UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended March 31, 2009
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 000-25375
VIGNETTE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
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74-2769415
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1301 South MoPac Expressway
Austin, Texas 78746
(Address of principal executive offices)
(512) 741-4300
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Sections 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨
No
¨
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
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No
x
As of May 4, 2009, there were
23,825,706
shares of the registrant’s common stock outstanding.
VIGNETTE CORPORATION
FORM 10–Q QUARTERLY REPORT
For the quarter ended March 31, 2009
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
VIGNETTE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
in
thousands, except share and per share data
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March 31,
2009
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December 31,
2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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104,561
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$
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120,348
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Short-term investments
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38,562
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18,572
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Accounts receivable, net of allowance of $622 and $676, respectively
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22,299
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24,564
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Prepaid expenses and other current assets
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5,358
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6,148
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Total current assets
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170,780
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169,632
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Property and equipment, net
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6,660
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5,981
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Long-term investments
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4,921
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4,945
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Goodwill
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121,090
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121,090
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Other intangible assets, net
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8,460
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10,639
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Other assets
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11,911
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12,156
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Total assets
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$
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323,822
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$
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324,443
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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19,451
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$
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19,876
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Deferred revenue
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33,242
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32,605
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Other current liabilities
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5,189
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5,534
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Total current liabilities
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57,882
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58,015
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Long-term liabilities, less current portion
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1,804
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2,076
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Total liabilities
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59,686
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60,091
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Shareholders’ equity:
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Common stock, $0.01 par value; 500,000,000 shares authorized; 23,837,122 and 23,698,945 shares issued and outstanding at March 31, 2009
and December 31, 2008, respectively (net of treasury shares of 7,596,135 and 7,579,366 as of March 31, 2009 and December 31, 2008, respectively)
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238
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237
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Additional paid-in capital
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2,658,404
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2,656,743
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Accumulated other comprehensive income
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1,352
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1,452
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Retained earnings
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(2,395,858
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)
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(2,394,080
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)
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Total shareholders’ equity
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264,136
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264,352
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Total liabilities and shareholders’ equity
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$
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323,822
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$
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324,443
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
VIGNETTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
in thousands, except per share data
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Three Months Ended
March 31,
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2009
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2008
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Revenue:
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Product license
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$
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6,923
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$
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9,741
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Services
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26,996
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35,011
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Total revenue
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33,919
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44,752
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Cost of revenue:
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Product license
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332
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474
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Amortization of acquired technology
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1,310
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1,254
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Services
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10,279
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15,852
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Total cost of revenue
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11,921
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17,580
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Gross profit
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21,998
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27,172
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Operating expenses:
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Research and development
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7,293
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8,399
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Sales and marketing
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11,313
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15,373
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General and administrative
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4,518
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4,790
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Business restructuring (benefit) charges
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131
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(2
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Amortization of intangible assets
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869
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817
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Total operating expenses
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24,124
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29,377
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Income (loss) from operations
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(2,126
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(2,205
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Other income, net
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292
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1,821
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Income (loss) before provision for income taxes
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(1,834
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(384
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Provision for (benefit from) income taxes
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(56
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455
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Net income (loss)
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$
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(1,778
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$
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(839
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Basic net income (loss) per share
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$
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(0.08
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$
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(0.03
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Diluted net income (loss) per share
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$
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(0.08
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$
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(0.03
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Shares used in computing basic net income (loss) per common share
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23,103
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24,372
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Shares used in computing diluted net income (loss) per common share
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23,103
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24,372
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
VIGNETTE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
in thousands
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Three Months Ended
March 31,
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2009
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2008
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Operating activities:
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Net income (loss)
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$
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(1,778
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$
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(839
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation
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956
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1,008
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Amortization of intangible assets
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2,179
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2,071
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Loss (gain) on disposal of fixed assets
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31
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14
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Non-cash compensation expense
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1,676
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1,111
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Non-cash restructuring charges/(benefits)
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(1,202
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)
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(2
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Other non-cash charges/(benefits), net
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52
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(127
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Changes in operating assets and liabilities
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4,219
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6,819
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Net cash provided by (used in) operating activities
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6,133
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10,055
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Investing activities:
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Purchase of property and equipment
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(1,692
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(717
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Maturity of restricted investments
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—
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192
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Purchase of short-term investments
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(30,716
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)
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(14,613
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)
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Maturity of short-term investments
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10,740
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6,991
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Purchase of long-term investments
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(38
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)
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19,931
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Other
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—
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(64
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Net cash provided by (used in) investing activities
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(21,706
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)
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11,720
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Financing activities:
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Payments for treasury shares at cost
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—
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(18,748
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)
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Proceeds from issuance of common stock
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188
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733
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Redemption of shares related to tax liabilities of stock-based compensation
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(201
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)
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—
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Net cash provided by (used in) financing activities
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(13
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)
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(18,015
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)
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Effect of exchange rate changes on cash and cash equivalents
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(201
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)
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857
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Net change in cash and cash equivalents
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(15,787
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)
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4,617
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Cash and cash equivalents at beginning of period
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120,348
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94,201
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Cash and cash equivalents at end of period
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$
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104,561
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$
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98,818
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VIGNETTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2009
NOTE 1 — General and Basis of Financial Statements
Vignette Corporation, along with its
wholly-owned subsidiaries (collectively, the “Company” or “Vignette”), provides Web content management, intranet solutions, social media, experience optimization, video, rich media and transactional content management solutions.
Our solutions give organizations the capability to provide a personalized and highly engaging Web experience. In addition to creating high-value interactions through their Web presence, Vignette customers are also able to integrate systems and
information from inside and outside the organization; manage the lifecycle of enterprise information; and collaborate by supporting ad-hoc and process-based information sharing. Together, our products and expertise help companies harness the power
of their information and the Web to deliver high-value interactions, build communities online and meet users’ demands for any content, at anytime, anywhere, on the device of the user’s choosing.
The Company was incorporated in Delaware on December 19, 1995. Vignette currently markets its products and services throughout the Americas, Europe,
Asia and Australia. The unaudited interim condensed consolidated financial statements include the accounts of Vignette Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and are presented in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Accordingly, certain footnote disclosures have
been condensed or omitted. In the Company’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the
Company’s financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed with the
United States Securities and Exchange Commission in the Company’s annual report on Form 10-K for the year ended December 31, 2008. The results of operations and cash flows for all interim periods presented are not necessarily indicative of
results that may be expected for any other interim period or for the full fiscal year.
The balance sheet at December 31, 2008 has
been derived from audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements.
NOTE 2 —
Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement 161,
Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133
. The new Statement requires companies with derivative instruments to disclose information about how and why the company uses derivative
instruments; how the company accounts for derivative instruments and related hedged items under Statement 133; and how derivative instruments and related hedged items affect the company’s financial position, financial performance, and cash
flows. The expanded disclosure guidance also requires a company to provide information about its strategies and objectives for using derivative instruments; disclose credit-risk-related contingent features in derivative agreements and information
about counterparty credit risk; and present the fair value of derivative instruments and related gains or losses in a tabular format. The Company adopted Statement 161 as of the required effective date of January 1, 2009. See Note 15 for
disclosures related to the Company’s adoption of this statement.
In April 2009, the FASB issued three
FASB Staff Positions (“FSPs”) dealing with fair value measurements, other-than-temporary impairments and interim disclosures of fair value (FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Has Significantly Decreased and Identifying Transactions That Are Not Orderly; FSP FAS 115-2, and FSP FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairment; and FSP FAS 107-1 and FSP APB28-1, Interim Disclosures about
Fair Value of Financial Instruments.) The FSPs are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company intends to adopt these FSPs
effective June 30, 2009 and apply the provisions prospectively. The Company’s financial assets and liabilities are typically measured using Level 1 or Level 2 inputs and as a result, the Company does not believe that these FSPs will have a
significant effect on its financial statements or related disclosures.
In April 2008, the Financial Accounting Standards Board issued FASB
Staff Position (FSP) FAS 142-3, “Determination of the Useful Life of Intangible Assets,” to provide guidance for determining the useful life of recognized intangible assets and to improve consistency between the period of expected cash
flows used to measure the fair value of a recognized intangible asset and the useful life of the intangible asset as determined under FASB Statement 142,
Goodwill and Other Intangible Assets
. The FSP requires that an entity consider its own
historical experience in renewing or extending similar arrangements. However, the entity must adjust that experience based on entity-specific factors included in Statement 142. If the Company lacks historical experience to consider for similar
arrangements, it would consider assumptions that market participants would use about renewal or extension, as adjusted for the entity-specific factors under Statement 142. The Company adopted FSP FAS 142-3 as of the required effective date of
January 1, 2009. The Company did not acquire any intangible assets during the three months ended March 31, 2009 nor did it have intangible assets with implicit or explicit renewal or extension terms and thus the adoption of FSP FAS 142-3
did not have a significant effect on the Company’s financial statements or their related disclosures.
From time to time, new
accounting pronouncements applicable to the Company are issued by the FASB or other standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that
are not effective will not have a material impact on our consolidated financial statements upon adoption.
6
NOTE 3 — Cash, cash equivalents and short-term investments
The Company considers all highly liquid investment securities with an original maturity of three months or less at the date of purchase to be cash
equivalents.
Short-term investments consist of restricted investments, and marketable securities that have remaining maturities of one
year or less from the balance sheet date, excluding cash equivalents as described above.
SFAS No. 157 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:
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1.
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Level 1 Inputs – quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to obtain at the measurement date. This level
provides the most reliable evidence of fair value.
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2.
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Level 2 Inputs – inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability (i.e. default rates, credit
risks, loss severities).
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3.
