-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mi+OX9TaG2sMcJotJObXtJP8wp6Er/X4OpicpUpI16DRS0VgPLm2XCnjVKus/ITr XFHGCW3tFzOWcm7E878gMQ== 0001047469-98-010472.txt : 19980323 0001047469-98-010472.hdr.sgml : 19980323 ACCESSION NUMBER: 0001047469-98-010472 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980319 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT PLAINS SOFTWARE INC CENTRAL INDEX KEY: 0000758540 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 450374871 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-22833 FILM NUMBER: 98568650 BUSINESS ADDRESS: STREET 1: 1701 S W 38TH ST CITY: FARGO STATE: ND ZIP: 58103 BUSINESS PHONE: 7012810550 MAIL ADDRESS: STREET 1: 1701 S W 38TH STREET CITY: FARGO STATE: ND ZIP: 58103 424B3 1 424B3 Rule 424(b)(3) Registration No. 333-22833 GREAT PLAINS SOFTWARE, INC. Prospectus Supplement No. 6, dated March 18, 1998 (To Prospectus dated June 19, 1997, as supplemented by Prospectus Supplement No. 1 dated July 10, 1997, Prospectus Supplement No. 2 dated August 21, 1997, Prospectus Supplement No. 3 dated September 24, 1997, Prospectus Supplement No. 4 dated October 15, 1997 and Prospectus Supplement No. 5 dated January 14, 1998) On March 18, 1998, Great Plains Software, Inc. (the "Company") issued the attached press release regarding its financial results for the fiscal quarter ended February 28, 1998 and filed with the Securities and Exchange Commission the attached Quarterly Report on Form 10-Q for that fiscal quarter. In addition, on March 18, 1998 the Company filed with the Securities and Exchange Commission a Registration Statement on Form S-1 relating to the sale of up to 500,000 shares of the Company's Common Stock held by certain shareholders of the Company. Affiliates of Goldman, Sachs & Co. are the general partner, managing general partner or investment manager of the selling shareholders. For Editorial Information: For Financial Information: Kim Albrecht Tami Reller Public Relations Manager Director of Finance & Investor Relations 701/281-3735, kalbrech@gps.com 701/281-6762, treller@gps.com FOR IMMEDIATE RELEASE GREAT PLAINS SOFTWARE REPORTS THIRD QUARTER FINANCIAL RESULTS FARGO, ND, MARCH 18, 1998 -- Great Plains Software, Inc. (NASDAQ: GPSI) announced today financial results for the fiscal quarter which ended February 28, 1998, the third quarter in the company's fiscal year 1998. Great Plains Software reported third quarter revenues of $22.6 million, a 54% increase over the comparable period last fiscal year. Operating income for the third quarter of fiscal 1998 was $3.1 million, up 166% over the third quarter of fiscal 1997. Net income and diluted earnings per share for the third quarter of fiscal 1998 were $2.4 million and 17 cents, respectively, a 199% increase in net income and a 112% increase in diluted earnings per share over the same period last fiscal year. Revenues for the nine months ended February 28, 1998, were $59.4 million, an increase of 51% over the comparable period last fiscal year. Operating income for the nine months ended February 28, 1998, was $7.4 million, a 154% increase over the comparable period last fiscal year. Net income and diluted earnings per share for the nine months ended February 28, 1998, were $6.0 million and 43 cents respectively, representing increases of 203% in net income and 113% in diluted earnings per share over the same period last fiscal year. Revenues from Great Plains' Windows NT-Registered Trademark- client/server solutions--Dynamics and Dynamics C/S+--were $19.5 million during the third quarter of fiscal 1998, accounting for 86% of revenues and representing a 65% increase over the same period last fiscal year. For the nine months ended February 28, 1998, client/server revenues were $51.4 million, accounting for 87% of total revenues, and representing a 63% increase over the same period last fiscal year. Revenues from the company's heritage business, its DOS and Macintosh products, were $3.1 million during the third quarter of fiscal 1998, representing an increase of 8% over the same period last fiscal year. This increase is primarily the result of a heritage product upgrade in the third quarter. This upgrade, Great Plains Accounting for Windows, provides a Windows-Registered Trademark- interface for the company's DOS product. For the nine months ended February 28, 1998, heritage product revenues were $8.0 million, consistent with the same period last fiscal year. - more - Great Plains Software Announces Q3 Financials March 18, 1998 2-2-2-2 QUARTERLY HIGHLIGHTS The following highlights were announced or occurred since Great Plains Software's last earnings release: - - Great Plains Software was named to FORTUNE Magazine's "Top 100 Companies to Work for in America." - - Great Plains Software Chairman and CEO, Doug Burgum, participated in a panel discussion before the U.S. Senate Judiciary Committee on the subject of "Market Power and Structural Change in the Software Industry." - - Great Plains Software participated in Microsoft's launch of SQL Server, Enterprise Edition-TM- 6.5. - - Great Plains Software received a STAR award in recognition of excellence in customer service from the Software Support Professionals Association (SSPA) for the