
accounts receivable, prepaid expenses and other current assets and
property and equipment. Cash, cash equivalents and short-term
investments increased by $68.5 million, primarily due to funds
consisting of the proceeds from the issuance of convertible debt.
On August 21, 1997, the Company sold an aggregate of $69.0 million
in principal of convertible subordinated notes due 2002 to certain
investors in the United States and outside the United States and
incurred approximately $2.4 million of offering expenses in
connection with this issuance (the "Convertible Debt"). These
notes have a 4.75% coupon over a five-year term and are convertible
into the Company's common stock at the investor's option, if and
when the share price exceeds $41.93 per share. Net accounts
receivable increased $19.5 million primarily due to increased
revenues from sales of the Company's products and services. Net
property and equipment increased $5.7 million primarily due to
equipment purchases associated with supporting the growth of the
Company's business during this period.
Current liabilities as of December 31, 1997 increased
$19.5 million from December 31, 1996. The increase was due to
increases in accrued liabilities and deferred revenues of $16.1
million and $3.0 million, respectively. These increases were
primarily due to increased expense levels and accruals associated
with a higher transaction volume and deferrals of revenues related
to customer support.
Liquidity and Capital Resources
Operating activities provided cash of $5.6 million in 1997. The
primary source of these funds was income from operations after the
write-off of acquired in-process research and development costs,
increase in accrued liabilities and deferred revenues, partially
offset by increases in accounts receivables and prepaid expenses
and other current assets. Operating activities provided cash of
$10.3 million in 1996. The primary source of these funds was net
income, increases in accounts payable and accrued liabilities and
deferred revenues, partially offset by increases in accounts
receivable and prepaid expenses and other current assets.
Investing activities used cash of $26.2 million in 1997,
primarily for the purchase of short-term, interest-bearing,
investment-grade securities and for the purchase of capital
equipment. Investing activities used cash of $3.2 million in 1996,
primarily for the purchase of capital equipment and, to a lesser
extent, for the purchase of short-term, interest-bearing,
investment-grade securities. The Company does not currently have
any material commitments for capital equipment acquisitions.
Financing activities provided cash of $72.2 million in 1997.
The primary source of these funds was proceeds from the issuance of
the Convertible Debt. The Company intends to use the net proceeds
of $66.6 million from the Convertible Debt offering for working
capital and other general corporate purposes. Financing
activities provided cash of $1.3 million in 1996. The primary
source of these funds was proceeds from issuance of Common Stock
pursuant to the exercise of outstanding stock options, partially
offset by payments on capital lease obligations.
At December 31, 1997, the Company's principal sources of
liquidity were its cash, cash equivalents and short-term
investments of $101.4 million. The Company believes that existing
cash and short-term investment balances and potential cash flow
from operations will be sufficient to meet its cash requirements
for the next twelve months. While operating activities may provide
cash in certain periods to the extent the Company experiences
growth in the future, operating and investing activities may use
cash and consequently, such growth may require the Company to
obtain additional sources of financing.
Business Risks
This report includes a number of forward-looking statements,
which reflect the Company's current views on future events and
financial performance. These forward-looking statements are
subject to certain risks and uncertainties, including those
discussed below which could cause actual results to differ
materially from historical results or those anticipated. Some of
the forward-looking statements are generally applicable to emerging
growth companies or to the software industry, others are specific
to the front-office automation market and others are specific to
the Company. In this report, the words "anticipates,"
"believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
Future Operating Results Uncertain. The Company has experienced
significant growth in revenues in recent periods. The Company does
not believe that the historical growth rates of revenues will be
sustainable or are indicative of future results. In addition, the
Company's limited operating history makes the prediction of future
operating results difficult or impossible. The Company's future
operating results will depend on many things, including demand for
the Company's products, the level of product and price competition,
the ability of the Company to develop and market new products and
to control costs, the ability of the Company to expand its direct
sales force and indirect distribution channels and the ability to
attract and retain key personnel. The Company is currently
investing, and intends to continue to invest, significant resources
to develop its sales strategy, which could adversely affect the
Company's operating margins. Competition for good salespeople and
sales managers is intense and there can be no assurance that the
Company can retain its existing sales personnel or that it can
attract, assimilate and retain additional highly qualified sales
personnel in the future. The Company's strategy also depends, in
part, on relationships with third parties. There also can be no
assurance that the Company will attract and retain appropriate
high-end integrators, resellers and other third party distributors
to market the Company's products effectively. Further, the Company
believes, based on interactions with its customers and potential
customers, that the purchase of its products is relatively
discretionary and generally involves a significant commitment of
capital. As a result, in the event of any downturn in any
potential customer's business or the economy in general, purchases
of the Company's products may be deferred or canceled, which could
have a material adverse effect on the Company's business, results
of operations and financial condition. The Company was not
profitable prior to 1995 and there can be no assurance that the
Company will remain profitable on a quarterly or annual basis. See
"Business - Sales and Marketing."
Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results have in the past varied and will
probably in the future vary significantly depending on factors such
as the size, timing and recognition of revenue from significant
orders, increased competition, the timing of new product releases
by the Company and its competitors, market acceptance of the
Company's products, changes in the Company's and its competitors'
pricing policies, the mix of license and service revenue, budgeting
cycles of its customers, seasonality, the mix of direct and
indirect sales, changes in operating expenses, changes in Company
strategy, personnel changes, foreign currency exchange rates and
general economic factors.
A significant portion of the Company's revenues in any quarter
is typically derived from non-recurring sales to a limited number
of customers. Accordingly, revenues in any one quarter are not
indicative of revenues in any future period. In addition, like
many software applications businesses, the Company has generally
recognized a substantial portion of its revenues in the last month
of each quarter, with these revenues concentrated in the last weeks
of the quarter. Any significant deferral of purchases of the
Company's products could have a material adverse effect on the
Company's business, results of operations and financial condition
in any particular quarter and to the extent that significant sales
occur earlier than expected, operating results for subsequent
quarters may be adversely affected. Product revenues are also
difficult to forecast because the market for front-office
automation software products is rapidly evolving. The Company's
sales cycle is typically six to nine months but varies
substantially from customer to customer. The Company expects that
sales made through indirect channels, which are harder to predict
and usually have lower margins than direct sales, will increase as
a percentage of total revenues.
The Company operates with little order backlog because its
products are typically shipped shortly after orders are received.
As a result of these factors, quarterly revenues for any future
quarter are not predictable with any significant degree of
certainty. The Company's expense levels are based, in part, on its
expectations as to future revenues. Net income may be
disproportionately affected by a reduction in revenues, because
most of the Company's expenses do not vary with revenues. The
Company may also choose to reduce prices or increase spending in
response to competition or to pursue new market opportunities. In
particular, if new competitors, technological advances by existing
competitors, or other competitive factors require the Company to
invest significantly greater resources in research and development
efforts, the Company's operating margins in the future may be
adversely affected.
The foregoing statements regarding the Company's future revenues
and net income are forward-looking statements and actual results
may vary substantially depending upon a variety of factors
described in this paragraph and elsewhere in this report.
Because of these factors, the Company believes that period-to-
period comparisons of its results of operations are not necessarily
meaningful and that such comparisons should not be relied upon as
indications of future performance. 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. If this happens, the price of the
Company's Common Stock will likely be materially adversely
affected.
Rapid Technological Change and Product Development Risks. The
front-office automation software market is subject to rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards that may render
existing products and services less marketable or obsolete. As a
result, the Company's position in its existing markets or other
markets that it may enter could be eroded rapidly by product
advances. The life cycles of the Company's products are difficult
to estimate. The Company's growth and future financial performance
will depend in part on its ability to enhance existing
applications, develop and introduce new applications that keep pace
with technological advances, meet changing customer requirements,
respond to competitive products and achieve market acceptance.
These are increasingly complex and costly undertakings. For
example, the Company's customers have adopted a wide variety of
hardware, software, database, Internet-based and networking
platforms and as a result, to gain broad market acceptance, the
Company must continue to support and maintain its products on a
variety of such platforms. The Company's future success will
depend on its ability to address the increasingly sophisticated
needs of its customers by supporting existing and emerging
hardware, software, database, Internet-based and networking
platforms and by developing and introducing enhancements to its
products and new products on a timely basis that keep pace with
technological developments, evolving industry standards and
changing customer requirements. The Company may not be able to
successfully change other aspects of its business, such as its
distribution channels or cost structure, if technological changes
in its market require such change.