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Level 3 Inputs – Used to measure fair value assets and liabilities that little, if any, market activity exists at the measurement date. These inputs reflect the reporting
entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
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Short-term investments consisted of the following (in thousands):
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Fair Value
Hierarchy
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Restricted investments
|
|
Level 1
|
|
$
|
674
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$
|
671
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Short-term marketable securities
|
|
Level 1
|
|
|
37,888
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17,901
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|
|
|
|
|
|
|
|
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Total short-term investments
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|
|
$
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38,562
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$
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18,572
|
The Company holds restricted investments in the form of bank guarantees and restricted money
market balances with high credit quality financial institutions. Such restricted investments collateralize letters of credit related to certain leased office space security deposits. These investments will remain restricted to the extent that the
security requirements exist. Based on the inputs used to estimate fair values for restricted investments, the Company has determined that our restricted investments are Level 1 in the fair value hierarchy.
Short-term marketable securities are classified as “available-for-sale” and are presented at estimated fair value with any unrealized gains or
losses included in other comprehensive income (loss). Realized gains and losses are computed based on the specific identification method. Realized gains and losses were not material for the periods presented. Short-term marketable securities consist
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
Cost
|
|
Unrealized
Gain
(Loss)
|
|
Estimated
Fair Value
|
|
Cost
|
|
Unrealized
Gain
(Loss)
|
|
Estimated
Fair Value
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes
|
|
$
|
37,824
|
|
$
|
64
|
|
$
|
37,888
|
|
$
|
17,847
|
|
$
|
54
|
|
$
|
17,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,824
|
|
$
|
64
|
|
$
|
37,888
|
|
$
|
17,847
|
|
$
|
54
|
|
$
|
17,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 — Long-term Investments
Long-term investments consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Hierarchy
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Restricted investments
|
|
Level 1
|
|
$
|
3,313
|
|
$
|
3,375
|
|
Restricted investments
|
|
Level 2
|
|
$
|
464
|
|
$
|
464
|
|
Limited partnership interest
|
|
N/A
|
|
|
1,144
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
|
|
$
|
4,921
|
|
$
|
4,945
|
|
|
|
|
|
|
|
|
|
|
The Company holds restricted investments in the form of bank guarantees and restricted money
market balances, which the Company classifies as Level 1, and certificates of deposit, which the Company classifies as Level 2. All restricted investments are with high credit quality financial institutions. Such restricted investments collateralize
letters of credit related to certain leased office space security deposits and tax obligations. These investments will remain restricted to the extent that the security requirements exist or until the tax obligations are settled. The average yield
of these investments is approximately 0.37%.
The Company holds a less than 20% interest in, and does not exert significant influence over,
a limited partnership interest in a technology incubator. The Company, therefore, accounts for this investment under the cost method.
The
Company periodically analyzes its long-term investments for impairments considered other than temporary. In performing this analysis, the Company evaluates whether general market conditions that reflect prospects for the economy as a whole or
information pertaining to the specific investment’s industry, or that individual company, indicates that an other than temporary decline in value has occurred. If so, the Company considers specific factors, including the financial condition and
near-term prospect of each investment, any specific events that may affect the investee company, and the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in market
value. As a result of these reviews, the Company recognized no impairment charges during the three months ended March 31, 2009 and 2008.
7
NOTE 5 — Intangible Assets
Goodwill
The net goodwill balance of $121.1 million at March 31, 2009 relates to the MicroNets
(d/b/a Vidavee) business combination completed in April 2008, the Tower Technology business combination completed in March 2004, the Intraspect business combination completed in December 2003 and the Epicentric business combination completed in
December 2002.
In accordance with Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”) , the Company assesses its goodwill for impairment on October 1 of each year or more frequently if events or changes in circumstances indicate that goodwill might be impaired. As required by SFAS 142, the
impairment test is accomplished using a two-stepped approach. The first step screens for impairment by comparing the fair value of the Company with its carrying amount, including goodwill. To determine the Company’s fair value, the Company
considers various measurements including market capitalization as adjusted to reflect market observed control premiums, earnings and revenue multiples observed in relation to peer group companies and discounted cash flows. If, under the first step,
an impairment is indicated, a second step is performed that compares the implied fair value of the goodwill with the carrying amount of the goodwill. As of October 1, 2008, the date of the Company’s annual impairment test, and again at
December 31, 2008, the Company determined that the remaining net goodwill balance of $121.1 million was not impaired.
In accordance
with SFAS 142, goodwill of a reporting unit shall be tested for impairment on an annual basis and between annual tests in certain circumstances. Driven by the significant decline in the market capitalization of public companies in its peer
group in the first quarter of 2009, the Company considered whether it should again test its goodwill for impairment on March 31, 2009. As part of this evaluation, the Company felt that its fair value had not materially changed as a
result of its recent financial performance, which included strong cash flow from operations. While the Company experienced lower revenue during the quarter, as compared to the prior year, it also exceeded analyst expectations for both license
revenue and earnings per share. We have also seen a modest improvement in our stock price towards the end of the quarter ended March 31, 2009, which has led to an increase in our market capitalization. Based on these factors, the Company has
determined that the remaining net goodwill balance of $121.1 million at March 31, 2009 was not considered to be impaired. The company recognizes that, over the longer term, the market price for our stock plus an appropriate control premium
should represent fair value and, if market conditions fail to improve, we may incur charges for goodwill impairment in the future, which could be significant and could have a material negative effect on our results of operations.
There was no impairment charge recorded in the three month period ended March 31, 2008.
Intangible assets with definite lives
Following is a
summary of the Company’s intangible assets that are subject to amortization (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2009
|
|
Year ended December 31, 2008
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
and
Impairment
|
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
and
Impairment
|
|
|
Net
Carrying
Amount
|
|
Technology (useful life of 72 months and 48 months for Tower and Vidavee purchases, respectively)
|
|
$
|
78,001
|
|
$
|
(72,708
|
)
|
|
$
|
5,293
|
|
$
|
78,001
|
|
$
|
(71,398
|
)
|
|
$
|
6,603
|
|
Non-compete contracts (useful life of 48 months and
24 months for Tower and Vidavee purchases, respectively)
|
|
|
2,900
|
|
|
(2,521
|
)
|
|
|
379
|
|
|
2,900
|
|
|
(2,433
|
)
|
|
|
467
|
|
Customer relationships (useful life of 72 months and
12 months for Tower and Vidavee purchases, respectively)
|
|
|
23,491
|
|
|
(20,703
|
)
|
|
|
2,788
|
|
|
23,491
|
|
|
(19,922
|
)
|
|
|
3,569
|
|
Trademarks
|
|
|
800
|
|
|
(800
|
)
|
|
|
—
|
|
|
800
|
|
|
(800
|
)
|
|
|
—
|
|
Capitalized research and development
|
|
|
700
|
|
|
(700
|
)
|
|
|
—
|
|
|
700
|
|
|
(700
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 and December 31, 2008
|
|
$
|
105,892
|
|
$
|
(97,432
|
)
|
|
$
|
8,460
|
|
$
|
105,892
|
|
$
|
(95,253
|
)
|
|
$
|
10,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s intangible assets with definite lives are being amortized over the assets’
estimated useful lives using the straight-line method. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished
fair value or revised useful life. Total amortization expense for the three months ended March 31, 2009 and 2008 was $2.2 million and $2.1 million. Of these totals, $0.9 million and $0.8 million was recorded as “Amortization of intangible
assets” in operating expenses for the three months ended March 31, 2009 and 2008. The remaining $1.3 million for the three months ended March 31, 2009 and 2008 was recorded as a cost of revenue.
Estimated annual amortization expense (in thousands) for the remaining nine months (remaining period) ending December 31, 2009 and the remaining
amortization period is as follows:
|
|
|
|
|
|
For the remaining period ending December 31, 2009
|
|
$
|
6,476
|
|
For the year ending December 31, 2010
|
|
|
1,683
|
|
For the year ending December 31, 2011
|
|
|
225
|
|
For the year ending December 31, 2012
|
|
|
76
|
|
For the year ending December 31, 2013
|
|
|
—
|
|
|
|
|
|
|
Total remaining amortization
|
|
$
|
8,460
|
|
|
|
|
|
8
NOTE 6 — Current Liabilities
Current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Accounts payable and accrued expenses:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,018
|
|
$
|
3,015
|
|
Accrued employee liabilities
|
|
|
7,993
|
|
|
7,581
|
|
Accrued restructuring charges
|
|
|
1,451
|
|
|
2,142
|
|
Accrued professional fees
|
|
|
2,514
|
|
|
3,782
|
|
Accrued sales and marketing expenses
|
|
|
811
|
|
|
865
|
|
Accrued other charges
|
|
|
2,664
|
|
|
2,491
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
19,451
|
|
$
|
19,876
|
|
Deferred revenue
|
|
$
|
33,242
|
|
$
|
32,605
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
Accrued income taxes
|
|
|
3,395
|
|
|
3,749
|
|
Accrued other taxes
|
|
|
1,794
|
|
|
1,785
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
5,189
|
|
$
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,882
|
|
$
|
58,015
|
|
|
|
|
|
|
|
|
NOTE 7 — Long-term Liabilities
Long-term liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Accrued restructuring charges, net of current portion
|
|
$
|
565
|
|
$
|
1,093
|
|
Deferred revenue, less current portion
|
|
|
1,239
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,804
|
|
$
|
2,076
|
|
|
|
|
|
|
|
|
NOTE 8 — Shareholders’ Equity
Stock-based compensation
The Company recognized $1.7 million in the quarter ended March 31,
2009, for stock based compensation. This expense includes $0.7 million for stock options, $0.9 million for restricted stock awards, and $0.1 million for the employee stock purchase plan (ESPP). The tables below present the costs recorded related to
stock based compensation and the effect of stock based compensation on earnings per share for the three months ended March 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
Cost of revenue – services
|
|
$
|
153
|
|
$
|
90
|
|
Research and development
|
|
|
326
|
|
|
177
|
|
Sales and marketing
|
|
|
218
|
|
|
106
|
|
General and administrative
|
|
|
979
|
|
|
738
|
|
|
|
|
|
|
|
|
|
Total stock based compensation
|
|
$
|
1,676
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
2008
|
|
Effect of stock based compensation on earnings per share
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.07
|
|
$
|
0.05
|
Fair value was estimated using the Black-Scholes option-pricing model, with the following
assumptions, for stock options and the ESPP granted in the three months ended March 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock
Options
|
|
|
Employee Stock
Purchase Plan
|
|
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
March 31,
2009
|
|
|
March 31,
2008
|
|
|
Risk-free interest rate
|
|
|
1.80
|
%
|
|
|
1.98
|
%
|
|
|
0.44
|
%
|
|
|
2.09
|
%
|
|
Weighted average expected term of options (years)
|
|
|
4.70
|
|
|
|
4.30
|
|
|
|
0.80
|
|
|
|
0.75
|
|
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Assumed Volatility
|
|
|
39.56
|
%
|
|
|
47.28
|
%
|
|
|
61.00
|
%
|
|
|
47.02
|
%
|
|
Weighted average grant date fair value of options granted:
|
|
$
|
2.45
|
|
|
$
|
4.29
|
|
|
$
|
1.46
|
|
|
$
|
4.12
|
|
9
Employee stock options are issued with the exercise price at or above quoted market value at date of
grant; therefore, there is no intrinsic value at grant date. We have assumed an annual forfeiture rate of 15% for stock options. Under the ESPP, shares are issued with an exercise price at fair market value less a 15% discount.