second consecutive year. - - Great Plains Software opened a satellite office in Seattle, Washington to increase development capacity and to foster an even closer technical relationship with Microsoft. - - Great Plains Software established its fourth subsidiary office, Great Plains Software South Africa Pty. Ltd. In December, Great Plains acquired the distribution rights in South Africa from its former distributor, Eikon Software Pty. Ltd., and created a wholly-owned South African subsidiary. - - Great Plains announced support for Microsoft-Registered Trademark- Site Server 3.0, Commerce Edition, through Dynamics.Commerce, a consumer-to-business Internet retailing system. This combination of products enables customers to more easily integrate their electronic storefront and their financial systems. - - Great Plains Software announced support for Microsoft BackOffice-TM- 4.0 as the preferred platform for its client/server financial management software. This release may contain descriptions of the Company's expectations regarding future business trends. These forward-looking statements are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Accordingly, actual results may differ materially from those contemplated by the forward-looking statements. Great Plains Software, Inc. (NASDAQ: GPSI) is a leading provider of Microsoft Windows NT-Registered Trademark- client/server financial management software for the midmarket. The company's award-winning products and services are sold and implemented exclusively by its extensive network of independent sales and support organizations throughout the world. # # # # Microsoft, Windows NT, SQL Server and Visual Basic are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. All other products mentioned in this release are registered trademarks or trademarks of their respective holders. Great Plains Software Announces Q3 Financials March 18, 1998 3-3-3-3 Great Plains Software, Inc. Consolidated Condensed Statement of Income (In thousands, except per share amounts)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended Feb. 28, 1998 Feb. 28, 1997 Feb. 28, 1998 Feb. 28, 1997 -------------- ------------- ------------- -------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenues: License $13,816 $9,224 $36,433 $24,357 Service 8,791 5,475 22,993 15,096 ----- ----- ------ ------ Total revenues 22,607 14,699 59,426 39,453 Cost of revenues: License 3,266 1,832 7,855 4,552 Service 2,723 2,050 7,483 5,699 ----- ----- ------ ------ Total cost of revenues 5,989 3,882 15,338 10,251 ----- ----- ------ ------ Gross profit 16,618 10,817 44,088 29,202 Operating expenses: Sales and marketing 8,416 5,702 22,325 15,416 Research and development 3,030 2,414 8,718 6,903 General and administrative 2,086 1,540 5,641 3,973 ----- ----- ------ ------ Total operating expenses 13,532 9,656 36,684 26,292 ------ ------ ------ ------ Operating income 3,086 1,161 7,404 2,910 Other income, net 878 103 2,681 305 --- --- ----- ----- Income before taxes 3,964 1,264 10,085 3,215 Income tax provision 1,587 470 4,035 1,220 ----- --- ----- ----- Net income $2,377 $794 $6,050 $1,995 ------ ---- ------ ------ ------ ---- ------ ------ Basic net income per share $0.17 $0.06 $0.46 $0.12 Shares used in computing basic net income per share 13,626,934 7,755,385 13,269,032 7,489,826 Diluted net income per share $0.17 $0.08 $0.43 $0.20 Shares used in computing diluted net income per share 14,253,808 10,113,218 13,963,303 9,847,658
Great Plains Software Announces Q3 Financials March 18,1998 4-4-4-4 Great Plains Software, Inc. Consolidated Condensed Balance Sheet (In thousands)
February 28, May 31, 1998 1997 ---- ---- (unaudited) Assets: Current assets: Cash and cash equivalents $ 16,923 $ 12,101 Investments 54,899 4,142 Accounts receivable 7,038 5,452 Deferred income taxes 3,718 3,279 Other current assets 3,569 1,731 ----- ----- Total current assets 86,147 26,705 Property and equipment, net 7,528 5,821 Goodwill, net 351 438 Other assets 2,612 250 ----- ----- Total assets $ 96,638 $ 33,214 -------- -------- -------- -------- Liabilities and Stockholders' Equity (deficit) Current liabilities: Accounts payable and accrued expenses $ 11,467 $ 9,599 Deferred revenue 13,162 10,448 ------ ------ Total current liabilities 24,629 20,047 Long term liabilities: Deferred tax liability 838 746 --- --- Total liabilities 25,467 20,793 Mandatorily redeemable convertible preferred stock -- 28,698 Stockholders' equity (deficit): Convertible preferred stock -- 199 Common stock 137 81 Additional paid-in capital 67,698 (13,843) Retained earnings (deficit) 3,336 (2,714) ----- ------ Total stockholders' equity (deficit) 71,171 (16,277) ------ ------ Total liabilities and stockholders' equity (deficit) $ 96,638 $ 33,214 -------- -------- -------- --------
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1998 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 0-22703 GREAT PLAINS SOFTWARE, INC. (Exact name of registrant as specified in its charter) MINNESOTA 45-0374871 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1701 S.W. 38TH STREET, FARGO, NORTH DAKOTA 58103 (Address of principal executive offices) (Zip Code) (701) 281-0550 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- As of March 16, 1998, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 13,704,889. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GREAT PLAINS SOFTWARE, INC. CONSOLIDATED CONDENSED BALANCE SHEET (IN THOUSANDS)
