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WebEx Communications, Inc.
2002 Annual Report
Ernestine Tomlin, in The New Ringy Dingy, drives the next wave of business productivity through WebEx online meetings.

Table of contents

  • Page 1
    WebEx Communications, Inc. 2002 Annual Report Ernestine Tomlin, in The New Ringy Dingy, drives the next wave of business productivity through WebEx online meetings.

  • Page 2
    ... te c hno lo g ic al le ad by pro viding the mo st func tio nal and $25M $ 2 .6 M 25M hig he st quality We b c o mmunic atio ns se rvic e s in the marke tplac e. Millions 0 1999 2000 2001 2002 Sinc e re ly, Subrah S. I yar Chairman and Chief Executive Officer Min Zhu President and Chief...

  • Page 3
    ...15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 2002 OR ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 0-30849 WEBEX COMMUNICATIONS, INC. (Exact name of registrant as...

  • Page 4
    .... Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial...

  • Page 5
    ... using a standard web browser. Integrated telephony and web-based audio and video services are also available using standard devices such as telephones, computer web-cameras and microphones. Because our services enable users to share voice, data and video with others in remote locations, WebEx...

  • Page 6
    ... information technology professionals. WebEx Meeting Center allows users to give presentations, demonstrate software, view, annotate, and edit any document electronically and collaboratively, share applications or a user's entire desktop, provide support via remote control, take meeting participants...

  • Page 7
    ... live instruction from a variety of sources directly to learners' desktops, and give presentations that include audio, video and interactive multimedia. Training Center further permits users to administer comprehensive tests, organize multiple simultaneous breakout sessions, and record, edit, play...

  • Page 8
    ... ability to access or share information securely in a WebEx meeting where the content or applications reside in an unattended remote computer; the ability to support video conferencing with just a browser and simple web cams; the ability to share multiple documents and presentations at the same time...

  • Page 9
    ... technology) and Voyant (audio-conference bridges). Research and Development The emerging market for web communications services is characterized by rapid technological change, new product introductions and enhancements, evolving customer requirements and rapidly changing industry standards. We...

  • Page 10
    ...of use, reliability, scalability and security of services; establishing a significant base of customers and distribution partners; access to distribution channels; ability to introduce new services to the market in a timely manner; customer service and support; attracting third-party developers; and...

  • Page 11
    ... non-infringing technology or license the proprietary rights on a timely basis would harm our business. Employees As of December 31, 2002, we had 639 full-time employees, including 122 in research and development, 315 in sales and marketing, 142 in set-up, support and training, and 60 in general...

  • Page 12
    ...53 39 39 Chief Executive Officer President and Chief Technical Officer Chief Financial Officer Vice President, General Counsel and Secretary Vice President, Worldwide Sales Vice President, WebEx Services Vice President, Customer Success Subrah S. Iyar is a co-founder of WebEx and has served as its...

  • Page 13
    ... of workforce optimization software for professional service organizations and corporate information technology departments. In July 1997, Mr. Hsieh co-founded FaceTime Communications, a provider in instant messaging solutions for large enterprises, serving as its Chief Executive Officer from July...

  • Page 14
    ...-K. 2002 Years ended December 31, 2001 2000 1999 (in thousands, except per share data) 1998 Consolidated Statement of Operations Data: Net revenue ...Cost of revenue ...Gross profit ...Operating expenses: Sales and marketing ...Research and development ...General and administrative ...Equity-based...

  • Page 15
    2002 2001 December 31, 2000 (in thousands) 1999 1998 Consolidated Balance Sheet Data: Cash and cash equivalents and short-term investments ...Working capital ...Total assets ...Long-term obligations ...Deferred equity-based compensation ...Accumulated deficit ...Stockholders' equity ... $ 68,...

  • Page 16
    ...allow end-users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard web browser. Integrated telephony and web-based audio and video services are also available using standard devices such as telephones, computer web-cameras...

  • Page 17
    ... web communication services directly to customers through service subscriptions and pay-per-use arrangements. Under these arrangements, customers access the application hosted on WebEx servers using a standard web browser. Subscription arrangements include monthly subscriber user fees and user set...

  • Page 18
    ...base had grown by more than 35% from the end of 2001. Cost of revenue. Our cost of revenue consists of costs related to user set-up, network and data center operations, technical support and training activities including Internet access and telephony communication costs, personnel, licensed software...

  • Page 19
    ... providing engineering services to WebEx on a contract basis. Included in research and development expense are $2.9 million, $2.9 million and $3.3 million, in 2000, 2001 and 2002, respectively, for the cost of engineering services provided by these companies in China. General and administrative. Our...

  • Page 20
    ... financing activities was primarily due to the sale of our Series D preferred stock and initial public offering in 2000, the private placement of common stock and bank borrowings in 2001, and the exercise of stock options and employee purchases of common stock offset by the repayment of debt in 2002...

  • Page 21
    ... could result in our recognizing the cost of future restructuring activities, if any, over a period of time rather than in one reporting period. In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees...