Stock Plans
The Company has established five stock
plans: (i) the 1995 Stock Option/Stock Issuance Plan (the “1995 Plan”); (ii) the Amended and Restated 1999 Equity Incentive Plan (the “1999 Plan”); (iii) the 1999 Supplemental Stock Option Plan (the “1999
Supplemental Plan”); (iv) the 1999 Non-Employee Directors Option Plan (the “Directors’ Plan”) and (v) the Employee Stock Purchase Plan and the International Employee Stock Purchase Plan (the “ESPP”). Of these
plans, the 1995 Plan, the 1999 Plan, the Directors’ Plan and the ESPP have been approved by the Company’s shareholders. The 1999 Supplemental Plan did not require approval by the Company’s shareholders. For further information, refer
to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.
The following table summarizes stock option activity and related information through March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Contract
Term
|
|
Aggregate
Intrinsic
Value
(in 000s)
|
|
Outstanding at beginning of period
|
|
2,734,039
|
|
$
|
16.68
|
|
5.05
|
|
$
|
126
|
|
Granted
|
|
750,002
|
|
$
|
6.78
|
|
|
|
|
|
|
Exercised
|
|
—
|
|
$
|
—
|
|
|
|
|
|
|
Forfeited
|
|
151,783
|
|
$
|
21.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
3,332,258
|
|
$
|
14.26
|
|
3.93
|
|
$
|
—
|
|
Exercisable at end of period
|
|
1,373,551
|
|
$
|
18.98
|
|
3.67
|
|
$
|
—
|
As of March 31, 2009, the estimated unamortized cost for outstanding stock options is
approximately $7.1 million. The estimated unamortized cost is net of estimated forfeitures used in computing compensation expense. The Company expects to recognize that expense over a weighted average period of approximately 1.5 years. The aggregate
intrinsic value of stock options exercised for the three months ended March 31, 2009 was zero.
The following table summarizes
restricted stock activity and related information through March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Grant Date
Aggregate
Intrinsic
Value
(in 000s)
|
|
Outstanding at beginning of period
|
|
653,854
|
|
$
|
14.14
|
|
$
|
9,247
|
|
Granted
|
|
149,998
|
|
$
|
6.78
|
|
$
|
1,017
|
|
Vested
|
|
100,000
|
|
$
|
15.95
|
|
$
|
1,595
|
|
Forfeited
|
|
16,769
|
|
$
|
14.53
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and unvested at end of period
|
|
687,083
|
|
$
|
12.26
|
|
$
|
8,425
|
Share repurchase program
On November 12, 2006, the Board of Directors of the Company approved a stock repurchase program of up to $75 million of the Company’s common stock over the following 12 months. In addition, on
November 2, 2007, the Board of Directors of the Company approved an extension to the stock repurchase program approved on November 12, 2006 authorizing the purchase of up to an additional $75 million of the Company’s common stock over
an indefinite period. Purchases are made from time to time as market and business conditions warrant, in the open market, negotiated or block transactions, in accordance with applicable laws, rules and regulations. As of March 31, 2009 the
Company has repurchased 7,469,076 shares under the programs at an average market price of $16.09 per share. The Company paid cash of approximately $120.2 million for these repurchases.
During July 2008, the Company suspended the share repurchase program as Management felt that the capital structure of the Company was well balanced at
that point. The Company retains the right to repurchase the remaining $30 million. The Company uses the cost method to account for treasury stock.
NOTE
9 — Comprehensive Income
Comprehensive income (loss) is included as a component of
shareholders’ equity and includes net income (loss) and other non-owner related charges in equity not included in net income (loss). As of March 31, 2009 and 2008, the Company’s comprehensive income (loss) is composed of (i) net
income (loss), (ii) foreign currency translation adjustments and (iii) unrealized gains and losses on investments designated as available-for-sale. The following table presents the calculation of comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
(1,778
|
)
|
|
$
|
(839
|
)
|
|
Net change in foreign currency translation adjustments
|
|
|
(110
|
)
|
|
|
300
|
|
|
Net change in unrealized gain (loss) on investments
|
|
|
10
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(1,878
|
)
|
|
$
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
10
NOTE 10 — Other Income, net
Other income and expense for the three month period ended March 31, 2009 and 2008, respectively, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Interest income
|
|
$
|
366
|
|
|
$
|
1,722
|
|
Other income (loss)
|
|
|
(74
|
)
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292
|
|
|
$
|
1,821
|
Interest income decreased in the three months ended March 31, 2009 as compared to the same
period in 2008 due to lower investment fund balances and lower yields on these funds. Other income decreased in the three months ended March 31, 2009, as compared to the same period in 2008, due to the offsetting of foreign currency exchange
realized and unrealized gains (losses).
NOTE 11 — Income Taxes
Income tax expense consists primarily of estimated withholding taxes, income taxes due in certain foreign jurisdictions and the alternative minimum tax in the United States. Income tax expense amounts (in thousands)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Provision for (benefit from) income taxes
|
|
$
|
(56
|
)
|
|
$
|
455
|
The Company’s estimated effective tax rate and associated provision for income taxes for the
three months ended March 31, 2009 are based on an estimate of consolidated earnings before taxes for fiscal 2009. The estimated effective tax rate is impacted primarily by non-deductible amortization of purchased intangible assets, the
worldwide mix of estimated consolidated earnings before taxes and an assessment regarding the realizability of the Company’s deferred tax assets.
Our accounting for deferred taxes under SFAS 109 involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In 2007, we released $9.8 million of the valuation allowance we
had recorded against our net deferred tax asset based on the determination that it is now more likely than not that part of the benefit related to the net operating loss carryforward will be realized. Approximately $7.4 million of the benefit from
release of the valuation allowance was recorded as a benefit to our income tax provision and the remaining $2.4 million related to assets of acquired companies and was recorded as a reduction of goodwill. In concluding that releasing part of the
valuation allowance was appropriate, we have considered such factors as our operating history and our ability, based on a projection, to generate sufficient taxable income of the appropriate character within the relevant jurisdictions in future
years.
As of December 31, 2008, we had domestic federal net operating loss, research and development credit and capital loss carry
forwards of approximately $754.0 million, $16.3 million and $15.8 million, respectively. These domestic net operating loss, research and development credit and capital loss carry forwards will expire at various dates, between 2009 and 2028, if not
utilized. The Company also had foreign net operating loss carry forwards of approximately $12.8 million that are not subject to expiration.
Internal Revenue Code Section 382 and similar foreign statutes impose substantial restrictions on the utilization of net operating losses, tax credits and capital loss carry forwards in the event of an “ownership change” of a
corporation. Domestic net operating loss carry forwards of approximately $184.9 million and tax credit carry forwards of $4.4 million at December 31, 2008 were incurred by businesses we acquired and are subject to annual limitation. The
remaining tax attributes that would be subject to annual limitations upon an “ownership change” include domestic net operating loss carry forwards of $569.2 million, capital loss carry forwards of $15.8 million and research and development
credit carry forwards of $11.9 million. Based upon a review of historical stock ownership, we do not believe we have undergone an “ownership change” that will limit our ability to utilize these tax attributes prior to their expiration. We
do not have actual information of any ownership shifts that may cause an “ownership change” but due to the volatility in the stock market, if there is such change; application of the change in ownership statutes may severely limit our
ability to utilize these tax attributes prior to their expiration. If a limitation is triggered from an ownership change it will significantly impact our ability to realize the benefit from our deferred tax asset, potentially resulting in impairment
of substantially all of our entire domestic deferred tax asset of $9.0 million at December 31, 2008.
As of January 1, 2009, the
balance of unrecognized tax benefit was approximately $11 million. Included in this amount is approximately $2.2 million of unrecognized tax benefits, which if recognized, would reduce the effective tax rate. The remaining approximately $8.8 million
of unrecognized deferred tax benefits are attributed to tax carryforwards that, if recognized, would not affect the effective tax rate because the recognition of the associated deferred tax asset would be offset by a change in the valuation
allowance.
At both January 1, 2009 and March 31, 2009 approximately $2.0 million and $1.7 million, respectively, of unrecognized
tax benefits are attributed to uncertain tax positions that, if recognized, would have an effective tax rate effect after consideration of any valuation allowance.
The Company accrues and recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of March 31,
2009, the balance of accrued interest and penalties related to unrecognized tax benefits was approximately $0.4 million and $0.3 million, respectively.
With few exceptions, the Company and all of its major filing subsidiaries are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2002.