February 28, May 31, 1998 1997 ------------ ------- (unaudited) Assets: Current assets: Cash and cash equivalents....................... $16,923 $12,101 Investments..................................... 54,899 4,142 Accounts receivable, net........................ 7,038 5,452 Deferred income taxes........................... 3,718 3,279 Other current assets............................ 3,569 1,731 ------- ------- Total current assets........................... 86,147 26,705 Property and equipment, net...................... 7,528 5,821 Goodwill, net.................................... 351 438 Other assets..................................... 2,612 250 ------- ------- Total assets..................................... $96,638 $33,214 ------- ------- ------- ------- Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable................................ $ 2,979 $ 1,788 Accrued expenses................................ 8,488 7,811 Deferred revenue................................ 13,162 10,448 ------- ------- Total current liabilities...................... 24,629 20,047 ------- ------- ------- ------- Long-term liabilities: Deferred tax liability.......................... 838 746 ------- ------- Total liabilities.............................. 25,467 20,793 Mandatorily redeemable convertible preferred stock................................. 28,698 Stockholders' equity (deficit): Convertible preferred stock..................... 199 Common stock.................................... 137 81 Additional paid-in capital...................... 67,698 (13,843) Retained earnings (deficit)..................... 3,336 (2,714) ------- ------- Total stockholders' equity (deficit)........... 71,171 (16,277) Total liabilities and stockholders' equity (deficit)............................... $96,638 $33,214 ------- ------- ------- -------
See accompanying notes to the consolidated condensed financial statements. -2- GREAT PLAINS SOFTWARE, INC. CONSOLIDATED CONDENSED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine months Ended February 28, February 28, 1998 1997 1998 1997 ---------------------- ------------------------ (unaudited) (unaudited) Revenues: License............................................ $13,816 $ 9,224 $36,433 $24,357 Service............................................ 8,791 5,475 22,993 15,096 ------- ------- ------- ------- Total revenues.................................... 22,607 14,699 59,426 39,453 Cost of revenues: License............................................ 3,266 1,832 7,855 4,552 Service............................................ 2,723 2,050 7,483 5,699 ------- ------- ------- ------- Total cost of revenues............................ 5,989 3,882 15,338 10,251 ------- ------- ------- ------- Gross profit...................................... 16,618 10,817 44,088 29,202 Operating expenses: Sales and marketing................................ 8,416 5,702 22,325 15,416 Research and development........................... 3,030 2,414 8,718 6,903 General and administrative......................... 2,086 1,540 5,641 3,973 ------- ------- ------- ------- Total operating expenses.......................... 13,532 9,656 36,684 26,292 ------- ------- ------- ------- Operating income.................................... 3,086 1,161 7,404 2,910 Other income, net................................... 878 103 2,681 305 ------- ------- ------- ------- Income before income taxes.......................... 3,964 1,264 10,085 3,215 Income tax provision................................ 1,587 470 4,035 1,220 ------- ------- ------- ------- Net income........................................ $ 2,377 $ 794 $ 6,050 $ 1,995 ------- ------- ------- ------- ------- ------- ------- ------- Basic net income per share $ 0.17 $ 0.06 $ 0.46 $ 0.12 Shares used in computing basic net income per share 13,626,934 7,755,385 13,269,032 7,489,826 Diluted net income per share $ 0.17 $ 0.08 $ 0.43 $ 0.20 Shares used in computing diluted net income per share 14,253,808 10,113,218 13,963,303 9,847,658
See accompanying notes to the consolidated condensed financial statements. -3- GREAT PLAINS SOFTWARE, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Nine months ended February 28, 1998 1997 ---- ---- (unaudited) (unaudited) Cash flows from operating activities: Net income................................................ $ 6,050 $ 1,995 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 2,019 1,565 Deferred taxes............................................. 239 1,213 Changes in operating assets and liabilities: Accounts receivable....................................... (1,586) 594 Accounts payable.......................................... 1,191 427 Accrued expenses.......................................... 677 (168) Deferred revenue.......................................... 2,714 727 Other current assets...................................... (1,838) (668) ------ ----- Net cash provided by operating activities................ 