The Company's product development efforts require substantial
investments by the Company. There can be no assurance that the
Company will have sufficient resources to make the necessary
investments. The Company has in the past experienced development
delays and there can be no assurance that the Company will not
experience such delays in the future. There can be no assurance
that the Company will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of
new or enhanced products in the future. In addition, there can be
no assurance that such products will meet the requirements of the
marketplace and achieve market acceptance. If the Company is
unable, for technological or any other reasons, to develop and
introduce new and enhanced products in a timely manner, the
Company's business, results of operations and financial condition
could be materially adversely affected.
Software products as complex as those offered by the Company may
contain errors that may be detected at any point in the products'
life cycles. The Company has in the past discovered software
errors in certain of its products and has delayed shipment of
products during the period required to correct these errors. There
can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found,
resulting in loss of, or delay in, market acceptance and sales,
diversion of development resources, injury to the Company's
reputation, or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Products and
Technology."
International Operations, Foreign Currency Fluctuations.
International revenue, or revenue derived from sales to customers
in foreign countries, accounted for approximately 9.8%, 9.3% and
16.0% of the Company's revenue in 1995, 1996 and 1997,
respectively. The majority of this international revenue has come
from Europe. The Company believes that its continued growth and
profitability will require further expansion of its international
operations. To successfully expand international sales, the
Company must establish additional foreign operations, hire
additional personnel and recruit additional international
resellers. To the extent that the Company is unable to do so in a
timely manner, the Company's growth in international sales, if any,
will be limited and the Company's business, results of operations
and financial condition could be materially adversely affected.
As the Company continues to expand its international
operations, significant costs may be incurred before achieving any
additional international revenues, which could have a material
adverse effect on the Company's business, results of operations and
financial condition. In addition, future increases in the value of
the U.S. dollar could make the Company's products less competitive
in foreign markets. There are certain risks inherent in doing
business on an international level, such as unexpected changes in
regulatory requirements, export restrictions, tariffs and other
trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts
receivable, political instability, changes in foreign economic
conditions, fluctuations in currency exchange rates, seasonal
reductions in business activity during the summer months in Europe
and certain other parts of the world and potentially adverse tax
consequences, any of which could adversely impact the success of
the combined company's international operations. The Company's
foreign subsidiaries operate primarily in local currencies, and
their results are translated into US dollars. If the value of the
US dollar increases relative to foreign currencies, the Company's
operating results could be materially adversely affected. In
particular, revenue from sales in the Pacific Rim could be
adversely affected by declines in the value of such currencies
against the dollar. In addition, the overall weakness of these
economies could adversely affect revenue from the Pacific Rim.
Although the Company has not experienced these effects in a
meaningful way to date, there can be no assurance that it will not
experience them in the future. There can be no assurance that one
or more of such factors will not have a material adverse effect on
the Company's future international operations and, consequently, on
its business, operating results and financial condition.
Competition. The front-office automation software market is
intensely competitive, highly fragmented and subject to rapid
change. Because the Company offers multiple applications that can
be purchased separately or integrated as part of Vantive
Enterprise, the Company competes with a variety of other
businesses depending on the target market for their applications
software products. These competitors include a select number of
businesses targeting the enterprise-level and department-level
front-office markets, such as Astea International, Inc., Aurum
Software, Inc. (a subsidiary of The Baan Company), Clarify, Inc.,
Onyx Software, Scopus Technology, Inc. and Siebel Systems, Inc.
In March 1998, Siebel Systems, Inc. and Scopus Technology, Inc.
announced that they had entered into a definitive agreement for
Siebel to acquire all of the outstanding shares of Scopus
Technology, Inc.
The Company also competes with a substantial number of
businesses that offer products targeted at one or more specific
markets, including the customer support market, the help desk
market, the quality assurance market and the sales and marketing
automation market, such as Remedy Corporation and Software
Artistry, Inc. (which was recently acquired by the IBM
subsidiary, Tivoli Systems, Inc.). The Company believes that such
point solution providers may expand their product offerings, which
could provide increased competition for the company across its
market segments. The Company also competes with third party
professional service organizations that develop custom software
and with internal information technology departments of customers
that develop customer interaction applications. Among the
Company's current and potential competitors are also a number of
large hardware and software businesses that may develop or acquire
products that compete with the Company's products. In this
regard, SAP AG, Oracle and The Baan Company have each introduced
sales automation and/or customer support modules as part of their
application suites. Oracle has announced the creation of a
network of third party dealers that will sell Oracle's application
suites exclusively to medium-sized businesses.
The Company expects that large software vendors in the
enterprise resource planning market will continue to enter and
pursue the front-office automation market. These competitors have
significantly greater financial, marketing, service, support,
technical and other resources than the Company.
The Company also expects that competition will increase as a
result of software industry consolidations. 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. The Company also
expects that competition may increase as a result of both new
software start ups entering the market as well as existing
software industry vendors which may be planning to enter the
market for front-office applications. Increased competition is
likely to result in price reductions, reduced operating margins
and loss of market share, any of which could materially adversely
affect the Company's business, results of operations and financial
condition. Many of the Company's current and potential
competitors have significantly greater financial, marketing,
service, support, technical and other resources than the Company.
As a result, they 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, service
and sale of their products than can the Company. 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 adversely
affect its business, results of operations and financial
condition.
The Company believes that the principal competitive factors
affecting its market include product features such as
adaptability, scalability, ability to integrate with products
produced by other vendors, functionality, ease of use and such
other factors as product reputation, quality, performance, price,
customer service and support, the effectiveness of sales and
marketing efforts and company reputation. Although the Company
believes that its products currently compete favorably with
respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and
potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other
resources.
Management of Expanding Operations; Dependence Upon Key
Personnel. The Company's ability to compete effectively and to
manage future growth, if any, will require the Company to continue
to improve its financial and management controls, reporting systems
and procedures on a timely basis and expand, train and manage its
workforce. There can be no assurance that the Company will be able
to do so. The Company's failure to do so could have a material
adverse effect on the Company's business, results of operations and
financial condition. The Company has recently hired a significant
number of employees, including senior sales, marketing, research
and development and finance personnel and in order to maintain its
ability to grow in the future, the Company will be required to
significantly increase its total headcount. In addition, the
Company's future performance depends in significant part upon
attracting and retaining key technical, sales, senior management
and financial personnel. In particular, delays in hiring sales or
research and development personnel may have a material adverse
effect on the Company's business, results of operations and
financial condition. The loss of the services of one or more of
the Company's officers or the inability to recruit other additional
senior management could have a material adverse effect on the
Company's business, results of operations and financial condition.
Competition for such personnel is intense and the inability to
retain its key technical, sales, senior management and financial
personnel or to attract, assimilate or retain other highly
qualified technical, sales, senior management and financial
personnel in the future on a timely basis could have a material
adverse effect on the Company's business, results of operations and
financial condition.
Increased Use of Third Party Software. The Company currently
markets a proprietary application development environment for its
customers to tailor its products. This application development
environment is also used by the Company to build and modify its
products. The Company believes, based on interactions with its
customers and potential customers, that it currently derives a
competitive advantage from this proprietary application development
environment. However, the Company believes that competitive
pressures, technological changes demanded by customers and
significant advances in the sophistication of third party
application development tools such as Visual Basic will require the
Company to make greater use of third party software in the future.
The greater use of third party software could require the Company
to invest significant resources in rewriting some or all of its
software applications products utilizing third party software
and/or to enter into license arrangements with third parties which
could result in higher royalty payments and a loss of product
differentiation and any competitive advantage associated with the
proprietary development environment. There can be no assurance
that the Company would be able to successfully rewrite its
applications or enter into commercially reasonable licenses and the
costs of, or inability or delays in, doing so could have a material
adverse effect on the Company's business, results of operations and
financial condition.
Dependence on Emerging Markets for Front-Office Automation
Software; Product Concentration. The Company's future financial
performance will depend in large part on the growth in demand for
individual front-office automation applications as well as the
number of organizations adopting comprehensive front-office
automation software information systems. To date, much of the
Company's license revenues have resulted from sales of individual
applications, particularly Vantive Support and Vantive HelpDesk.