It is reasonably possible that within 12 months of March 31, 2009 the balance of unrecognized tax benefits could increase by up to
$0.3 million due to the following:
|
|
i.
|
a ruling from the Indian court of appeals on the Company’s protest of a tax assessment
|
11
NOTE 12 — Earnings Per Share
Basic net income (loss) per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period, excluding shares
subject to repurchase or forfeiture. Diluted earnings per share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding during the period increased to include the
number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of outstanding options, shares to be purchased under the employee stock purchase plan,
and unvested restricted stock is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater
dilutive effect from outstanding options and restricted stock (RSA). Additionally, the exercise of common stock options and the vesting of restricted stock can increase shares outstanding and has a dilutive effect on earnings per share. The Company
excludes outstanding stock options from the computation of diluted earnings per share when such inclusion would be anti-dilutive. The Company excluded 2.6 million outstanding out-of-the-money stock options for the three months ended
March 31, 2009.
For the three months ended March 31, 2009 and 2008, respectively, diluted net loss per share is presented at the
basic net loss per share amount as the effect of the assumed RSA vesting, stock option exercises and ESPP purchases are anti-dilutive. For the three months ended March 31, 2009 and 2008, the Company had in-the-money outstanding RSA grants and
common stock options of 102,233 and 169,741, respectively, calculated under the treasury stock method. Such outstanding in-the-money RSA grants and common stock options have been excluded from the calculation of diluted net loss per share, as their
inclusion would be anti-dilutive.
The following table sets forth the computation of basic and diluted earnings per share for the three
months ended March 31, 2009 and 2008 (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,778
|
)
|
|
$
|
(839
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding, excluding unvested restricted stock
|
|
|
23,103
|
|
|
|
24,372
|
|
|
Stock options, ESPP, and restricted shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
23,103
|
|
|
|
24,372
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
|
Diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
NOTE 13 — Commitments and Contingencies
Securities Class Action
On October 26, 2001, a class action lawsuit was filed against the
Company and certain of its current and former officers and directors in the United States District Court for the Southern District of New York seeking unspecified damages on behalf of a purported class that purchased Vignette common stock between
February 18, 1999 and December 6, 2000. Also named as defendants were four underwriters involved in the Company’s initial public offering of Vignette stock in February 1999 and the Company’s secondary public offering of Vignette
stock in December 1999. A Consolidated Amended Complaint, which is now the operative complaint, was filed on April 19, 2002. The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under, based on, among other things, claims that the four underwriters awarded material portions of the shares in the Company’s initial and secondary public offerings to
certain customers in exchange for excessive commissions. The plaintiff also asserts that the underwriters engaged in “tie-in arrangements” whereby certain customers were allocated shares of Company stock sold in its initial and secondary
public offerings in exchange for an agreement to purchase additional shares in the aftermarket at pre-determined prices. With respect to the Company, the complaint alleges that the Company and its officers and directors failed to disclose the
existence of these purported excessive commissions and tie-in arrangements in the prospectus and registration statement for the Company’s initial public offering and the prospectus and registration statement for the Company’s secondary
public offering.
The action is being coordinated with approximately 300 other nearly identical actions filed against other companies. On
October 9, 2002, the Court dismissed the Individual Defendants from the case without prejudice. At the Court’s request, plaintiffs selected six “focus” cases, which do not include the Company. The Court indicated that its
decisions in the six focus cases are intended to provide strong guidance for the parties in the remaining cases.
On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases. On September 27, 2007, the plaintiffs filed a motion for class certification in the focus cases.
On November 14, 2007, the defendants in the focus cases filed motions to dismiss the amended complaints. On March 26, 2008, the District Court dismissed the Section 11 claims of those members of the putative classes in the focus cases
who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period. With respect to all other claims, the motions to dismiss were denied. On October 10, 2008, at
the request of the plaintiffs, the motion for class certification was withdrawn, without prejudice. On April 3, 2009, the plaintiffs submitted to the Court a motion for preliminary approval of a settlement of the approximately 300 coordinated
cases, which includes Vignette, the underwriter defendants in the Vignette class action lawsuit, and the plaintiff class in the Vignette class action lawsuit. The insurers for the issuer defendants in the coordinated cases will make the settlement
payment on behalf of the issuers, including Vignette. The settlement is subject to termination by the parties under certain circumstances, and Court approval. There is no assurance that the Court will approve the settlement. Due to the inherent
uncertainties of litigation, we cannot accurately predict the ultimate outcome of the matter.
Database Records Management, LLC vs. Vignette Corporation
On March 31, 2009 Database Records Management, LLC filed a complaint in the United States District Court for the Western District
of Wisconsin, Civil Action No. 09-cv-184, alleging infringement of United States Patent No. 6,973,456 by the company as well as several other parties. The complaint also seeks damages adequate to compensate the plaintiff for the alleged
acts of infringement with pre-judgment and post-judgment interest, as well as a grant of an injunction against the company. The complaint alleges willful infringement by unspecified defendants in the case. The outcome of this matter and the
liability for the company, if any, cannot reasonably be determined at this time.
The Company is unable to determine whether the outcome of
the litigation will have a material impact on its results of operations or financial condition in any future period if the settlement is terminated, or is not approved. If the settlement is not approved, the Company will continue to defend itself
vigorously against this lawsuit.
12
Litigation and Other Claims
We are also subject to various legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the outcome in any of these legal proceedings, individually or collectively,
will have a material adverse effect on our financial condition, results of operations or cash flows.
Contractual Obligations
The table below summarizes our significant contractual obligations (in thousands) at March 31, 2009 and the effect such obligations are expected to
have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our balance sheet as liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than 1 Yr
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
More than 5 Years
|
|
Operating lease obligations
|
|
$
|
12,488
|
|
|
$
|
3,338
|
|
|
$
|
6,024
|
|
|
$
|
1,620
|
|
$
|
1,506
|
|
Operating sublease income
|
|
|
(1,738
|
)
|
|
|
(770
|
)
|
|
|
(968
|
)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating lease obligations
|
|
$
|
10,750
|
|
|
$
|
2,568
|
|
|
$
|
5,056
|
|
|
$
|
1,620
|
|
$
|
1,506
|
|
Third party royalty obligations
|
|
|
1,126
|
|
|
|
1,046
|
|
|
|
80
|
|
|
|
—
|
|
|
—
|
The expected timing of payment of the obligations detailed above is estimated based on current
information. Timing of payments and actual amounts paid may differ from our estimates.
Lease Commitments
The Company leases its office facilities and various equipment under operating lease agreements having expiration dates through 2017. The Company has
operating leases for facilities with escalating rents. Pursuant to SFAS 13 —
Accounting for Leases
, the Company recognizes rent expense on a straight line basis over the lease term. Rent expense, excluding vacated properties, for the
three months ended March 31, 2009 and 2008 was $0.9 million and $0.9 million, respectively. Estimated future rents receivable from signed sublease agreements are $1.7 million through 2011. Future minimum payments as of March 31, 2009 under
our lease obligations, including operating lease commitments for all vacated properties, are included in the table above (in thousands).
Third Party
Royalty Obligations
The Company’s business practice, in part, is to resell bundled or un-bundled third party software. All of our
resell items are based on OEM agreements signed between the third party and Vignette having expiration dates through 2013. Future minimum third party royalty obligation as of March 31, 2009 under our current OEM agreements, are included in the
table above (in thousands).
Product Warranties
The Company offers warranties to its customers, requiring that the Company replace defective products within a specified time period from the date of sale. The Company records warranty costs as incurred and historically, such costs have not
been material.
Off-Balance Sheet Arrangements
As of March 31, 2009, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
NOTE 14 — Business Restructuring
In 2001, we initiated a restructuring program to align our expense and revenue levels
and to better position us for growth and profitability. In 2002, 2003 and 2004, we expanded those restructuring efforts. In the third and fourth quarters of 2008, we implemented a restructuring plan to reallocate certain employee related investments
and reduce our costs.
There can be no assurance that the estimated costs of our restructuring efforts will not change. Components of
business restructuring charges and the remaining restructuring accruals as of March 31, 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Lease
Commitments
|
|
|
Employee
Separation
and Other
Costs
|
|
|
Total
|
|
|
Balance at December 31, 2008
|
|
$
|
1,757
|
|
|
$
|
1,478
|
|
|
$
|
3,235
|
|
|
Current period restructuring activities
|
|
|
|
|
|
|
76
|
|
|
|
76
|
|
|
Adjustment to accrual
|
|
|
34
|
|
|
|
20
|
|
|
|
54
|
|
|
Cash activity
|
|
|
(303
|
)
|
|
|
(1,030
|
)
|
|
|
(1,333
|
)
|
|
Non-cash activity
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
1,488
|
|
|
$
|
528
|
|
|
$
|
2,016
|
|
|
Less: current portion
|
|
|
|
|
|
|
|
|
|
|
(1,451
|
)
|
|
Accrued restructuring costs, less current portion
|
|
|
|
|
|
|
|
|
|
$
|
565
|
|
Consolidation of Excess Facilities
Facility lease commitments relate to lease obligations for excess office space that the Company has vacated as a result of various restructuring plans
implemented between 2001 and 2004. The Company continues to actively pursue mitigation strategies to dispose of all excess office space through subleasing and/or early termination negotiations where possible. The total lease commitments include the
estimated lease buyout fees or the remaining lease liabilities and estimated associated mitigation costs including, but not limited to, brokerage commissions, legal fees, repairs, restoration costs and sublease incentives, offset by estimated
sublease income. The estimated costs of vacating these leased facilities, including estimated costs to sublease and any resulting sublease income, were based on market information and trend analysis as estimated by the Company. The Company
continually assesses its real estate portfolio and may vacate and/or occupy other leased space as dictated by its analysis and by the needs of the business. It is reasonably possible that actual results could differ from these estimates in the near
term and such differences could be material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Company’s accrual for
facility lease commitments. Facility lease commitments relate to the Company’s departure from certain office space in Austin, Texas and New York City, New York. The maximum lease commitment of such vacated properties extends through November
2011.