9,466 5,685 Cash flows from investing activities: Purchase of property, plant and equipment and other assets.. (5,929) (2,031) Purchase of investments.................................... (50,757) (2,102) ------ ----- Net cash used by investing activities..................... (56,686) (4,133) Cash flows from financing activities: Principal payments on long-term debt and capital leases obligations......................................... - (847) Sale (repurchase) of stock.................................. 50,243 (54) Exercise of stock options................................... 1,799 1,215 ------ ----- Net cash provided (used) by financing activities........... 52,042 314 Net increase in cash......................................... 4,822 1,866 Cash at beginning of period.................................. 12,101 8,256 ------ ----- Cash at end of period........................................ $ 16,923 $10,122 ------ ----- ------ -----
See accompanying notes to the consolidated condensed financial statements. -4- GREAT PLAINS SOFTWARE, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The information at February 28, 1998 and 1997 and for the three and nine month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which the Company's management believes to be necessary for the fair presentation of the financial position, results of operations and changes in cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Despite management's best effort to establish good faith estimates and assumptions, actual results may differ. The accompanying interim financial statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended May 31, 1997. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission. Interim results of operations for the three and nine month periods ended February 28, 1998 are not necessarily indicative of operating results for the full fiscal year. 2. Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No.128 applies to entities with publicly held common stock or potential common stock and is effective for financial statements issued for periods ending after December 15, 1997. Under SFAS No. 128, the presentation of primary earnings per share is replaced with a presentation of basic earnings per share. SFAS No. 128 requires dual presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform with the provisions of SFAS No. 128. -5- The following table sets forth the computation of basic and diluted net income per share:
(In thousands except per share amounts) For the three months For the nine months ended February 28, ended February 28, 1998 1997 1998 1997 Basic earnings per share computation Net income $ 2,377 $ 794 $ 6,050 $ 1,995 Increase to carrying value of mandatorily redeemable preferred stock (359) - (1,076) Net income available to common stockholders 2,377 435 6,050 919 Weighted average common shares 13,626,934 7,755,385 13,269,032 7,489,826 Basic net income per share $ 0.17 $ 0.06 $ 0.46 $ 0.12 Diluted earnings per share computation Net income $ 2,377 $ 794 $ 6,050 $ 1,995 Shares calculation Weighted average number of common shares 13,626,934 7,755,385 13,269,032 7,489,826 Weighted average of assumed conversion of mandatorily redeemable preferred stock 1,847,627 1,847,627 Other common stock equivalents 626,874 510,206 694,271 510,205 14,253,808 10,113,218 13,963,303 9,847,658 Diluted net income per share $ 0.17 $ 0.08 $ 0.43 $ 0.20
-6- 3. Initial Public Offering In June 1997, the Company sold 3,450,000 shares of common stock at a price of $16.00 per share in an initial public offering. The initial public offering generated more than $50 million of proceeds to the Company. As a result of the initial public offering, the Series A Preferred Stock and the Series B Preferred Stock were converted to common stock. In connection with the initial public offering, certain other resolutions of the Company's Board of Directors became effective, including authorization of a four-for-three stock split of the issued and outstanding shares of the Company's common stock, in the form of a stock dividend, which was issued immediately prior to the initial public offering. All references to common stock amounts, shares and per share data have been adjusted to give retroactive effect to the stock split. 4. Acquisitions During the quarter ending November 30, 1997, the Company acquired all of the outstanding capital stock of its Singapore distributor in a transaction that was accounted for as a pooling of interests. In exchange for capital stock, the Company issued 56,250 shares of the Company's common stock. Financial data for the periods prior to the closing of this transaction has not been restated because neither the net assets nor operating results would have been material to the Company's consolidated financial statements. In December 1997, the Company acquired its South African distributor in a transaction that was accounted for as a purchase. Pro forma information is not presented as it is not deemed material. -7- GREAT PLAINS SOFTWARE, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's Consolidated Condensed Financial Statements and Notes thereto. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of total revenues represented by certain items reflected in the Company's consolidated condensed statement of income.