The markets for these applications are relatively new and
undeveloped and failure of these markets to expand would have a
material adverse effect on the Company's business, results of
operations and financial condition. Additionally, the Company is
investing in the sales, field service and quality automation
markets. Should these markets fail to develop, not accept the
Company's products or cause the company to lose new business and/or
customers in its traditional markets, there would be an adverse
effect on the Company's business, results of operations and
financial condition.
The Company believes that an important competitive advantage for
its software applications is their ability to be integrated with
one another and with other back-office software applications to
create an enterprise-wide information system. If the demand for
integrated suites of front-office automation applications fails to
develop, or develops more slowly than the Company currently
anticipates, it could have a material adverse effect on the demand
for the Company's applications and on its business, results of
operations and financial condition. In addition, any other factor
adversely affecting the demand for the Company's existing
applications could have a material adverse effect on the Company's
business, results of operations and financial condition.
Need to Expand Distribution Channels and Successfully Leverage
Third Party Relationships. An important element of the Company's
distribution strategy is to expand its direct sales force, to
create additional relationships with third parties and to dedicate
certain direct sales resources and leverage third party
relationships to cover key vertical markets. An important element
of the Company's strategy is to integrate its products with
products from enterprise resource planning ("ERP") vendors. The
Company is currently investing and intends to continue to invest,
significant resources toward these strategies, which could
adversely affect the Company's operating margins. In this regard,
the Company has recently hired and continues to hire significant
numbers of direct salespeople. Competition for salespeople is
intense and there can be no assurance that the Company can retain
its existing salespeople or that it can attract, assimilate and
retain additional highly qualified salespeople in the future. The
strategy also depends, in large part, on attracting and retaining
beneficial third party relationships. There also can be no
assurance that the Company will be able to attract and retain
appropriate high-end integrators, resellers, other third party
distributors or ERP vendors. The Company's agreements with these
third parties are not exclusive and, in many cases, may be
terminated by either party without cause. In addition, many of
these third parties sell or co-market competing product lines.
Therefore, there can be no assurance that any of these parties will
continue to represent or recommend the Company's products. There
also can be no assurance that the Company will effectively identify
key vertical markets. The inability to recruit, or the loss of,
important direct sales personnel, high-end integrators, resellers,
other third party distributors or ERP vendors, or the failure to
effectively identify key vertical markets, could have a material
adverse effect on the Company's business, results of operations and
financial condition.
Possible Volatility of Stock Price. Future announcements
concerning the Company or its competitors, quarterly variations in
operating results, announcements of technological innovations, the
introduction of new products or changes in product pricing policies
by the Company or its competitors, proprietary rights or other
litigation, changes in earnings estimates by analysts or other
factors could cause the market price of the Common Stock to
fluctuate substantially. In addition, stock prices for many
technology companies fluctuate widely for reasons which may be
unrelated to operating results of such companies. These
fluctuations, as well as general economic, market and political
conditions such as changes in interest rates, recessions or
military conflicts, may materially and adversely affect the market
price of the Company's Common Stock. In the past, following
periods of volatility in the market price of a company's
securities, securities class action litigation has often been
instituted against such companies. Such litigation could result in
substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Dependence on Licensed Technology. Vantive licenses technology
on a non-exclusive basis from several businesses for use with its
products and anticipates that it will continue to do so in the
future. The inability of the Company to continue to license these
products or to license other products for use with its products or
substantial increases in royalty payments under these third party
licenses could have a material adverse effect on its business,
results of operations and financial condition. In addition, the
effective implementation of the Company's products depends upon the
successful operation of these licensed products in conjunction with
the Company's products and therefore any undetected errors in such
licensed products may prevent the implementation or impair the
functionality of the Company's products, delay new product
introductions and/or injure the Company's reputation. Such
problems could have a material adverse effect on the Company's
business, results of operations 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, trademark and trade secrets laws, as well as
confidentiality procedures and contractual provisions to protect
its proprietary rights. There can be no assurance that such
measures will be adequate to protect the Company from infringement
of its technology. The Company presently has no patents or patent
applications pending. Despite the Company's efforts to protect its
proprietary rights, attempts may be made to copy aspects of the
Company's products or to obtain and use information that the
Company regards as proprietary. In particular, as the Company
provides its licensees with access to the proprietary information
underlying the Company's licensed applications, there can be no
assurance that licensees or others will not develop products which
infringe the Company's proprietary rights.
Policing unauthorized use of the Company's products is
difficult and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy
can be expected to be a persistent problem. In addition, the laws
of some foreign countries do not protect the Company's proprietary
rights to as great an extent as do the laws of the United States.
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, although the Company has in
the past and may in the future, receive communications alleging
possible infringement of third party intellectual property rights.
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 target markets grows and
the functionality of products in such markets 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, results of
operations and financial condition. See "Business-Intellectual
Property and Other Proprietary Rights."
Product Liability. The Company's license agreements with its
customers typically contain provisions intended to limit the
Company's exposure to potential product liability claims. It is
possible that the limitation of liability provisions contained in
the Company's agreements may not be effective. Although the
Company has not experienced any product liability claims to date,
the sale and support of products by the Company and the
incorporation of products from other businesses may entail the risk
of such claims. A successful product liability action brought
against the Company could have a material adverse effect upon the
Company's business, results of operations and financial condition.
Year 2000 Compliance. Many currently installed computer systems
and software products are coded to accept only two digit entries in
the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from the 20th
century dates. As a result many companies' software and computer
systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. Although the Company believes
that its products and systems are Year 2000 compliant, the Company
utilizes third-party equipment and software that may not be Year
2000 compliant. Failure of such third-party equipment or software
to operate properly with regard to Year 2000 and thereafter could
require the Company to incur unanticipated expenses to address any
problems, which could have a material adverse effect on the
Company's business, operating results and financial condition. The
business, operating results and financial condition of the
Company's customers could be adversely affected to the extent that
they utilize third-party software products which are not Year 2000
compliant. Furthermore, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current
systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products and services such as
those offered by the Company, which could have a material adverse
effect on the Company's business, operating results and financial
condition.
Risks Associated with Potential Acquisitions. As part of its
business strategy, the Company expects to review acquisition
prospects that would complement its existing product offerings,
augment its market coverage or enhance its technological
capabilities, or that may otherwise offer growth opportunities.
Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities or amortization expenses related to goodwill
and other intangible assets, any of which could materially
adversely affect the Company's operating results and/or the price
of the Company's Common Stock. Acquisitions entail numerous risks,
including difficulties in the assimilation of acquired operations,
technologies and products, diversion of management's attention to
other business concerns, risks of entering markets which the
Company has no or limited prior experience and potential loss of
key employees of acquired organizations. No assurance can be given
as to the ability of the Company to successfully integrate any
businesses, products, technologies or personnel that might be
acquired in the future, and the failure of the Company to do so
could have a material adverse effect on the business, operating
results and financial condition of the Company. See "Liquidity
and Capital Resources."
Item 8. Financial Statements and Supplementary Data
The Financial Statements and supplemental data of the Company
required by this item are set forth at the pages indicated at
Item 14(a).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information relating to the directors and executive officers of
the Company is set forth in Part I of this report under the
caption "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT."
Information required by this item with respect to compliance
with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference from the definitive proxy statement for
the Company's 1998 annual meeting of stockholders to be filed with
the Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this Form (the "Proxy
Statement") under the caption "EXECUTIVE COMPENSATION AND OTHER
MATTERS."
Item 11. Executive Compensation
The information required by this Item is incorporated by
reference from the Proxy Statement under the caption "EXECUTIVE
COMPENSATION AND OTHER MATTERS."
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated by
reference from the Proxy Statement under the caption "STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by
reference from the Proxy Statement under the caption "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) The following documents are filed as a part of this
Form:
1. Financial Statements-
Report of Independent Public Accountants
Consolidated Balance Sheets-
As of December 31, 1997 and 1996
Consolidated Statements of Operations-
For the Three Years Ended December 31, 1997
Consolidated Statements of Stockholders' Equity-
For the Three Years Ended December 31, 1997
Consolidated Statements of Cash Flows-
For the Three Years Ended December 31, 1997
Notes to Consolidated Financial Statements
2. List of Subsidiaries
Consent of Independent Public Accountants
Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
3. Exhibits: See Index to Exhibits on page 37.
The Exhibits listed in the accompanying Index to
Exhibits are filed or incorporated by reference as
part of this report.