13
Employee Separation and Other Costs
Employee separation and other costs include severance, related taxes, outplacement and other restructuring charges extending from the restructuring plan that took place during the third and fourth quarters of 2008. As
a result of the restructuring activities, the Company severed 92 employees during the third and fourth quarters of 2008 and a further 8 employees during the first quarter of 2009. Employee groups impacted by the restructuring efforts include
personnel in the sales, marketing, engineering and general and administrative functions.
NOTE 15 — Foreign Currency Exchange Rate Risk
The majority of our operations are based in the United States of America and accordingly, the majority of our transactions are
denominated in U.S. Dollars. We have operations throughout the Americas, Europe, Asia and Australia where transactions are denominated in the local currency of each location. Fluctuations in the exchange rates between the local currencies of Europe,
Latin America, Asia Pacific, and the United States, particularly the Brazilian Real, Euro, British Pound and Australian Dollar, may harm our business. We are exposed to movements in foreign currency exchange rates because we translate foreign
currency balances into United States Dollars for financial reporting purposes. Our primary exposures relate to sales, operating expenses, cash and intercompany balances that are not United States Dollar-denominated. We utilize foreign currency
forward contracts to hedge foreign currency-denominated payables and receivables.
On January 1, 2009, the Company adopted FASB
Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement 133” (“SFAS 161”). The adoption of SFAS 161 had no financial impact on the Company’s consolidated
financial statements; SFAS 161 required additional financial statement disclosures. The Company has applied the requirements of Statement 161 on a prospective basis. Accordingly, disclosures related to interim periods prior to the date of adoption
have not been presented.
The Company uses forward currency contracts to manage its balance sheet exposures in non-functional
currencies. The Company does not designate foreign currency forward contracts as hedging instruments pursuant to FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company records the
change in the estimated fair value of the outstanding forward contacts at the end of the reporting period to its consolidated balance sheet and consolidated statement of operations.
The effects of derivative instruments on our condensed consolidated financial statements were as follows as of March 31, 2009 and for the three
months then ended:
Fair Value of Derivative Instruments in Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
Three Months Ended March 31, 2009
|
|
|
(in thousands)
|
|
Balance Sheet Location
|
|
Fair
Value
|
|
Notional
Value
|
|
Location of Gain (Loss)
Recognized in Income on
Derivative
|
|
Amount of Gain
(Loss) Recognized
in Income on
Derivative
|
|
|
Foreign currency forward contracts not designated as hedges
|
|
Other current liabilities
|
|
$
|
1,164
|
|
$
|
1,200
|
|
Other income
|
|
$
|
(36
|
)
|
NOTE 16 — Subsequent Events
On May 5, 2009, the Company entered into a definitive agreement to be acquired by Open Text Corporation. (“Open Text”) in a cash and stock
transaction. Pursuant to the definitive agreement and subject to the terms and conditions set forth therein, a newly formed wholly owned subsidiary of Open Text will be merged with and into Vignette, with Vignette surviving the merger as a
wholly-owned subsidiary of Open Text. Under the definitive agreement, the Company’s stockholders would be paid $8.00 in cash and 0.1447 share of Open Text common stock for each share of Vignette common stock. The completion of the pending
merger remains subject to various closing conditions, including approval by Vignette’s shareholders, Hart-Scott-Rodino anti-trust clearance, Securities and Exchange Commission clearance and stock exchange approvals.
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical statements are
forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. These forward-looking
statements involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on
Form 10-Q to conform these statements to actual results. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed elsewhere in this report in the section entitled “Risk Factors That May Affect
Future Results” and the risks discussed in our other historical Securities and Exchange Commission filings.
Overview
Vignette develops and sells software for managing and delivering content. Our software products, which fall into various standard industry categories,
including Web content management, transactional content management, intranet solutions, social media solutions, web experience optimization and rich media and video solutions, enable organizations to build, manage and deploy information-based
applications. Vignette’s software helps organizations improve their interactions with key audiences, including customers, prospects, employees, partners, patients and citizens, by making it possible for them to deliver online experiences that
support their larger business goals. We place particular emphasis on supporting online experiences that are personal, social, transactional and ubiquitous. Our early content management and delivery tools laid the groundwork for some of the
Web’s most influential and popular sites. Today, our award-winning solutions continue to power some of the world’s most prominent online brands and enable organizations to have more meaningful interactions with all of their important
constituencies.
Organizations in virtually every industry are undertaking next-generation Web initiatives. In general, a renewed focus on
growth has led these organizations to re-examine, among other things, the quality of the online experience they provide to their key audiences. From Vignette’s perspective, improving the online experience demands better management and delivery
of business content. Vignette’s best customers derive the greatest value from this content at the point of customer interaction, particularly when that point of interaction is online.
14
Vignette’s
Web Experience Platform
helps our customers improve the way they connect with
their key audiences online. It gives them tools for building great online experiences that support the organizations larger goals (creating a more social online experience, for example, where visitors spend more time on a site or are encouraged to
provide product feedback can serve an organization’s desire to grow online product sales or to shorten product development cycles). Vignette’s platform also provides numerous ways to improve the organization’s management of the
content that fuels the online experience (and that online visitors create).
Vignette’s platform helps organizations create online
experiences that are more personal. It helps them create large, feature-rich online communities with the interactivity and content contribution that today’s audiences expect and the performance and scalability that global enterprises require.
Vignette’s platform also supports the creation of Web experiences that are of consistently high quality regardless of location, time of day, or device (computer, television, mobile phone, PDA, kiosk, etc.).
Some of our customers also want to use the online channel to connect customers and other key audiences with internal business processes. In particular,
public sector organizations and commercial organizations in the financial services, insurance and healthcare industries are making technology investments that allow them to extend business activities – loan origination, case processing,
customer service and similar processes – to the Web. Vignette’s
Transactional Content Management
solution, a component of the Vignette Web Experience Platform is expressly designed to provide these capabilities.
Vignette’s software products are brought together in various combinations to deliver solutions to the common content management challenges above.
Following is a brief description of most of our software products:
Vignette Content Management
manages business content of
virtually any type (text, images, video, compound content types, etc.) and ensures the delivery of that content to Web sites. It is especially suited to large organizations that maintain many separate Web sites for distinct sets of constituents
because it eliminates the inevitable issues of versioning, redundancy, currency, and so on, that are common to complex Web environments. It is designed to separate content from its delivery, which makes it easy to repurpose content across multiple
sites that may look and behave very differently. This separation of content and delivery also makes it easy for Vignette customers to offer Web experiences that are of consistent quality regardless of Web device. A great deal of design effort has
gone into making Vignette Content Management accessible to non-technical people, which means that much of the day-to-day responsibility for an organization’s online experience can reside with customer-focused business people, not technical
personnel.
Vignette High Performance Delivery
provides a unique, integrated combination of real-time caching and intelligent cache
management capabilities that can help improve dynamic Web site performance, make Web sites more scalable, and in many cases reduce costs and manual overhead.
Vignette Portal
lets organizations build and deliver highly customizable Web experiences tailored to the requirements of audiences such as employees, partners and customers. Portal applications typically
combines in a single view or screen a number of visual objects, each of which can be linked to an application or another Web page. Vignette Portal lets organizations create such composite applications particularly rapidly.
Vignette Collaboration
supports improved productivity through collaborative workspaces, where teams can share, capture and search information.
This helps organizations reduce the risk of knowledge being lost. It breaks down many of the communication and collaboration barriers that exist in geographically dispersed organizations. Encouraging fluid online collaboration can also improve
business relationships across departments and between organizations and their key constituencies.
Vignette Business Integration
Studio
is a graphical application integration environment for collecting and integrating content and applications from a wide selection of sources with minimal coding. Vignette Business Integration Studio allows users to readily and dynamically
map content from disparate schemes, remote repositories and applications to an aggregated destination. We offer over fifty pre-built application and technology adapters that can be used by Vignette Business Integration Studio to integrate with
enterprise, desktop, database and proprietary content sources existing throughout an enterprise. Adapters are plug-ins to Vignette Business Integration Studio that provides prepackaged integration capabilities to common technology applications.
Vignette Community Applications
provides organizations with tools for delivering blogs, wikis, forums and social microsites to
build communities and launch products, brands and campaigns.
Vignette Community Services
is an enterprise-class social computing
and online community solution that leverages user generated content and supports popular new ways to deliver the compelling user experiences that can help you engage and connect with your demanding online audiences. Vignette Community Services
enables Web 2.0 tools including ratings, reviews, commenting and tagging of content in a single offering that can be added to virtually any Web site.
Vignette Recommendations
gives users the most relevant content and products based on social search. By analyzing the behavior and the most useful resources for similar users, Vignette Recommendations makes it
easier to find the right content. It helps deliver a better online experience by providing content recommendations, product recommendations and social search functionality.
Vignette Dialog
augments everyday email by delivering highly personalized content to the intended recipients at the designated time through online
and offline touch points. A simple, graphical environment allows business users to create planned, multi-step conversations that can be triggered by virtually any type of event, including opening an email, failing to open an email, filling out a
form on a Web site, completing a purchase, attending an event or placing a customer service call.
Vignette Video Services
is a set
of video management services, accessible through industry-standard APIs that can be integrated into virtually any framework, such as Enterprise Content Management and Web Content Management systems, to provide advanced video capabilities offered via
a hosted solution.
Vignette Rich Media Module
is of particular value to organizations that must manage large volumes of images,
podcasts, Adobe Flash files and video content. These and other types of rich media pose special challenges for editors responsible for managing libraries of this content and for the approval, categorizations, tagging and publishing of these assets.
Rich Media Services helps organizations get their rich media assets under control and productively incorporated into each organization’s particular online experience.
Vignette Media
is a digital publishing platform; the first completely integrated content, rich media, and video management solution designed
specifically for the business needs of Telecommunications, Media and Entertainment companies. Vignette Media allows marketing and media professionals to add, manage, and publish rich media and video assets to their Web experience in an easy,
relevant and engaging way through a single user interface; a single solution for all online content needs.