Three Months Ended Nine Months Ended February 28, February 28, 1998 1997 1998 1997 ----------------- ----------------- As a percentage of total revenues Revenues: License................................. 61.1% 62.8% 61.3% 61.7% Service................................. 38.9 37.2 38.7 38.3 ----- ----- ----- ----- Total revenue.......................... 100.0 100.0 100.0 100.0 Cost of revenues: License................................. 14.4 12.5 13.2 11.5 Service................................. 12.0 13.9 12.6 14.5 ----- ----- ----- ----- Total cost of revenues................. 26.4 26.4 25.8 26.0 ----- ----- ----- ----- Gross margin........................... 73.6 73.6 74.2 74.0 Operating expenses: Sales and marketing.................... 37.3 38.8 37.6 39.1 Research and development............... 13.4 16.4 14.7 17.5 General and administrative............. 9.2 10.5 9.4 10.0 ----- ----- ----- ----- Total operating expenses.............. 59.9 65.7 61.7 66.6 ----- ----- ----- ----- Operating income........................ 13.7 7.9 12.5 7.4 Other income, net....................... 3.8 .7 4.5 .8 ----- ----- ----- ----- Income before income taxes.............. 17.5 8.6 17.0 8.2 Income tax provision.................... 7.0 3.2 6.8 3.1 ----- ----- ----- ----- Net income............................ 10.5% 5.4% 10.2% 5.1% ----- ----- ----- ----- ----- ----- ----- -----
-8- REVENUES REVENUES. Revenues for the quarter ended February 28, 1998 were $22.6 million, representing an increase of 53.8% over revenues of $14.7 million for the quarter ended February 28, 1997. This increase in revenues was primarily due to increased demand for the Company's Dynamics C/S+ and Dynamics products (together, the "client/server products") and related service fees. In addition, during the quarter ended February 28, 1998, revenues from the Company's heritage products increased slightly as compared to the quarter ended February 28, 1997. Revenues for the nine months ended February 28, 1998 were $59.4 million, representing an increase of 50.6% over revenues of $39.5 million for the nine months ended February 28, 1997. This increase in revenues was primarily a result of increased demand for the Company's client/server products. Revenues from the Company's heritage products were $8.0 million for the nine months ended February 28, 1998, consistent with the $8.0 million for the nine months ended February 28, 1997. Heritage revenues did not decline in the most recent nine month period due to strong demand from heritage customers for upgrades to the Company's heritage product, upgrades which were released in February 1997 and December 1997. The following tables set forth for the periods indicated client/server and heritage product revenues, each as a percentage of total revenues:
Three Months Ended February 28, 1998 1997 -------- -------- Client/server product revenues.... 86.1% 80.1% Heritage product revenues......... 13.9% 19.9%
Nine months ended February 28, 1998 1997 -------- -------- Client/server product revenues.... 86.6% 79.9% Heritage product revenues......... 13.4% 20.1%
Client/server product revenues, including license and service fees, were $19.5 million for the quarter ended February 28, 1998, representing an increase of 65.2% over client/server product revenues of $11.8 million for the quarter ended February 28, 1997. For the nine months ended February 28, 1998, client/server product revenues were $51.4 million, an increase of 63.3% over the $31.5 million in client/server product revenues for the nine months ended February 28, 1997. This increase in revenues was primarily the result of an increase in new customer licenses as well as increased revenues from maintenance and telephone support contracts due to an increased base of client/server customers. Heritage product revenues, including license and service fees, were $3.1 million for the quarter ended February 28, 1998, representing an increase of 7.8% from revenues of $2.9 million for the quarter ended February 28, 1997. This increase in heritage product revenues was primarily due to an increase in the sale of upgrades to the Company's installed base of heritage customers offset, in part, by a decrease in the number of new heritage customer licenses. In December 1997, the Company shipped a new heritage product upgrade, Great Plains Accounting for Windows. In addition to sales of this upgrade, demand continued for the Company's Great Plains Accounting Version 9 upgrade, which shipped in February 1997. For the nine months ended February 28, 1998, heritage product revenues were $8.0 million compared with heritage product revenues of $8.0 million for the nine months ended February 28, 1997. Heritage product revenues remained consistent for the nine months ended February 28, 1998 due to strong demand for the latest upgrades to the Company's heritage product, which released in February 1997 and December 1997. The Company anticipates that heritage product revenues will decrease in future periods where the Company does not experience strong demand for existing or new upgrades from its installed base of heritage customers. The Company's international revenues increased to $3.2 million for the quarter ended February 28, 1998, representing 