  • Page 22
    ...stock price to decline. We commenced operations in February 1995 and our business originally consisted of consulting services. In early 1998, we licensed an interactive communications product to a small number of customers. We began offering WebEx Meeting Center in February 1999, our first real-time...

  • Page 23
    ... our control include our ability to develop, enhance and maintain our web communications network in a timely manner; the mix of services we offer; our ability to attract and retain customers; the amount and timing of operating costs and capital expenditures relating to expansion of our business and...

  • Page 24
    ... if our distribution partners do not successfully distribute our services, our ability to achieve market acceptance of our web communications services will suffer and our business and operating results will be harmed. We expect to depend on sales of our WebEx Meeting Center service for the majority...

  • Page 25
    .... We could incur unexpected costs resulting from claims relating to use of our services. Many of the business interactions supported by our services are critical to our customers' businesses. Any failure in a customer's business interaction or other communications activity caused or allegedly caused...

  • Page 26
    ... work with the many hardware and software platforms used by our customers and endusers, our business may be harmed. We currently serve customers and end-users that use a wide variety of constantly changing hardware and software applications and platforms. If our services are unable to support these...

  • Page 27
    ..., integrate and retain qualified personnel, our business could suffer. Our future success will depend on our ability to attract, train, retain and motivate highly skilled engineering, technical, managerial, sales and marketing and customer support personnel. We hired approximately 235 people in 2002...

  • Page 28
    ...word and design), WebEx bifurcated ball design, WebEx power button design, WebEx.com, MyWebEx, Bringing the Meeting to You, MediaTone, Meeting Center, WebEx Meeting Center, WebEx sound mark, Meeting-Enable Your Web Site, We've Got To Start Meeting Like This, Powering Real Time Business Meetings, and...

  • Page 29
    ... and videoconferencing, applications software and tools companies, and web conferencing services, such as Centra Software, Genesys, Raindance, IBM/Lotus (SameTime), Microsoft (NetMeeting), Oracle (i-meeting) and Placeware. In January 2003 Microsoft announced that it had signed an agreement to...

  • Page 30
    ... beyond our control willingness of businesses and end-users to use web communications services for websites; the growth of the Web and commercial on-line services; the willingness of our distribution partners to integrate web communications services for websites in their service offerings; and the...

  • Page 31
    ...2002. Our stock price could fluctuate significantly due to a number of factors, including variations in our actual or anticipated operating results; sales of substantial amounts of our stock; announcements by or about us or our competitors, including technological innovation, new products, services...

  • Page 32
    ... obtained from sources outside the United States becomes significant, we may engage in hedging activities or other actions to decrease fluctuations in operating results due to changes in foreign currency exchange rates. Interest Rate Risk. We do not use derivative financial instruments or market...

  • Page 33
    ... Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Financial Statements: Independent Auditors' Report ...Consolidated Balance Sheets as of December 31, 2002 and 2001 ...Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000...

  • Page 34
    INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders WebEx Communications, Inc.: We have audited the consolidated financial statements of WebEx Communications, Inc. and subsidiaries (the "Company") as listed in the accompanying index. These consolidated financial statements are the ...

  • Page 35
    WEBEX COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2002 2001 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net of allowances of $7,332 and $6,825 at December 31, 2002 and 2001, respectively ......

  • Page 36
    ... (In thousands, except per share data) Years ended December 31, 2002 2001 2000 Net revenue ...Cost of revenue ...Gross profit ...Operating expenses: Sales and marketing ...Research and development ...General and administrative ...Equity-based compensation* ...Total operating expenses ...Operating...

  • Page 37
    ... of common stock in connection with the exercise of stock options . - Issuance of common stock in connection with Employee Stock Purchase Plan ...- Repurchase of common shares ...- Issuance of series D warrants to distribution partner ...- Amortization of equity-based compensation related to series...

  • Page 38
    ......Payments of security deposits ...Purchases of short-term investments ...Sales and maturities of short-term investments ...Purchases of property and equipment ...Net cash used in investing activities ...Cash flows from financing activities: Net proceeds from initial public offering ...Net proceeds...

  • Page 39
    ... licensing software to end-users. WebEx currently develops and markets services that allow end-users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard web browser. Integrated telephony and web-based audio and video...

  • Page 40
    WEBEX COMMUNICATIONS, INC. December 31, 2002, 2001 and 2000 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands except share and per share amounts) term, the company provides training services, web-page design and set-up services. In addition to subscription services revenue, WebEx ...

  • Page 41
    ... the federally insured limits in the event of default by the financial institutions or the issuers of these investments. WebEx performs ongoing credit evaluations of its customers' financial condition, and generally requires no collateral from its customers. The Company records allowances for losses...

  • Page 42
    ...technology needed to achieve performance requirements exists. To date, WebEx's software has been available for deployment concurrent with the establishment of technological feasibility and, accordingly, costs qualifying for capitalization have been insignificant. Software applications purchased from...