Vignette Records &
Documents
is an enterprise document and records management solution that manages fixed assets, automates document based workflows, manages casework through a process and implements important archival and disposition of records. Vignette
Records & Documents facilitates risk and compliance management and implements important document management capabilities including metadata search, query by example, indexed full text search, check in/out and ACL security.
15
Vignette Case Manager
enables organizations to automate and manage high value, customer-facing
business transactions. Case Manager gives an organization’s customers control over when and how they want to interact, whether in person in a branch during business hours, on the phone, or via the Web or e-mail at a time and place of the
customer’s choosing. Vignette Case Manager makes this innovation possible by allowing organizations to deliver their back-office business processes directly to customers, across multiple channels and in a personalized and consistent way.
Vignette WebCapture
is a secure Web transaction capture and playback risk management solution that archives transactions on a
customer’s site and creates a permanent record of them for dispute resolution.
Vignette IDM
is an integrated document
management, archive and retrieval solution that addresses document capture, production imaging supporting forms OCR/ICR, high-performance image viewing, printing and storage management; business process automation and workflow supporting case
management, business process management and Web services; output report management for capturing, mining, linking, distribution and statement presentment; and Computer Output to Laser Disc (“COLD”) storage and records management supporting
electronic and physical records, retention management, e-mail archiving and regulatory compliance.
Our solutions and products are
supported by our professional services organization, Vignette Professional Services (VPS). VPS offers pre-packaged and custom services to help organizations define their online business objectives and deploy their applications. Our education,
consulting and customer care teams give customers the benefit of our experience with thousands of customer implementations. We partner with a number of leading consulting firms and system integrators to implement our software for their clients. In
many cases, we work in blended teams to implement solutions. To ensure that we provide support to our customers on their chosen platform and infrastructure, we have long-standing relationships with key technology providers such as Microsoft, BEA
Systems, Hewlett Packard and Sun Microsystems.
Overview of First Quarter Results
The Company reported total revenues of $33.9 million for the three months ended March 31, 2009 versus $44.8 million of total revenues for the three
months ended March 31, 2008, a decrease of 24.2%.
More specifically, license revenues were $6.9 million in the first quarter of 2009
compared to $9.7 million for the first quarter of 2008, a decrease of 28.9%. The Company attributes the decline in license revenue to a number of factors including a challenging economic environment, intense competition and a need to improve sales
and marketing effectiveness. Maintenance and support revenue of $18.3 million decreased $2 million as compared to the first quarter of 2008 or 9.9% and professional services revenues of $8.2 million decreased $6.5 million or 44.2%. International
revenue comprised 40.2% and 40.8% of total revenue for the quarters ended March 31, 2009 and 2008, respectively, and no single customer accounted for more than 10% of our quarterly revenues.
Total expenses, including both cost of revenue and operating expenses, were $36.0 million and $47.0 million for the three months ended March 31,
2009 and 2008, respectively. The decrease is a combination of lower operating expenses of $5.3 million and lower cost of revenue of $5.7 million. This was largely driven by lower sales and marketing expenses as well as planned reductions in R&D
and G&A costs. Sales and marketing expenses decreased $4.1 million or 26.4% from Q1 2008. The decrease is due to the headcount reductions taken in Q3 and Q4 2008, lower commissions due to lower license revenue and lower expenses due to foreign
currency movements. R&D decreased $1.1 million or 13.2% from Q1 2008. The decrease is due to the headcount reductions taken in Q3 and Q4 2008. The lower cost of revenues is attributed to the decrease in professional services revenue.
The movements in revenues and expenses outlined above resulted in a $2.1 million operating loss in the first quarter of 2009 compared to an operating
loss of $2.2 million in the first quarter of 2008. Other income for the three months ended March 31, 2009 was down due to a significant decrease in the amount of interest income earned during the quarter as a result of lower market interest
rates. The company generated a $1.8 million loss before provision for income taxes in the first quarter of 2009 compared to a loss of $0.4 million in the first quarter of 2008. Net loss for the first quarter of 2009 was $1.8 million compared to a
net loss of $0.8 million in the same period last year.
Total cash and short-term investments increased by $4.2 million during the quarter
to $143.1 million as of March 31, 2009. The net increase is driven primarily by $6.1 million of cash generated from operating activities offset with $1.7 million of cash used for capital expenditures.
Our headcount at March 31, 2009 was 687 compared to 643 at December 31, 2008, and an increase of 20 from 667 at March 31, 2008. The
increase is primarily due to the addition of 92 employees as part of the ongoing project to in-source our research and development facility in India.
Outlook
Our objective is to maintain and extend our position as a leading global provider
of Next-Generation Web solutions. These solutions enable organizations to harness the power of their business content and the Web to deliver rich, personalized online interactions in direct or indirect support of customer acquisition and retention
and revenue growth. We will continue to focus on delivering profitable growth, expanding our customer base of global 2000 organizations, extending our technology leadership through investment in research and development, expanding our global sales
capabilities and building upon our strategic alliances with leading companies.
The first quarter of 2009 was challenging for the company
and for the global economy and we saw lower revenues and lower net income than in the first quarter of 2008. In an attempt to reverse that trend, we are implementing, among other things, new territory assignments, an enhanced reseller model, a new
sales force automation system, a new lead management system, and a shift in marketing spend towards more online marketing. We believe this may help improve direct and indirect sales channel productivity. We will strive to encourage cross-functional
team selling through enhanced team realignment around customer accounts and regions and meet market-specific needs for designated solution areas such as healthcare, transactional content management, next generation web presence and collaborative
records and document management. We will continue to focus on the indirect channel as a means to better distribute and expose our software and solutions to the marketplace. We will also continue to focus on realizing efficiencies and cost-savings
across our business.
As we previously stated, 2009 is going to be a year of uncertainty. However, we were able to manage through Q1 by
delivering $6.1 million of cash flow from operations. We accomplished this by closely managing and controlling operating expenses in line with revenue during the quarter. Vignette is committed to careful management during this economic uncertainty
by planning conservatively, investing prudently and making the necessary operational adjustments along the way to position ourselves for long-term success. We will continue to monitor the revenue outlook to maintain a balance between revenue and
investments. We remain committed to generating positive cash flow for 2009. In the first quarter of 2009, the weakening economy had a negative effect on demand for our products and services and this trend may continue through the balance of 2009 or
longer. Given the impact that the ongoing uncertainty in the economy can have on our business we have suspended giving detailed quarterly guidance in 2009. Instead, we are providing directional annual guidance for key elements of the P&L but not
specifically for total revenues or EPS metrics.
16
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which were prepared
in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or
conditions.
Management has discussed with and agreed upon the development and selection of the following critical accounting policies with
the Audit Committee of the Board of Directors:
|
|
•
|
|
Estimating the allowance for doubtful accounts;
|
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|
•
|
|
Stock based compensation;
|
|
|
•
|
|
Accounting for income taxes;
|
|
|
•
|
|
Estimating business restructuring accruals; and
|
|
|
•
|
|
Valuation of goodwill and identifiable intangible assets.
|
Revenue recognition.
Revenue consists of product and service fees. Product fee income is earned through the licensing or right to use our software and from the sale of specific software products. Service fee
income is earned through the sale of maintenance and support services, subscription services, consulting services and training services.
We do not recognize revenue for agreements with rights of return, refundable fees, cancellation rights or acceptance clauses until such rights to return, refund or cancel have expired or acceptance has occurred.
We recognize revenue in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9,
Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 101, Revenue Recognition in Financial Statements as revised by SAB 104 and Emerging Issues Task Force (“EITF”) 00-21, Revenue Arrangements with Multiple
Deliverables.
Where software licenses are sold with maintenance and support or other services, we allocate the total fee to the various
elements based on the fair values of the elements specific to us. We determine the fair value of each element in the arrangement based on vendor-specific objective evidence (“VSOE”) of fair value. VSOE of fair value is based upon the
normal pricing and discounting practices for those products and services when sold separately and, for support services, is measured by the renewal rate. For all of our multiple element contracts where software license is one of the delivered
elements we use the residual method. Under the residual method, the arrangement fee is first allocated to the undelivered elements based upon their VSOE of fair value and the remaining arrangement fee, including any discount, is then allocated
to the delivered element. If the residual method is not used, discounts, if any, are applied proportionately to each element included in the arrangement based on each element’s fair value without regard to the discount.
Revenue allocated to product license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no
significant remaining obligations with regard to implementation are outstanding and collection of a fixed or determinable fee is reasonably assured. We consider all payments outside our normal payment terms, including all amounts due in excess of
one year, to not be fixed and determinable and such amounts are recognized as revenue as they become due. If collectibility is not considered reasonably assured, revenue is recognized when the fee is collected. For software arrangements where we are
obligated to perform professional services for implementation of the product, we evaluate whether delivery has occurred upon shipment of software or upon completion of services and if the customer payment is reasonably assured. This evaluation is
made based on various factors such as the nature of the services work, order type (e.g. initial vs. follow-on), customer’s payment history, if such services are available from other vendors, if we have sufficient experience in providing
such services, etc. In the instances where delivery is deemed not to have occurred upon shipment based on the aforementioned factors, license revenue is recognized as our obligations under the implementation are met.
Revenue from perpetual licenses that include unspecified, additional software products is recognized ratably over the term of the arrangement, beginning
with the delivery of the first product.
Revenue allocated to maintenance and support services is recognized ratably over the maintenance
term.
Revenue allocated to subscription services, including implementation and set-up fees, is recognized
ratably over the term of the arrangement beginning on the commencement dates of each contract. We recognize professional services sold with an initial subscription order over the term of the related subscription contract as these services are
considered to be inseparable from the subscription service.
Revenue allocated to training and consulting service elements is recognized as
the services are performed.
We follow very specific and detailed guidelines, discussed above, in determining revenues; however, certain
judgments and estimates are made and used to determine revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized for any period if different conditions were to prevail.
Estimating the allowance for doubtful accounts.