14.3% of total revenues and compared to $1.9 million for the quarter ended February 28, 1997. This increase was primarily a result of growth in existing markets, including growth in the Company's subsidiary operations in the United Kingdom, Australia, and Singapore as well as revenues from a new subsidiary in South Africa. -9- International revenues for the nine months ended February 28, 1998 were $8.7 million, representing an increase of 55.7% over international revenues of $5.6 million for the nine months ended February 28, 1997. This increase is primarily a result of growth in existing international markets including its international subsidiaries. In December 1997, the Company opened an international subsidiary in South Africa to serve Partners and customers throughout Africa. LICENSE. Total license fee revenues for the quarter ended February 28, 1998 were $13.8 million, representing an increase of 49.8% over license revenues of $9.2 million for the quarter ended February 28, 1997. This increase in total license fees was largely attributable to increased market acceptance and demand for the Company's Windows NT client/server product offerings, Dynamics and Dynamics C/S+. In addition, demand for product upgrades to the Company's heritage product was strong in the quarter. For the nine months ended February 28, 1998, license fee revenues were $36.4 million, representing an increase of 49.6% over the $24.4 million in license revenues for the nine months ended February 28, 1997. This increase was primarily a result of an increased number of new client/server customer licenses as well as strong demand from heritage customers for the latest upgrades to the Company's heritage product. SERVICE. Service revenues for the quarter ended February 28, 1998 were $8.8 million, representing an increase of 60.6% over service revenues of $5.5 million for the quarter ended February 28, 1997. Service revenues for the nine months ended February 28, 1998 were $23.0 million, representing an increase of 52.3% over service revenues of $15.1 million for the nine months ended February 28, 1997. These increases in service revenues were largely a result of the service revenues associated with new client/server licenses as well as renewals of existing maintenance and support contracts from the increased installed base of client/server customers. Service revenues as a percentage of total revenues were 38.9% for the three months ended February 28, 1998 compared with 37.2% of total revenues for the three months ended February 28, 1997. For the nine months ended February 28, 1998 and 1997, service revenues as a percentage of total revenues were 38.7% and 38.3%, respectively. COSTS AND EXPENSES COST OF LICENSE FEES. Cost of license fees consists primarily of the costs of product manuals, media, shipping and royalties paid to third-party vendors. Cost of license fees for the quarter ended February 28, 1998 increased to $3.3 million from $1.8 million in the quarter ended February 28, 1997, representing 23.6% and 19.9% of total license fee revenues, respectively. Cost of license fees for the nine months ended February 28, 1998 increased to $7.9 million from $4.6 million in the nine months ended February 28, 1997, representing 21.6% and 18.7% of total license fee revenues, respectively. The dollar increase in cost of license fees in the quarter and nine months ended February 28, 1998 is primarily attributable to the overall growth in license fee revenues, and an increase in royalties paid to third-party vendors. The increase in cost of license fees as a percentage of total license fee revenues is primarily attributable to an increase in the sale of product for which the Company is obligated to pay royalties to third-party vendors. The cost of license fees as a percentage of license fee revenues may increase if the Company continues to add third-party vendors or if sales which include third-party products increase as a percentage of total revenues. COST OF SERVICES. Cost of services consists of the costs of providing telephone support, training and consulting services to the Company's customers and distribution channel. Cost of services for the quarter ended February 28, 1998 increased to $2.7 million from $2.1 million for the quarter ended February 28, 1997, representing 31.0% and 37.4% of total service revenues, respectively. Cost of services for the nine months ended February 28, 1998 increased to $7.5 million from $5.7 million for the nine months ended February 28, 1997, representing 32.5% and 37.8% of total service revenues, respectively. These increases in cost of services was primarily due to the expansion of the Company's service resources. Cost of services as a percentage of service revenues decreased for the quarter and nine months ended February 28, 1998 compared to the same periods last fiscal year. This decrease was primarily a result of improved efficiency and continued strong customer enrollment in maintenance plans and support contracts. The Company anticipates that cost of services will increase in dollar amount as service revenues increase and may decrease slightly as a percentage of service revenues. SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries, commissions, travel