(b) Reports on Form 8-K:
Report on Form 8-K filed on September 26, 1997
Report on Form 8-KA filed on November 4, 1997.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Vantive Corporation:
We have audited the accompanying consolidated balance sheets of The Vantive
Corporation, (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Vantive Corporation and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 21, 1998
<PAGE>
THE VANTIVE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $77,583 $26,017
Short-term investments......................... 23,800 6,853
Accounts receivable, net of allowance for
doubtful accounts of $1,820 and $780 in 1997
and 1996, respectively....................... 33,295 13,775
Prepaid expenses and other current assets...... 11,896 4,492
--------- ---------
Total current assets.................. 146,574 51,137
Property and equipment, net........................ 12,465 6,764
Other assets....................................... 3,700 463
--------- ---------
TOTAL ASSETS....................................... $162,739 $58,364
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $3,680 $3,230
Accrued liabilities............................ 23,868 7,760
Current portion of capital lease obligations... 270 377
Deferred revenues.............................. 9,827 6,811
--------- ---------
Total current liabilities............. 37,645 18,178
Convertible debt 69,000 --
Capital lease obligations, net of current 25
portion.......................................... 346
Other.............................................. 337 409
STOCKHOLDERS' EQUITY
Preferred Stock: $.001 par value, 2,000,000
shares authorized; no shares issued and
outstanding at December 31, 1997............. -- --
Common Stock: $.001 par value, 50,000,000
shares authorized; 25,275,191 and 24,140,441
shares issued and outstanding at December 31,
1997 and 1996, respectively.................. 25 24
Additional paid-in-capital..................... 56,741 33,410
Cumulative translation adjustment.............. (98) (25)
Retained earnings (accumulated deficit)........ (936) 6,022
--------- ---------
Total stockholders' equity............ 55,732 39,431
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $162,739 $58,364
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE VANTIVE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
License ................................ $76,471 $41,513 $16,631
Service ................................ 40,875 22,761 8,404
--------- --------- ---------
Total revenues................. 117,346 64,274 25,035
COST OF REVENUES:
License ................................ 736 392 163
Service ................................ 22,748 12,263 5,968
--------- --------- ---------
Total cost of revenues......... 23,484 12,655 6,131
--------- --------- ---------
GROSS MARGIN.............................. 93,862 51,619 18,904
OPERATING EXPENSES:
Sales and marketing..................... 45,811 24,676 11,582
Research and development................ 17,508 7,261 3,319
General and administrative ............. 9,377 5,389 2,167
Acquired in-process research
and development (Note 3).............. 21,121 -- --
--------- --------- ---------
Total operating expenses....... 93,817 37,326 17,068
--------- --------- ---------
INCOME FROM OPERATIONS.................... 45 14,293 1,836
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income ........................ 2,773 1,445 534
Interest expense ....................... (1,468) (159) (95)
--------- --------- ---------
Total other income............. 1,305 1,286 439
--------- --------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES........................ 1,350 15,579 2,275
PROVISION FOR INCOME TAXES................ 8,308 4,674 232
--------- --------- ---------
NET INCOME (LOSS)......................... ($6,958) $10,905 $2,043
========= ========= =========
NET INCOME(LOSS) PER BASIC SHARE ......... ($0.28) $0.45 $0.10
NET INCOME(LOSS) PER DILUTED SHARE ....... ($0.28) $0.42 $0.09
========= ========= =========
BASIC - SHARES USED IN PER SHARE
COMPUTATION .......................... 24,570 24,008 21,034
========= ========= =========
DILUTED - SHARES USED IN PER SHARE
COMPUTATION .......................... 24,570 25,847 23,012
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE VANTIVE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Total
Common Stock Retained Stockholders'
-------------------- Additional Cumulative Earnings Equity
Par Paid-in Translation (Accumulated (Accumulated
Shares Value Capital Adjustment Deficit) Deficit)
----------- -------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993........... 3,241,670 $1 $161 -- ($6,366) ($6,204)
Exercise of stock options........... 1,377,376 1 103 -- -- 104
Repurchase of common stock.......... (100,000) -- (9) -- -- (9)
Translation adjustment.............. -- -- -- (8) -- (8)
Net loss.......................... -- -- -- -- (548) (548)
----------- -------- ----------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1994........... 4,519,046 2 255 (8) (6,914) (6,665)
Exercise of stock options........... 1,414,068 1 288 -- -- 289
Repurchase of common stock.......... (14,628) -- (3) -- -- (3)
Conversion of mandatorily
redeemable convertible preferred
stock into common stock:
Series A................... 3,523,106 2 1,487 -- -- 1,489
Series B................... 6,101,538 3 4,822 -- -- 4,825
Series C................... 2,381,718 1 2,067 -- -- 2,068
Series D................... 2,083,334 1 2,468 -- -- 2,469
Common stock issued in IPO,
net of issusance costs of $2,644.. 3,800,000 2 20,154 -- -- 20,156
Warrant exercised for common stock.. 87,056 -- -- -- -- --
Translation adjustment.............. -- -- -- (14) -- (14)
Net income.......................... -- -- -- -- 2,043 2,043
----------- -------- ----------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1995........... 23,895,238 12 31,538 (22) (4,871) 26,657
Exercise of stock options........... 246,854 -- 498 -- -- 498
Repurchase of common stock.......... (44,452) -- (20) -- -- (20)
Common stock issued under
Employee Stock Purchase Plan...... 42,801 -- 324 -- -- 324
Translation adjustment.............. -- -- -- (3) -- (3)
Stock dividend (2-for-1
stock split)...................... -- 12 -- -- (12) --
Disqualifying disposition of
stock options..................... -- -- 1,070 -- -- 1,070
Net income.......................... -- -- -- -- 10,905 10,905
----------- -------- ----------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1996........... 24,140,441 24 33,410 (25) 6,022 39,431
Exercise of stock options........... 461,227 -- 1,333 -- -- 1,333
Repurchase of common stock.......... (19,588) -- (7) -- -- (7)
Common stock issued under
Employee Stock Purchase Plan...... 37,540 -- 630 -- -- 630
Issuance of common stock for
ICC acquisition................... 655,571 1 19,654 -- -- 19,655
Translation adjustment.............. -- -- -- (73) -- (73)
Disqualifying disposition of
stock options..................... -- -- 1,721 -- -- 1,721
Net loss............................ -- -- -- -- (6,958) (6,958)
----------- -------- ----------- ------------ ------------ -------------
BALANCE AT DECEMBER 31, 1997........... 25,275,191 $25 $56,741 ($98) ($936) $55,732
=========== ======== =========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE VANTIVE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... ($6,958) $10,905 $2,043
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Write-off of acquired in-process research
and development............... 21,121 -- --
Depreciation and amortization.............. 2,519 1,388 637
Provision for sales allowances and
doubtful accounts............... 1,040 455 325
Changes in operating assets and liabilities,
net of acquisition-
Increase in accounts receivable......... (20,530) (10,181) (1,600)
Increase in prepaid expenses and
other current assets........... (7,393) (3,377) (840)
Increase in other assets................ (2,600) (247) (120)
Increase (decrease) in accounts payable. 450 2,611 (442)
Increase in accrued liabilities......... 15,850 4,581 2,321
Increase (decrease) in
in long-term liabilities.............. (725) 330 70
Increase in deferred revenues........... 2,804 3,859 2,261
---------- ---------- ----------
Net cash provided by
operating activities.............. 5,578 10,324 4,655
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments........ (48,378) (36,363) (8,815)
Maturities of short-term investments....... 31,431 38,325 --
Purchase of ICC, net of cash acquired...... (1,079) -- --
Purchases of property and equipment........ (8,130) (5,180) (1,483)
---------- ---------- ----------
Net cash used in investing
activities........................ (26,156) (3,218) (10,298)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
convertible debt........................ 69,000 -- --
Net proceeds from issuance of common stock. 3,685 1,892 20,445
Repurchase of common stock................. (7) (20) (3)
Payments on capital lease obligations...... (461) (572) (325)
---------- ---------- ----------
Net cash provided by financing
activities........................ 72,217 1,300 20,117
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS...... 51,639 8,406 14,474
EFFECT OF EXCHANGE RATE CHANGES ON CASH........ (73) (3) (14)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. 26,017 17,614 3,154
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $77,583 $26,017 $17,614
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITY
Cash paid for interest..................... $1,468 $159 $101
========== ========== ==========
Cash paid for income taxes................. $5,864 $4,375 $80
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
1. DESCRIPTION OF BUSINESS:
The Vantive Corporation (the "Company") designs, markets and supports a suite
of software applications in the front-office automation market that enables
businesses to improve sales performance and enhance customer loyalty. The
Company's suite of products addresses the front-office automation market and
is called the Vantive Enterprise. The Company also performs consulting,
education and support services for customers that license its products. The
Company has wholly-owned subsidiaries in Australia, Canada, France, Germany,
the Netherlands, Singapore and the United Kingdom.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers
all highly liquid investments with an original maturity of 90 days or less to
be cash equivalents. Cash equivalents primarily consist of certificates of
deposit, money market accounts, treasury bills and commercial paper with a
maturity of less than 90 days.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, non- cash transactions
for the years ended December 31, 1997, 1996 and 1995 include capital lease
additions of approximately $35,000, $194,000 and $781,000, respectively. For
the year ended December 31, 1997, non-cash transactions also include the
issuance of $19,655,000 of common stock and potential common shares to
acquire Innovative Computer Concepts, Inc. (See Note 3).