We continuously assess the collectibility of outstanding customer invoices and in doing so; we
maintain an allowance for estimated losses resulting from the non-collection of customer receivables. In estimating this allowance, we consider factors such as: historical collection experience, a customer’s current credit-worthiness, customer
concentrations, age of the receivable balance, both individually and in the aggregate and general economic conditions that may affect a customer’s ability to pay. Actual customer collections could differ from our estimates. For example, if the
financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Stock based compensation
. The Company measures all share-based payment awards at fair value on the date of grant and recognizes compensation expenses for all share-based payments on a straight-line basis over
the service period that the awards are expected to vest pursuant to the guidance of Statement of Financial Accounting Standards 123R,
Share-Based Payment
(“Statement 123R”) and Staff Accounting Bulletin 107 (“SAB 107”) of
the Securities and Exchange Commission. Restricted stock and stock options issued under equity plans as well as well as stock purchases under our employee stock purchase plans are subject to the provisions of Statement 123R and the interpretive
guidance of SAB 107.
17
We estimate the fair value of stock options using a Black-Scholes valuation model. Option-pricing models
require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock-based awards that are expected to be
forfeited. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation expense and our results of operations could be materially impacted.
Accounting for income taxes
. We account for the effect of income taxes in accordance with Statement of Financial Accounting Standards 109,
Accounting for Income Taxes
(“SFAS No. 109”) and the various interpretations thereof. At the end of each interim period we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This
estimated effective tax rate is used to determine income taxes on a current year-to-date basis from ordinary operations. Estimating an effective tax rate involves estimates and forecasts by management in arriving at an estimated full year tax
liability on a legal entity basis. In each successive interim period, to the extent our estimates need to be revised, we expect that our effective tax rate will change accordingly, affecting tax expense (or benefit) for both that successive interim
period as well as year-to-date interim results. In addition to the tax provision attributable to ordinary operations, the income tax expense recorded will also reflect the impact of discrete adjustments for each interim period. Our effective tax
rate computation assumes that the company will achieve profitability in the future however, the company incurred a loss in 2008 and in the first quarter of 2009, and should the company continue to make losses our effective tax rate would increase.
Deferred tax assets and liabilities result from temporary differences between the GAAP and tax treatment of certain income and expense. We
must assess and make estimates regarding, the likelihood that our deferred tax assets will be recovered. To the extent that we determine that the deferred tax assets will not be recovered, we must establish a valuation allowance against such assets.
In making such a determination, we must take into account positive and negative evidence including projections of future taxable income and assessments of potential tax planning strategies.
In 2007, we released a portion of the valuation allowance we had recorded against our deferred tax assets based on the determination that it is more
likely than not that part of the net operating loss carryforward will be realized. Recognition of the deferred tax asset was primarily based on Management’s conclusions regarding our ability to utilize net operating losses and other deferred
tax assets to offset income in future periods. Although we anticipate the company will achieve profitability in the future and that some portion of the valuation allowance will subsequently be reduced, future losses might require an increase to the
valuation allowance resulting in a potentially material charge to income tax expense in future periods.
Tax contingencies are provided for
in accordance with the requirements of FASB Interpretation No. 48,
Accounting for Uncertainties in Income Taxes
(“FIN 48”). Although we believe that we have appropriate support for the positions taken on our tax filings across
all of the jurisdictions in which we operate, we must evaluate potential uncertainties and record a liability for our best estimate of the probable loss on these positions. We believe that our accruals related to such uncertainties are adequate for
all open years, based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. However, the final determination of tax audits and any related litigation could be materially
different than that which is reflected in historical income tax provisions and recorded assets and liabilities, necessitating a material adjustment to our income tax provision, net income, or cash flows in the period or periods in which such
determination is made. The balance of unrecognized tax benefits was $10.9 million and $10.8 million at December 31, 2008 and December 31, 2007, respectively.
Estimating business restructuring accruals.
We vacated excess leased facilities as a result of the restructuring plan we initiated in 2001 and subsequently expanded in 2002, 2003 and 2004. We recorded an
accrual for the remaining lease liabilities of such vacated properties as well as brokerage commissions, partially offset by estimated sublease income. We estimated the costs of these excess leased facilities, including estimated costs to sublease
and sublease income, based on market information and trend analysis. We continually assess our real estate portfolio and may vacate or occupy other leased space as dictated by our analysis. Actual results could differ from these estimates. In
particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate our accrual for facility lease commitments if one, or more, of the Company’s subtenants default on
their executed lease agreement(s) with the Company. In addition, actual operating expenses could differ from current estimates. In the third and fourth quarters of 2008, we recorded an accrual as a result of the implementation of a restructuring
plan to reallocate certain employee related investments. The actual costs of the plan could differ from the estimates used to record the accrual.
Valuation of goodwill and identifiable intangible assets.
In accordance with Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”) , the Company assesses its goodwill for impairment on October 1 of each year or more frequently if events or changes in circumstances indicate that goodwill might be impaired. As required by SFAS 142, the impairment test
is accomplished using a two-stepped approach. The first step screens for impairment by comparing the fair value of the Company with its carrying amount, including goodwill. To determine the Company’s fair value, the Company considers various
measurements including market capitalization as adjusted to reflect market observed control premiums, earnings and revenue multiples observed in relation to peer group companies and discounted cash flows. If, under the first step, an, impairment is
indicated, a second step is performed that compares the implied fair value of the goodwill with the carrying amount of the goodwill. As of October 1, 2008, the date of the Company’s annual impairment test, and again at December 31,
2008, the Company determined that the remaining net goodwill balance of $121.1 million was not impaired.
In accordance with SFAS 142,
goodwill of a reporting unit shall be tested for impairment on an annual basis and between annual tests in certain circumstances. Driven by the significant decline in the market capitalization of public companies in its peer group in the
first quarter of 2009, the Company considered whether it should again test its goodwill for impairment on March 31, 2009. As part of this evaluation, the Company felt that its fair value had not materially changed as a result of its
recent financial performance, which included strong cash flow from operations. While the Company experienced lower revenue during the quarter, as compared to the prior year, it also exceeded analyst expectations for both license revenue and earnings
per share. We have also seen a modest improvement in our stock price towards the end of the quarter ended March 31, 2009, which has led to an increase in our market capitalization. . Based on these factors, the Company has determined
that the remaining net goodwill balance of $121.1 million at March 31, 2009 was not considered to be impaired. The company recognizes that, over the longer term, the market price for our stock plus an appropriate control premium should
represent fair value and, if market conditions fail to improve, we may incur charges for goodwill impairment in the future, which could be significant and could have a material negative effect on our results of operations.
18
Results of Operations
The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Operations, expressed as a percentage of total revenues:
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|
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|
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Three Months Ended
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenue:
|
|
|
|
|
|
|
|
Product license
|
|
20
|
%
|
|
22
|
%
|
|
Services
|
|
80
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
100
|
|
|
100
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
Product license
|
|
1
|
|
|
1
|
|
|
Amortization of acquired technology
|
|
4
|
|
|
3
|
|
|
Services
|
|
30
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
35
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
65
|
|
|
61
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
|
22
|
|
|
19
|
|
|
Sales and marketing
|
|
33
|
|
|
34
|
|
|
General and administrative
|
|
13
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|
|
11
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|
|
Business restructuring charges (benefits)
|
|
—
|
|
|
—
|
|
|
Amortization of intangible assets
|
|
3
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
71
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
(6
|
)
|
|
(5
|
)
|
|
Other income, net
|
|
1
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
(5
|
)
|
|
(1
|
)
|
|
Provision for (benefit from) income taxes
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
(5
|
)%
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Comparison of the three months ended March 31, 2009 to the three months ended
March 31, 2008 (in thousands except percentages)
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2009
|
|
2008
|
|
fluctuation
|
|
|
Product license
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|
$
|
6,923
|
|
$
|
9,741
|
|
(28.9
|
)%
|
|
Services revenue:
|
|
|
|
|
|
|
|
|
|
|
Subscription services
|
|
|
485
|
|
|
19
|
|
Not
Meaningful
|
|
|
Maintenance and support
|
|
|
18,288
|
|
|
20,333
|
|
(10.1
|
)%
|
|
Professional services
|
|
|
8,223
|
|
|
14,659
|
|
(43.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services revenue
|
|
|
26,996
|
|
|
35,011
|
|
(22.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
33,919
|
|
$
|
44,752
|
|
(24.2
|
)%
|
Total revenue decreased 24.2% in the three months ended March 31, 2009 as compared to the
three months ended March 31, 2008. The majority of the decline in 2009 is attributable to a decline in license revenue and professional services revenue.
Product license.
Product license revenue decreased 28.9% during the three months ended March 31, 2009 as compared to the same period last year. The decrease is due to a number of factors including a
challenging economic environment, a competitive landscape and a need to improve sales and marketing effectiveness. Despite the economic uncertainty in 2009, the changes to our sales and marketing organizations will, we hope, lead to increased
productivity from the sales and marketing organization and we therefore expect license revenue to be flat to up 20% year over year for the full year 2009.
Services
.
Services revenue decreased 22.9% during the three months ended March 31, 2009 as compared to the same period last year. The decrease is
attributable to declines in both maintenance and support and professional services. The decrease in maintenance and support is attributable to a stronger dollar versus last year with the remainder due to lower license revenue over the past few
years. Maintenance revenue is expected to decline up to 10% year over year in 2009, primarily because maintenance from new license customers is not expected to exceed the amount of maintenance revenue decline due to customer attrition. The decrease
in professional services is due to the current economic environment causing companies to delay projects coupled with lower license revenue over the past few years. Professional services revenue is expected to decline up to 20% compared to 2008 due
to the impact of lower license sales in 2008.
During the comparative three months ended March 31, 2009 and 2008, no single customer
accounted for more than 10% of our total revenues. International revenue was $13.6 million and $18.3 million, or 40.2% and 40.8% of total revenues, in the three months ended March 31, 2009 and 2008, respectively.