and promotional expenses. Sales and marketing expenses increased to $8.4 million for the quarter ended February 28, 1998 compared with $5.7 million for the quarter ended February 28, 1997, representing 37.3% and 38.8% of total revenues, respectively. Sales and marketing expenses for the nine months ended February 28, 1998 increased to $22.3 million -10- from $15.4 million for the nine months ended February 28, 1997, representing 37.6% and 39.1% of total revenues, respectively. The increase in sales and marketing expenses for both the quarter and nine months ended February 28, 1998 is attributable to the hiring of additional sales and marketing personnel, increased commission expenses associated with higher revenue, continued investments in expanding the capacity and capability of the channel for its Windows NT client/server products, and increased marketing expenses for the Company's client/server products. In addition, the Company increased sales and marketing expenses related to the operation of its international subsidiaries in the United Kingdom, Australia, Singapore and South Africa. The decrease in sales and marketing expenses as a percentage of total revenues for the quarter and nine months ended February 28, 1998 compared to the same periods in the last fiscal year was primarily a result of increased productivity in the Company's Partner channel. The Company anticipates that sales and marketing expenses will increase in dollar amount as total revenues increase; however, the Company does not anticipate significant changes in sales and marketing expenses as a percent of total revenues. RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of compensation of development personnel and depreciation of equipment. Total research and development expenses were $3.0 million for the quarter ended February 28, 1998 compared with $2.4 million for the quarter ended February 28, 1997, representing 13.4% and 16.4% of total revenues, respectively. For the nine months ended February 28, 1998, total research and development expenses were $8.7 million, compared with $6.9 million for the nine months ended February 28, 1997, representing 14.7% and 17.5% of total revenues, respectively. Research and development expenditure increases were primarily attributable to increases in the Company's salary cost for software engineers and the infrastructure costs required to support product development initiatives in the following areas: (i) expansion and enhancement of the Company's client/server product offerings, (ii) research and development of Internet-based products which enhance the functionality of the Company's financial management solutions, and (iii) additional research and development to optimize the Company's client/server products for the latest technologies. Research and development expenses have decreased as a percentage of total revenues in the most recent quarter and nine month period due to efficiencies gained through greater experience levels among development personnel, even greater automation in the Company's development testing processes, and additional efficiencies gained through an increased research and development focus on Microsoft technologies. The Company anticipates that it will continue to devote substantial resources to its research and development effort and that research and development expenses will increase in dollar amount in future periods and may increase as a percentage of revenues. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of salaries of executive, financial, human resources and information services personnel as well as outside professional fees. General and administrative expenses for the quarter ended February 28, 1998 were $2.1 million, compared with $1.5 million for the quarter ended February 28, 1997, representing 9.2% and 10.5% of total revenues, respectively. For the nine months ended February 28, 1998, general and administrative expenses were $5.6 million, compared with $4.0 million for the nine months ended February 28, 1997, representing 9.4% and 10.0% of total revenues, respectively. These increases in dollar amounts were primarily due to increased staffing to support the growth of the company as well as increased professional fees related to the requirements of being a publicly held company The Company believes that its general and administrative expenses will increase in dollar amount in the future to support the expansion of its operations and as a result of expenses associated with being a publicly held company. In addition, the Company anticipates that its rent expense will increase in future years due to its expected move into a new facility late in fiscal 1999. OTHER INCOME, NET. Other income, net consists primarily of earnings from investments, net of any interest expense. Other income, net increased to $0.9 million for the quarter ended February 28, 1998, compared with $0.1 million for the quarter ended February 28, 1997. For the nine months ended February 28, 1998, other income, net increased to $2.7 million from $0.3 million for the nine months ended February 28, 1997. The increase in dollar amount for the quarter and nine months ended February 28, 1998 was primarily from increased