Investments
The Company accounts for its investments under the provision of
Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." The Company has
classified all marketable debt securities and long-term debt investments as
held-to- maturity and has accounted for these investments at amortized cost.
As of December 31, 1997, the Company's investments consisted of the
following (in thousands):
Securities
Maturing
Amortized Within
Cost One
Basis Year
---------- ----------
Debt securities by the U.S. Treasury
and other U.S. Government agencies $13,054 $13,054
Corporate debt securities 10,746 10,746
---------- ----------
$23,800 $23,800
========== ==========
As of December 31, 1996, the Company's investments consisted of the
following (in thousands):
Securities
Maturing
Amortized Within
Cost One
Basis Year
---------- ----------
Debt securities by the U.S. Treasury
and other U.S. Government agencies $973 $973
Corporate debt securities 5,880 5,880
---------- ----------
$6,853 $6,853
========== ==========
At December 31, 1997 and 1996, the aggregate fair value of these securities
approximated cost and the amount of gross unrealized gains or gross unrealized
losses were not significant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration
of credit risk principally consist of accounts receivable. As of December
31, 1997, approximately 37% of accounts receivable were concentrated with
five customers. The Company performs ongoing credit evaluations of its
customer's financial condition and the risk of loss with respect to its
trade receivables is further mitigated by the fact that the Company's
customer base is comprised of well established companies. The Company
provides reserves for credit losses and such losses have been insignificant.
Property and Equipment
Property and equipment are carried at cost and depreciated or amortized using
the straight-line method over the estimated useful lives of the related
assets (or over the lease term if it is shorter for leasehold improvements),
which range from three to five years.
Revenue Recognition
The Company generates revenues from licensing the rights to use its software
products directly to end- users and indirectly through sublicense fees from
resellers. The Company also generates revenues from sales of customer
support, consulting and training services performed for customers that
license its products.
Revenues from software license agreements are recognized upon shipment of the
software if collection is probable, payment is due within one year, the fee
is fixed or determinable and vendor specific evidence exists to allocate the
total fee to all elements of the arrangement. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or
the expiration of the acceptance period. The Company enters into reseller
arrangements that typically provide for sublicense fees payable to the
Company based on a percent of the Company's list price. Sublicense fees are
generally recognized as reported by the reseller in re-licensing the
Company's products to end-users. In certain circumstances, sublicense fees
are recognized upon the initial sale if all products subject to sublicensing
are shipped in the current period, no rights of return policy exits,
collection is probable, payment is due within one year, and fee is fixed or
determinable. If these conditions are not met, the Company does not
recognize sublicense fees until reported by the reseller in re- licensing the
Company's products to end-users.
Revenues from customer support services are recognized ratably over the term
of the support period. If customer support services are included free or at
a discount in a license agreement, these amounts are allocated out of the
license fee at their fair market value based on the value established by
independent sale of the customer support services to customers. Consulting
revenues are primarily related to implementation services performed on a time
and materials basis under separate service arrangements related to the
installation of the Company's software products. Revenues from consulting
and training services are recognized as services are performed. If a
transaction includes both license and service elements, license fee revenue
is recognized upon shipment of the software, provided services do not
include significant customization or modification of the base product and the
payment terms for licenses are not subject to acceptance criteria. In cases
where license fee payments are contingent upon the acceptance of services,
revenues from both the license and the service elements are deferred until
the acceptance criteria are met.
Cost of license revenues includes the costs of product media, product
duplication and manuals. Cost of service revenues is primarily comprised of
employee-related costs and fees for third-party consultants incurred in
providing consulting, customer support and training services.
Deferred revenues primarily relate to customer support fees, which
have been paid by the customers prior to the performance of these services.
Major Customers
During 1997, 1996 and 1995 no customer accounted for 10% or more of
total revenues.
Export Sales
Export sales consist of domestic sales to customers in foreign
countries. During 1997, 1996 and 1995, export sales were less than 10% of
total revenues.
International Revenues
International revenues, or revenues derived from sales to customers
in foreign countries, primarily in Europe, accounted for approximately 16.0%,
9.3% and 9.8% of the Company's revenue in 1997, 1996 and 1995, respectively.
Geographic information for the year ended December 31, 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------------------
Other/
United States Europe Eliminations Total
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Total revenues $101,763 $12,913 $2,670 117,346
Income (loss) from operations* 21,364 (363) 165 21,166
Total assets $178,046 $3,556 ($18,863) 162,739
</TABLE>
*Income from operations excludes the one-time charge related to acquired
in-process research and development.
Software Development Costs
The Company capitalizes internally generated software development
costs under the provision of Statement of Financial Accounting Standards No.
86 (SFAS 86), "Accounting for Costs of Computer Software to be Sold, Leased
or Otherwise Marketed." Capitalization of computer software development
costs begins upon the establishment of technological feasibility, which the
Company has defined as completion of a working model. Internally generated
capitalizable software development costs have not been material for years
ended December 31, 1997, 1996 and 1995. The Company has charged its software
development costs to research and development expense in the accompanying
consolidated statements of operations.
Foreign Currency Translation
The functional currency of the Company's subsidiaries is the local
currency. Accordingly, the assets and liabilities of operations outside the
United States were translated into United States dollars using current
exchange rates and the effects of foreign currency translation adjustments
are included as a component of stockholders' equity.
Earnings (Loss) per Share:
Effective December 31, 1997, the Company retroactively adopted the
provisions of Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings per Share". SFAS 128 requires companies to compute net
income (loss) per share under two different methods, basic and diluted per
share data for all periods for which an income statement is presented.
Basic earnings per share was computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if the
income were divided by the weighted-average number of common and potential
common shares outstanding during the period. Diluted earnings per share was
computed by dividing net income by weighted average number of common shares
and potential common shares from outstanding stock options for years ended
December 31, 1996 and 1995. Potential common shares were calculated using
the treasury stock method and represent incremental shares issuable upon
exercise of the Company's outstanding options. For the year ended December
31, 1997, the diluted loss per share calculation excludes effects of
convertible debt securities and outstanding stock options as such inclusion
would be anti-dilutive. The following table provides reconciliation of the
numerators and denominators used in calculating basic and diluted earnings
per share for the prior three years.
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . ($6,958) $10,905 $2,043
Basic Earnings Per Share. . . . . . . . . . . . .
Income (loss) available to common shareholders. . ($6,958) $10,905 $2,043
Weighted average common shares outstanding. . . . 24,570 24,008 21,034
--------- --------- ---------
Basic earnings (loss) per share . . . . . . . . . ($0.28) $0.45 $0.10
========= ========= =========
Diluted Earnings Per Share. . . . . . . . . . . .
Income (loss) available to common shareholders. . ($6,958) $10,905 $2,043
Weighted average common shares outstanding. . . . 24,570 24,008 21,034
Common stock option grants (unless anti-dilutive) -- 1,839 1,978
--------- --------- ---------
Total weighted average common shares
and equivalents . . . . . . . . . . . . . 24,570 25,847 23,012
========= ========= =========
Diluted earnings (loss) per share . . . . . . . . . ($0.28) $0.42 $0.09
========= ========= =========
</TABLE>
Options to purchase approximately 4.8 million shares of common stock
were outstanding at December 31, 1997, but were not included in the
computation of diluted earnings per share as a result of their anti- dilutive
effect due to the loss available to common shareholders. During 1996 and
1995, options to purchase approximately 100,000 weighted average shares were
excluded because the options' exercise price was greater than the average
market price of the common shares.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period.