Gross Profit
Cost of revenue consists of the
costs of licensing first-party software incorporated into our products, the amortization of certain acquired technology and personnel and other expenses related to providing professional and maintenance and support services.
19
Gross profit amounts and percentages are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2009
|
|
2008
|
|
fluctuation
|
|
|
Product license
|
|
$
|
332
|
|
$
|
474
|
|
(29.9
|
)%
|
|
Amortization of acquired technology
|
|
|
1,310
|
|
|
1,254
|
|
4.5
|
%
|
|
Cost of services revenue:
|
|
|
|
|
|
|
|
|
|
|
Subscription services
|
|
|
316
|
|
|
14
|
|
Not
Meaningful
|
|
|
Maintenance and support
|
|
|
2,707
|
|
|
3,299
|
|
(17.9
|
)%
|
|
Professional services
|
|
|
7,256
|
|
|
12,539
|
|
(42.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of services revenue
|
|
|
10,279
|
|
|
15,852
|
|
(35.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
11,921
|
|
|
17,580
|
|
(32.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
21,998
|
|
$
|
27,172
|
|
(19.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of sales, gross profit represented 65% and 61% for the three months ended
March 31, 2009 and 2008, respectively. The increase in gross profit on a percentage basis is primarily driven by the significant decrease in professional services revenue which has an inherently lower gross profit margin than other lines of
revenue.
Operating expenses
Operating
expense amounts and percentages are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2009
|
|
2008
|
|
|
fluctuation
|
|
|
Research and development
|
|
$
|
7,293
|
|
$
|
8,399
|
|
|
(13.2
|
)%
|
|
Sales and marketing
|
|
|
11,313
|
|
|
15,373
|
|
|
(26.4
|
)%
|
|
General and administrative
|
|
|
4,518
|
|
|
4,790
|
|
|
(5.7
|
)%
|
|
Business restructuring charges (benefits)
|
|
|
131
|
|
|
(2
|
)
|
|
Not
Meaningful
|
|
|
Amortization of intangible assets
|
|
|
869
|
|
|
817
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
24,124
|
|
$
|
29,377
|
|
|
(17.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
.
Research and development expenses consist primarily
of personnel costs to support product development. Research and development expenses decreased 13.2% in the three months ended March 31, 2009 compared to the same period last year. The decrease is due to the restructuring efforts that took
place in Q3 and Q4 of 2008.
The Company did not capitalize any software development costs in accordance with Statement of Financial
Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed
, for the periods presented.
Sales and marketing
.
Sales and marketing expenses consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, public relations, marketing materials
and tradeshows as well as bad debt charges. Sales and marketing expenses decreased 26.4% in the three months ended March 31, 2009 compared to the same period last year. The decrease is as a result of decreased headcount due to the Q3 and Q4
2008 restructuring activities and lower commissions due to lower license revenue.
General and administrative
.
General
and administrative expenses consist primarily of salaries and other related costs for human resources, finance, accounting, facilities, information technology and legal employees. General and administrative expenses decreased 5.7% in the three
months ended March 31, 2009. The decrease is due to lower professional services fees and bonus amounts. We expect general and administrative expenses in future periods to fluctuate as a percentage of total revenue from period to period based on
seasonality, sales cycles, regulatory requirements, legal proceedings and fees paid to outside professional service providers.
Business restructuring charges (benefits).
Business restructuring charges (benefits) consist primarily of costs extending from the restructuring plan that took place during the third and fourth quarters of 2008. These charges
were offset slightly by small adjustments to facility lease commitments of which the remaining maximum lease commitment extends out to 2011. The actions taken during 2008 were designed to reallocate certain employee related investments and reduce
our costs in line with our reduced revenues. These actions should drive up to a 10% reduction in our operating expenses for 2009. There can be no assurance that the estimated costs of our restructuring efforts will not change. These are
management’s best estimates based on currently available information and are subject to change should one, or more, of the Company’s subtenants default on their executed lease agreement with the Company or actual operating expenses differ
from current estimates.
Amortization of other intangible assets
.
Amortization of other intangible assets includes
amortization of customer relationships and non-compete contracts. Amortization expenses related to acquired technology are recorded in cost of revenue. Amortization expense is recorded ratably over the estimated useful lives of the other intangible
assets, which range from one to six years. Components of other intangible assets are presented in
Note 5 — Intangible Assets
in our Notes to Condensed Consolidated Financial Statements.
Stock based compensation
The company records stock
based compensation in the appropriate functional expense categories, which are Cost of revenue – services, Research and development, Sales and marketing, and General and administrative. Under Statement 123R the Company records expense for stock
compensation based on the grant date fair value. The Company determines grant date fair value for stock options and the ESPP using the Black-Scholes option pricing model. The fair value for restricted stock awards (RSAs) is generally equal to their
intrinsic value at the date of grant. For the three months ended March 31, 2009, the Company recorded $0.8 million for stock options, $0.9 million for restricted stock awards, and $0.1 million for the employee stock purchase plan.
See the attribution of stock compensation expense to its appropriate cost categories at
Note 8 – Shareholders’ Equity
in our Notes to
Condensed Consolidated Financial Statements, incorporated herein by reference.
20
Liquidity and Capital Resources
The following table presents selected financial statistics and information (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
December 31,
2008
|
|
Cash, cash equivalents and short-term investments
|
|
$
|
143,123
|
|
$
|
138,920
|
|
Working capital
|
|
$
|
112,898
|
|
$
|
111,617
|
|
Current ratio
|
|
|
3.0:1
|
|
|
2.9:1
|
|
Days of sales outstanding – for the quarter ended
|
|
|
60
|
|
|
60
|
At March 31, 2009, we had $143.1 million in cash, cash equivalents and short-term investments
and no debt. We invest cash exceeding our operating requirements in short or long-term, investment-grade securities and classify these investments as available-for-sale.
Net cash provided by (used in) operating activities was $6.1 million and $10.1 million during the first three months of 2009 and 2008. The decrease in cash provided by operating activities is primarily due to the year
over year decline in revenues which led to lower cash inflows, combined with the net loss of $1.8 million in the first quarter of 2009 versus the net loss of $0.8 million in the first quarter of 2008.
Net cash provided by (used in) investing activities was ($21.7) million and $11.7 million during the first three months of 2009 and 2008, respectively.
The decrease in the investing activities was driven by the significant purchase of additional short-term investments during the quarter coupled with an additional $1.0 million of capital expenditures due to the India fit out in Q1 2009.
Net cash provided by (used in) financing activities was ($13) thousand and ($18) million during the first three months of 2009 and 2008, respectively.
During 2008, our financing activities consisted of purchases of our common stock in the open market in accordance with our stock repurchase program. The stock repurchase program was put on hold during July 2008. In addition, the Company experienced
a decrease in the exercise of vested stock options due to low or negative intrinsic values of stock options currently outstanding. Even after considering the current economic environment, we believe that we have sufficient capital resources to meet
our working capital, capital expenditure and investment requirements for at least the next 9 months.
Contractual Obligations
See the contractual obligations as of March 31, 2009 at
Note 13 – Commitments and Contingencies
in our Notes to Condensed Consolidated
Financial Statements, incorporated herein by reference.
Off-Balance Sheet Arrangements
As of March 31, 2009, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the quantitative and qualitative disclosures about market risk disclosed under the heading “
Quantitative
and Qualitative Disclosures About Market Risk
” in Item 7A of our 2008 Annual Report on Form 10-K.
ITEM 4
— CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our management evaluated, with the participation of our
Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and
our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in internal
control over financial reporting.
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
The information set forth in
Note 13 – Commitments and Contingencies
in our Notes to Condensed Consolidated Financial Statements is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes from the
risk factors disclosed under the heading “Risk Factors” in Item 1A of our 2008 Annual Report on Form 10-K.
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
21
ITEM 5 — OTHER INFORMATION
None
ITEM 6 —
EXHIBITS
Exhibits:
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
Incorporated by Reference
|
|
Filed/Furnished
Herewith
|
|
3.1
|
|
Certification of Incorporation of the Registrant
|
|
Company’s Registration Statement on Form S-1, as amended (File No. 333-68345)
|
|
|
|
|
|
|
|
|
3.2
|
|
Amendment to Certificate of Incorporation of the Registrant
|
|
Company’s definitive Proxy Statement for Special Meeting of Stockholders, dated February 17, 2000
|
|
|
|
|
|
|
|
|
3.3
|
|
Bylaws of the Registrant
|
|
Company’s Registration Statement on Form S-1, as amended (File No. 333-68345)
|
|
|
|
|
|
|
|
|
3.4
|
|
Certificate of Designation of Series A Junior Participating Preferred Stock of the Registrant
|
|
Company’s Registration Statement on Form 8-A filed on April 30, 2002 (File No. 000-25375)
|
|
|
|
|
|
|
|
|
3.5
|
|
Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation
|
|
Company’s Form 8-K filed on September 10, 2005 (File No. 000-25375)
|
|
|
|
|
|
|
|
|
4.1
|
|
Reference is made to Exhibits 3.1, 3.2 and 3.3
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Specimen common stock certificate
|
|
Company’s Registration Statement on Form S-1, as amended (File No. 333-68345)
|
|
|
|
|
|
|
|
|
4.3
|
|
Rights Agreement dated April 25, 2002 between the Company and Mellon Investor Services, LLC
|
|
Company’s Registration Statement on Form 8-A filed on April 30, 2002 (File No. 000-25375)
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification to the Securities and Exchange Commission by Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
X
|
|
|
|
|
|
|
31.2
|
|
Certification to the Securities and Exchange Commission by Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
X
|
|
|
|
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
X
|
22
SIGNATURE
Pursuant to the requirements 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.
|
|
|
|
|
|
|
VIGNETTE CORPORATION
|
|
|
|
|
Date: May 8, 2009
|
|
/s/ T. Patrick Kelly
|
|
|
|
T. Patrick Kelly
|
|
|
|
Chief Financial Officer
(Duly
Authorized Officer and Principal Financial Officer)
|
23
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