  • Page 43
    ... plan stock options is recorded on the date of the grant only if the current fair value of the underlying stock exceeds the exercise price. Deferred stock-based compensation is amortized over the vesting period using the method described in FASB Interpretation No. 28 (FIN 28). The Company accounts...

  • Page 44
    ..., $12.00 and $9.70 per share, respectively. The fair value of employee stock purchase rights granted under the 2000 Employee Stock Purchase Plan in the years ended December 31, 2002, 2001 and 2000 was estimated using Black-Scholes option-pricing model using the following weighted average assumptions...

  • Page 45
    ... upon the exercise of warrants and stock options computed using the treasury stock method. The following table sets forth the components used in the computation of basic and diluted net income (loss) per common share as follows: Year ended December 31, 2002 2001 2000 Numerator: Net income (loss...

  • Page 46
    ...146 could result in the Company recognizing the cost of future restructuring activities, if any, over a period of time rather than in one reporting period. In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for...

  • Page 47
    ... statement is not expected to impact the Company's financial position, results of operations or cash flows. NOTE 2. CONSOLIDATED FINANCIAL STATEMENT DETAILS PROPERTY AND EQUIPMENT Computer equipment and purchased software ...Office furniture and fixtures ...Leasehold improvements ...Vehicles ...Less...

  • Page 48
    ... public offering. Under the agreement, the distribution partner was required to include and promote WebEx services as part of its portal services. The fair value of the warrants was determined to be $1,737 using the Black-Scholes option pricing model. The fair value of the warrants was recorded...

  • Page 49
    ... to purchase common stock at 85% of the lower of the fair value of common stock on either the first day or last day of a defined participation period not to exceed 24 months. As of December 31, 2002, 1,872,722 shares are available for issuance under this plan. A summary of the options activity under...

  • Page 50
    WEBEX COMMUNICATIONS, INC. December 31, 2002, 2001 and 2000 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (In thousands except share and per share amounts) WebEx uses the intrinsic-value method in accounting for its employee stock-based compensation plans. In 2000 and 1999, WebEx recorded ...

  • Page 51
    ... net change in the valuation allowance for the year ended December 31, 2001 was an increase of $12,898. Deferred tax assets of approximately $2,808 as of December 31, 2002 pertain to net operating loss carryforwards resulting from the exercise of stock options. When realized, the tax benefit of the...

  • Page 52
    ... divert management's attention away from running the Company's business. Intellectual property litigation could also require Webex to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable...

  • Page 53
    ... based on a monthly fee per employee working on WebEx projects. These companies provided a significant amount of quality assurance testing and software development activities for WebEx. Research and development expenses for engineering services pursuant to these arrangements for the years ended...

  • Page 54
    ...,533 shares of WebEx common stock as of December 31, 2002. For the years ended December 31, 2002, 2001 and 2000, TIBCO Software, Inc. paid WebEx $261, $169 and $125, respectively for WebEx services. Vivek Ranadivé, one of the Company's directors, is Chairman of the Board and Chief Executive Officer...

  • Page 55
    ... ...Operating loss ...Other income, net ...Net loss per share, basic and diluted ...Shares used in computing net loss per share basic and diluted ...* Equity-based compensation: Sales and marketing ...Research and development ...General and administrative ... $25,860 5,873 19,987 11,639 4,690...

  • Page 56
    ... by reference to the information contained in the section entitled "Election of Directors" in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Company's 2003 Annual Meeting of Stockholders to be...

  • Page 57
    ...lesser amount determined by our Board of Directors. (3) Includes 1,872,722 shares available for purchase pursuant to our 2000 Employee Stock Purchase Plan. The 2000 Employee Stock Purchase Plan provides that shares of common stock will be purchased by plan participants at a price equal to 85% of the...

  • Page 58
    ... designed to timely provide them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act. (b) Changes in Internal Controls. There have not been any significant changes in the Company's internal controls...

  • Page 59
    ...to Registrant's Registration Statement on Form S-1 (File No. 333-33716) filed with the Securities and Exchange Commission on June 21, 2000. (2) Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ending December 31, 2001. (3) Incorporated by reference...

  • Page 60
    ...to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated: Name Title Date /s/ SUBRAH S. IYAR Subrah S. Iyar /s/ MIN ZHU Min Zhu Chief Executive Officer (Principal...

  • Page 61
    ... of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified...

  • Page 62
    ... of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified...

  • Page 63
    ...to Registrant's Registration Statement on Form S-1 (File No. 333-33716) filed with the Securities and Exchange Commission on June 21, 2000. (2) Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ending December 31, 2001. (3) Incorporated by reference...

  • Page 64
    ... of the risks and uncertainties that could affect WebEx are more fully set forth in WebEx's filings with the Securities and Exchange Commission, including WebEx's reports on Forms 10-K and 10-Q. WebEx assumes no obligation to update forward-looking information contained in this annual report.

  • Page 65
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