Estimates are used for, but not limited to, the accounting for doubtful
accounts, depreciation and amortization, taxes and contingencies. Actual
results could differ from those estimates.
3. ACQUISITION:
On August 26, 1997, the Company completed the acquisition of Innovative
Computer Concepts, Inc. ("ICC"), a leading developer of software that
improves spare parts procurement and management for field service
applications (the "Merger"). The Company paid $125,000 in cash and issued
655,571 shares of its common stock in exchange for all outstanding shares of
ICC. The Company also assumed all outstanding ICC options, which were
converted to options to purchase approximately 32,381 shares of the
Company's common stock, resulting in a total purchase price of $21 million
(including direct costs of the acquisition). The Merger was recorded under
the purchase method of accounting and therefore the results of operations of
ICC and the fair value of the acquired assets and liabilities were included
in the Company's financial statements beginning on the acquisition date.
Upon consummation of the Merger, ICC became a wholly owned subsidiary of the
Company. In connection with the acquisition, the Company received an
appraisal of the intangible assets, which indicated that approximately $21.1
million represented in-process research and development. The acquired
in-process research and development was expensed in the quarter ended
September 30, 1997. In addition, the Company has recorded goodwill of
approximately $680,000 that will be amortized on a straight-line basis over
five years.
The following table presents the unaudited pro forma results assuming that
the Company had acquired ICC at the beginning of 1997 and 1996, respectively.
Net income and basic and diluted earnings per share amounts have been
adjusted to exclude the write-off of acquired in process research and
development of $21.1 million and include the goodwill amortization of
$136,000 for the twelve months ended December 31, 1997 and 1996. This
information may not necessarily be indicative of the future combined results
of operations of the Company.
(In thousands, except per share data)
For the Years Ended December 31,
----------------------------
1997 1996
----------------------------
Revenues $117,787 $65,982
Net Income 13,550 10,521
Basic Earnings Per Share 0.54 0.43
Diluted Earnings Per Share 0.49 0.40
4. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consist of the following (in thousands):
December 31,
-------------------
1997 1996
--------- ---------
Computer and office equipment . . . . . . . . . $10,105 $5,726
Furniture and fixtures . . . . . . . . . . . . 3,448 1,899
Leasehold improvements . . . . . . . . . . . . 489 366
Purchased software . . . . . . . . . . . . . . 3,326 1,158
--------- ---------
17,368 9,149
Less accumulated depreciation and amortization. (4,903) (2,385)
--------- ---------
$12,465 $6,764
========= =========
Included in property and equipment are assets acquired under capital
lease obligations with an original cost of approximately $1,931,000 and
$1,897,000 as of December 31, 1997 and 1996, respectively. Accumulated
amortization on the leased assets was approximately $1,655,000 and
$1,272,000 as of December 31, 1997 and 1996, respectively.
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following (in thousands):
December 31,
-------------------
1997 1996
--------- ---------
Employee compensation . . . . . . . . . . . . $2,290 $1,427
Commissions . . . . . . . . . . . . . . . . . 4,328 2,395
Taxes . . . . . . . . . . . . . . . . . . . . 4,532 106
Other . . . . . . . . . . . . . . . . . . . . 12,718 3,832
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . $23,868 $7,760
========= =========
6. COMMITMENTS AND CAPITAL LEASE OBLIGATIONS:
Leases
The Company leases its facilities under non- cancelable operating
leases which have expiration dates ranging from 1998 through 2003. Minimum
future lease payments under non-cancelable capital and operating leases as
of December 31, 1997 are summarized as follows (in thousands):
Capital Operating
Leases Leases
--------- ---------
1998 . . . . . . . . . . . . . . . . . . . . $285 $2,037
1999 . . . . . . . . . . . . . . . . . . . . 24 2,004
2000 . . . . . . . . . . . . . . . . . . . . -- 2,038
2001 . . . . . . . . . . . . . . . . . . . . -- 1,490
2002 . . . . . . . . . . . . . . . . . . . . -- 805
Thereafter . . . . . . . . . . . . . . . . . -- 619
--------- ---------
Total minimum lease payments . . . . . . . 309 $8,993
=========
Less: Amount representing interest
at 10.0% - 11.2% . . . . . . . . . . . . . (14)
---------
Present value of lease payments . . . . . . . 295
Less: Current portion . . . . . . . . . . . (270)
---------
Long-term portion . . . . . . . . . . . . . . $25
=========
Rental expense was approximately $3,275,000, $1,447,000 and $740,000
in 1997, 1996 and 1995, respectively.
Legal Proceedings
The Company and its subsidiaries are subject to legal proceedings,
claims and litigation arising in the ordinary course of business. The
Company's management does not expect that the ultimate costs to resolve
these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations and cash flows.
7. CONVERTIBLE SUBORDINATED NOTES:
On August 21, 1997, the Company sold an aggregate of $69.0 million in
principal amount of convertible subordinated notes, due August 2002, to
certain investors in the United States and outside the United States and
incurred approximately $2.4 million of offering expenses in connection with
this issuance. These notes have a 4.75% coupon over a five-year term and
are convertible into the Company's common stock at the investor's option, if
and when the share price exceeds $41.93 per share. The Company intends to
use the net proceeds of $66.6 million for working capital and other general
corporate purposes.
8. COMMON STOCK AND PREFERRED STOCK:
The Company is authorized to issue 50,000,000 shares of Common Stock
and 2,000,000 shares of undesignated Preferred Stock and the Board of
Directors has the authority to issue the undesignated Preferred Stock in one
or more series and to fix the rights, preferences, privileges and
restrictions thereof.
Shares of common stock issued by the Company as a result of the
exercise of stock options under the 1991 Stock Option Plan are subject to
stock repurchase agreements whereby the Company has the option to repurchase
unvested shares upon termination of employment at the original price paid for
the shares (See Note 9). As of December 31, 1997, 119,562 shares of common
stock at $0.09 to $4.50 per share were subject to repurchase.
9. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
Under the Company's 1991 Stock Option Plan (the "Option Plan"), the
Board of Directors may grant incentive and nonqualified stock options to
employees, directors and consultants. The exercise price per share for an
incentive stock option cannot be less than the market price on the date of
grant. The exercise price per share for a nonqualified stock option cannot
be less than 85% of the market price on the date of grant. Options granted
under the Option Plan are immediately exercisable, subject to a right of
repurchase in favor of the Company for all unvested shares. Option grants
under the Option Plan generally expire ten years after the date of grant and
generally vest over a four year period. In addition, in the event of a
Change in Control (as defined) of the Company's ownership, the Company has
agreed with the President and other officers that they will be credited with
12 months of service for purposes of option vesting. As of December 31,
1997, a total of 8,200,000 shares of Common Stock have been authorized by
the Company's stockholders for grant under the plan.
Option activity under the 1991 Stock Option Plan is as follows:
Options
Outstanding
------------
Shares Weighted
Available Number of Average
for Grant Shares Exercise Price
------------ ------------ ---------
Balance, December 31, 1994 . . 174,058 1,582,252 $0.09
Authorized . . . . . . . . . 3,707,262 -- --
Granted . . . . . . . . . . . (2,095,100) 2,095,100 3.12
Exercised . . . . . . . . . -- (1,414,068) 0.20
Canceled . . . . . . . . . . 94,880 (94,880) 0.78
Unvested shares repurchased . 14,628 -- 0.81
------------ ------------
Balance, December 31, 1995 . . 1,895,728 2,168,404 2.91
Authorized . . . . . . . . . -- -- --
Granted . . . . . . . . . . . (1,652,975) 1,652,975 18.82
Exercised . . . . . . . . . -- (246,854) 2.08
Canceled . . . . . . . . . . 498,251 (498,251) 9.99
Unvested shares repurchased . 44,452 -- 8.79
------------ ------------
Balance, December 31, 1996 . . 785,456 3,076,274 10.81
Authorized . . . . . . . . . 1,200,000 -- --
Granted . . . . . . . . . . . (1,606,345) 1,606,345 25.13
Exercised . . . . . . . . . -- (461,227) 3.46
Canceled . . . . . . . . . . 57,874 (57,874) 20.05
Unvested shares repurchased . 22,608 -- 0.39
------------ ------------
Balance, December 31, 1997 . . 459,593 4,163,518 $12.26
============ ============ =========
As of December 31, 1997, all of the outstanding options were
immediately exercisable in full on the date of grant subject to repurchases
of unvested shares by the Company at cost and at the option of the Company
if employment is terminated.
The Company's 1995 Outside Directors Stock Option Plan (the
"Directors Plan") was adopted in July 1995. A total of 400,000 shares of
Common Stock have been reserved for issuance under the Directors Plan. The
Directors Plan provides for the grant of nonstatutory stock options to
certain nonemployee directors of the Company, including an option to
purchase 30,000 shares of Common Stock on the date on which the optionee
first becomes a nonemployee director of the Company and an additional option
to purchase 10,000 shares of Common Stock on the next anniversary of such
date. The exercise price per share of all options granted under the
Directors Plan shall be equal to the market price of the Company's Common
Stock on the date of grant of the option. As of December 31, 1997, options
to purchase 230,000 shares of Common Stock issued pursuant to the Directors
Plan were outstanding of which none have been exercised.
In October 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan") which provides for the issuance of nonqualified stock options to
employees, directors and consultants. Under the terms of this Plan, options
to purchase 500,000 shares of Common Stock were reserved for issuance. The
exercise price per share for a nonqualified stock option cannot be less than
85% of the market price on the date of grant. Options granted under the
Option Plan are immediately exercisable, subject to a right of repurchase in
favor of the Company for all unvested shares. Option grants under the Option
Plan generally expire ten years after the date of grant and generally vest
over a four-year period. At December 31, 1997, options to purchase 329,985
shares of Common Stock issued pursuant to the 1997 Plan were outstanding.
Options for 170,015 shares were available for future grant under the 1997
Plan at December 31, 1997.
The Company has an Employee Stock Purchase Plan (the "Purchase Plan") under
which 700,000 shares of common stock have been reserved for issuance. The
Purchase Plan enables eligible employees to purchase Common Stock at 85% of
the lower of the fair market value of the Company's Common Stock on the first
day or the last day of each six-month purchase period. During 1997 and
1996, approximately 37,540 shares and 42,801 shares, respectively, were
issued under the Purchase Plan.
The Company has adopted the disclosure provision of SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes a fair value
based method of accounting for stock-based compensation plans. In
accordance with the provisions of SFAS No.123, the Company applies APB Opinion
25 and related Interpretations in accounting for its stock option and stock
purchase plans and accordingly, does not record compensation costs. If the
Company had elected, beginning in 1996, to recognize cost based on fair
value of the options granted at grant date as prescribed by SFAS No. 123,
net income (loss) and net income (loss) per share would have been reduced to
the pro forma amounts indicated in the table below (in thousands, except per
share amounts):
For the Years Ended December 31,
1997 1996
--------- ---------
Net income (loss):
As reported ($6,958) $10,905
Pro forma ($19,340) $7,904
Diluted earnings (loss) per share:
As reported ($0.28) $0.42
Pro forma ($0.79) $0.31
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
For the Years Ended December 31,
1997 1996
--------- ---------
Expected dividend yield 0.0% 0.0%
Risk free interest rate 5.2% 6.1%
Volatility 81.8% 85.0%
Expected life beyond vest date 0.40 0.22
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:
Oustanding and Exercisable by Price Range
<TABLE> As of December 31, 1997
<CAPTION>
Options Oustanding Options Exercisable
------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 0.08 - $ 1.50 574,403 7.23 $1.0340 551,656 $1.0729
$ 2.00 - $ 4.50 544,699 7.47 $3.0730 544,699 $3.0730
$ 7.00 - $11.75 462,625 8.04 $10.6830 462,625 $10.6830
$12.75 - $12.75 603,749 8.50 $12.7500 603,749 $12.7500
$15.81 - $21.00 293,996 8.82 $18.3752 221,496 $18.6617
$21.38 - $21.38 509,655 9.87 $21.3750 179,670 $21.3750
$22.25 - $25.25 547,684 9.50 $23.5782 497,684 $23.5710
$26.00 - $29.13 497,334 9.19 $26.7822 474,834 $26.7660
$29.53 - $33.00 520,633 9.24 $31.9128 497,508 $31.8971
$33.75 - $35.13 196,875 9.01 $34.2287 196,875 $34.2287
- ------------------- ------------ ----------- ----------- ------------ -----------
$ .08 - $35.13 4,751,653 8.64 $17.0026 4,230,796 $16.5283
=================== ============ =========== =========== ============ ===========
</TABLE>
<PAGE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:
Oustanding and Exercisable by Price Range
<TABLE> As of December 31, 1996
<CAPTION>
Options Oustanding Options Exercisable
------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 0.04 - $ 1.50 860,705 7.88 $0.9050 860,705 $0.9053
$ 2.00 - $ 7.00 650,314 8.48 $3.2300 650,314 $3.2298
$ 7.00 - $12.75 977,729 9.27 $11.6700 977,729 $11.6749
$17.50 - $34.25 721,150 9.71 $27.7450 588,650 $29.5587
$34.63 - $34.63 16,626 9.91 $34.6250 16,626 $34.6250
- ------------------- ------------ ----------- ----------- ------------ -----------
$ .04 - $34.63 3,226,524 8.84 $10.8096 3,094,024 $10.4297
=================== ============ =========== =========== ============ ===========
The preceding table includes options outstanding under the 1991 Employee, 1995
Outside Directors Stock Option and the 1997 Plans as well as those options
assumed in the acquisition of ICC (See Note 3).
As of December 31, 1997, the Company has reserved 4,751,653 of common
stock for future issuance upon the exercise of currently outstanding stock
options.
10. THE VANTIVE CORPORATION 401(k) PLAN:
During 1993, the Company adopted the Vantive Corporation 401(k) Plan
(the "401(k) Plan"). All employees who are 21 years of age or older are
entitled to participate on their first day of employment. Under the 401(k)
Plan, eligible employees are entitled to make tax-deferred contributions and
the Company may, at its discretion, make matching or discretionary
contributions to the 401(k) Plan. For the years ended December 31, 1997,
1996 and 1995, the Company made no matching or discretionary contributions.
11. INCOME TAXES:
The Company has accounted for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes,"
since its inception. SFAS No. 109 provides for an asset and liability
approach to accounting for income taxes under which deferred income taxes are
provided based upon enacted tax laws and rates applicable to the periods in
which taxes become payable. The provision for income taxes consists of the
following (in thousands):
December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
Current:
Federal . . . . . $10,075 $3,729 $133
State . . . . . . 2,135 748 99
Foreign . . . . . 98 197 --
---------- ---------- ----------
$12,308 $4,674 $232
========== ========== ==========
Deferred:
Federal . . . . . (3,004) $ -- $ --
State . . . . . . (1,175) -- --
Foreign . . . . . 179 -- --
---------- ---------- ----------
($4,000) $ -- $ --
Total Provision: ($8,308) $4,674 $232
========== ========== ==========
The provision for income taxes is net of the benefit of a net operating loss
carryforwards of $430,000 and $2,300,000 for the years ended December 31,
1997 and 1996, respectively.
The provision for income taxes was based upon income before taxes as
follows (in thousands):
December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
Domestic . . . . . . . $749 $15,495 $2,934
Foreign . . . . . . . . 601 84 (659)
---------- ---------- ----------
Total . . . . . . $1,350 $15,579 $2,275
========== ========== ==========
The provision for income taxes differs from the statutory U.S. federal
income tax rate due to the following:
December 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
Provision at U.S. statutory rate . . . . . . 35.00% 35.00% 35.00%
State income taxes, net of federal benefit . 5.59 5.47 1.45
Change in valuation allowance . . . . . . . (55.81) (8.42) (32.27)
Acquired in-process research and development 634.86 -- --
Other . . . . . . . . . . . . . . . . . . (4.23) (2.05) 5.82
---------- ---------- ----------
615.41% 30.00% 10.00%
========== ========== ==========
The components of the net deferred tax assets are as follows (in
thousands):
December 31,
---------------------
1997 1996
---------- ----------
Deferred tax assets:
Net operating loss carryforwards . $157 $224
Capitalized start-up costs . . . . -- 28
Accruals not currently deductible . 3,196 1,239
Other . . . . . . . . . . . . . . 1,198 (186)
---------- ----------
4,551 1,305
Valuation allowance . . . . . . . -- (754)
---------- ----------
Net deferred tax asset . . . . $4,551 $551
========== ==========
As of December 31, 1997, the Company had net operating loss
carryforwards of approximately $451,000. These net operating loss
carryforwards expire in various periods from 2000 to 2012. The net deferred
tax asset is included as a component of prepaid expenses and other current
assets on the accompanying balance sheet.
12. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and
losses) in a full set of general-purpose financial statements. The Company
will adopt SFAS No. 130 in its calendar year 1998. Management believes the
adoption of SFAS No. 130 will not have a material effect on its consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which changes the way
public companies report information about operating segments. SFAS No. 131,
which is based on the management approach to segment reporting, establishes
requirements to report entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds assets
and reports revenue. The SFAS requires limited segment data on a quarterly
basis. The Company will adopt SFAS No. 131 in the first quarter in the
calendar year 1998. Management believes the adoption of SFAS No. 131 will
not have a material effect on its consolidated financial statements.
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 97-2, "Software Revenue
Recognition," which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. The
Company will adopt SOP 97- 2 in the calendar year 1998. The Company
anticipates that SOP 97-2 will not have a material impact on its
consolidated financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Vantive Corporation
(Registrant)
/s/ Kathleen A. Murphy
--------------------------------------
Kathleen A. Murphy
Chief Financial Officer (Principal
Financial Officer)
Date: March 24, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John R. Luongo and/or Kathleen A. Murphy as
his or her attorney-in-fact, with the power of substitution, for him or her
in any and all capacities, to sign any amendments to this Report on Form 10-K
and to file same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 24, 1998 by the following persons on
behalf of the registrant and in the capacities and on the date indicated.
Signature Title
--------- -----
/s/ John R. Luongo President, Chief Executive Officer and
- -------------------------------- Director (Principal Executive Officer)
(John R. Luongo)
/s/ Kathleen A. Murphy Vice President, Finance and Administration,
- -------------------------------- Chief Financial Officer (Principal
(Kathleen A. Murphy) Financial Officer)
/s/ Michael M. Loo Vice President, Finance (Principal
- -------------------------------- Accounting Officer)
(Michael M. Loo)
/s/ Roger J. Sippl Chairman of the Board of Directors
- --------------------------------
(Roger J. Sippl)
/s/ Aneel Bhusri Director
- --------------------------------
(Aneel Bhusri)
/s/ William H. Davidow Director
- --------------------------------
(William H. Davidow)
/s/ Kevin G. Hall Director
- --------------------------------
(Kevin G. Hall)
/s/ Raymond L. Ocampo Jr. Director
- --------------------------------
(Raymond L. Ocampo Jr.)
/s/ Peter A. Roshko Director
- --------------------------------
(Peter A. Roshko)
<PAGE>
Item 6: Exhibits and Reports on Form 8-k
A. Exhibits
*3.1 Form of Agreement and Plan of Merger between The Vantive
Corporation, a California corporation, and The Vantive
Corporation, a Delaware corporation.
*3.2 Bylaws.
=4.1 Declaration of Registration Rights made on August 31, 1997 by the
Company for the benefit of the holders of Common Stock of Innovative
Computer Concepts, Inc.
*10.1 Form of Indemnity Agreement for officers and directors.
*10.2 1991 Stock Option Plan, as amended.
*10.3 1995 Outside Directors Stock Option Plan.
*10.4 1995 Employee Stock Purchase Plan.
*10.5 Offer Letter dated May 21, 1993 between the Company and John R.
Luongo.
*10.6 Offer Letter dated April 6, 1995 between the Company and John
M. Jack.
*+10.7 Value Added Reseller License Agreement dated October 5, 1993 by
and between Inference Corporation and the Company.
*+10.8 Basicscript License Agreement dated October 4, 1994 by and
between Henneberry Hill Technologies Corporation doing business
as Summit Software Company and the Company.
*+10.9 International VAR Agreement dated March 26, 1992 between Oracle
Corporation and the Company, as amended.
*10.9.1 International VAR Agreement dated June 28, 1996 between Oracle
Corporation and the Company as amended.
*+10.10 Value Added Remarketer Agreement dated December 20, 1991
between Sybase, Inc. and the Company, as amended.
*10.11 Security and Loan Agreement dated May 12, 1995 between the
Company and Imperial Bank.
*+10.12 Application Bridge API VAR License Agreement dated January 22,
1993 between the Company and Prospect Software, Inc.
*+10.13 Compensation Letter dated May 10, 1995 between the Company and
John R. Luongo.
*+10.14 Compensation Letter dated May 10, 1995 between the Company and
Steven M. Goldsworthy.
10.15 Lease Agreement dated January 13, 1995 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust) as amended, and
Richard T. Peery, Trustee, or his Successor Trustee, UTA dated
July 20, 1977 (Richard T. Peery Separate Property Trust) as
amended, and the Company.
#10.16 Lease Agreement dated September 4, 1996 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated July 20, 1977
(Arrillaga Family Trust) as amended, and Richard T. Peery,
Trustee, or his Successor Trustee, UTA dated July 20, 1977
(Richard T. Peery Separate Property Trust) as amended, and the
Company.
**10.17 Agreement and Plan of Merger dated August 13, 1997 by and among The
Vantive Corporation, Igloo Acquisition Corporation and Innovative
Computer Concepts, Inc. as amended
21.1 List of Subsidiaries.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
24.1 Power of Attorney.
27.1 Financial Summary Table.
- ----------------
* Previously filed in the Company's Registration Statement (No. 33-94244),
declared effective on August 14, 1995.
+ Confidential Treatment has been granted for portions of this exhibit.
# Previously filed in the Report on Form 10-K filed on March 31, 1997.
** Previously filed in the Company's Report on Form 8- K filed on September
26, 1997 and on Form 8-K/A filed on November 4, 1997.
= Incorporated by reference from the Company's Registration Statement (No.
333-36547), declared effective on November 4, 1997.
<PAGE>
EXHIBIT 21.1
THE VANTIVE CORPORATION
LIST OF SUBSIDIARIES
Jurisdiction of Ownership
Name Incorporation Percentage
- -------------------------------------- ----------------- ----------
Vantive Australia PTY Limited Australia 100%
Vantive B.V. The Netherlands 100%
Vantive Canada PTE Ltd. Canada 100%
Vantive France, SARL France 100%
Vantive Germany, GmbH Germany 100%
Vantive Singapore, Inc. Singapore 100%
Vantive UK Limited United Kingdom 100%
Innovative Computer Concepts, Inc. United States 100%
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-960 on Form S-8.
ARTHUR ANDERSEN LLP
San Jose, California
March 23, 1998
<PAGE>
SCHEDULE II
THE VANTIVE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
</TABLE>
<TABLE>
<CAPTION>
Amounts
Balance at Charged to Balance
Beginning Profit at end
of Year and loss Deductions of Year
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1995 $ -- $325 $ -- $325
Year ended December 31, 1996 $325 $455 $ -- $780
Year ended December 31, 1997 $780 $1,040 $ -- $1,820
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Consolidated Balance Sheet and Consolidated Statement of
Income included in the Company's Form 10-K for the period ended
December 31, 1997 and is qualified in its entirety by reference to
such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 77,583
<SECURITIES> 23,800
<RECEIVABLES> 35,115
<ALLOWANCES> 1,820
<INVENTORY> 0
<CURRENT-ASSETS> 146,574
<PP&E> 17,368
<DEPRECIATION> 4,903
<TOTAL-ASSETS> 162,739
<CURRENT-LIABILITIES> 37,645
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 55,707
<TOTAL-LIABILITY-AND-EQUITY> 162,739
<SALES> 117,346
<TOTAL-REVENUES> 117,346
<CGS> 23,484
<TOTAL-COSTS> 23,484
<OTHER-EXPENSES> 93,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,468
<INCOME-PRETAX> 1,350
<INCOME-TAX> 8,308
<INCOME-CONTINUING> (6,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,958)
<EPS-PRIMARY> ($0.28)
<EPS-DILUTED> ($0.28)
</TABLE>