investment earnings due to increased investment levels as a result of the more than $50 million received from the Company's initial public offering of common stock in June 1997, as well as additional cash resulting from the Company's increased profitability. PROVISION FOR INCOME TAXES. The Company's income tax provision for the quarter ended February 28, 1998 was $1.6 million, compared with $0.5 million for the quarter ended February 28, 1997. The Company's income tax provision for the nine months ended February 28, 1998 was $4.0 million, compared with $1.2 million for the nine months ended February 28, 1997. The provision for income taxes was 40% of income before income taxes for the -11- quarter and nine months ended February 28, 1998, which represents a 2% increase from the fiscal 1997 annual effective income tax rate of 38% as a result of full state statutory tax rates. In addition, this increase in the provision for income taxes is primarily attributable to the increased operating income and interest income for the Company for the quarter and nine months ended February 28, 1998, compared with the quarter and nine months ended February 28, 1997. -12- LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded operations primarily through cash provided by operations and the sale of equity securities and, to a lesser extent, from borrowings. Currently, the Company meets its working capital needs and capital equipment needs with cash provided by operations. Cash provided by operating activities for the nine months ended February 28, 1998 was $9.5 million, compared with $5.7 million for the nine months ended February 28, 1997. The increase in cash provided by operations for the nine months ended February 28, 1998, was primarily due to increased profitability of the Company's operations, an increase in deferred revenues and an increase in accounts payable and accrued expenses offset, in part, by an increase in accounts receivable. The Company's investing activities used cash of $56.7 million for the nine months ended February 28, 1998, compared with $4.1 million for the nine months ended February 28, 1997. The principal use of cash in investing activities for the nine months ended February 28, 1998 was approximately $50 million for the purchase of investments following the Company's initial public offering of common stock. In addition, investing activities for the nine months ended February 28, 1998 included increased capital expenditures related to the acquisition of computer equipment required to support expansion of the Company's operations. Investing activities also included investment in minority interest positions in certain international operations. The Company's financing activities provided cash of $52.0 million during the nine months ended February 28, 1998, compared with cash provided of $0.3 million for the nine months ended February 28, 1997. For the nine months ended February 28 1998, cash provided by financing activities primarily included $50.2 million from the sale of the Company's common stock in an initial public offering and $1.8 million from the exercise of stock options. For the nine months ended February 28, 1997, cash provided from financing activities consisted primarily of proceeds received from the exercise of stock options offset in part by payments on capital lease obligations and notes payable. The Company's sources of liquidity at February 28, 1998 consisted principally of cash, cash equivalents and investments of $71.8 million. This amount includes approximately $50.2 million in cash generated from the Company's initial public offering of common stock which was completed on June 25, 1997. The Company also has a $10.0 million revolving line of credit facility with a bank. The line of credit expires in November 1998 and borrowings made thereunder are subject to certain covenants. No amounts were outstanding under the line of credit at February 28, 1998. The Company believes that its existing cash, cash equivalents and investments, cash generated from operations and the amounts available under the line of credit will be sufficient to fund its operations for the foreseeable future. The Company is actively engaged in researching any issues presented by the Year 2000 that may impact the Company's internal systems. These potential issues result from the use of two-digit year dates rather than four-digit year dates in computer code, which could cause potential failures in date-sensitive software systems that do not recognize "00" as 2000. The Company does not anticipate that Year 2000 issues will materially impact its operations. In addition, recent versions of the Company's client/server and heritage products are Year 2000 compliant. The Company does not anticipate any material impact on its revenues or earnings as a result of Year 2000 issues. RECENTLY ISSUED ACCOUNTING STANDARDS The American Institute of Certified Public Accountants has approved a new Statement of Position (SOP), SOP 97-2, which will supersede Statement of Position 91-1, "Software Revenue Recognition." SOP 97-2 will be effective for the Company in Fiscal 1999. Management has assessed this new statement and believes that its adoption will not have a material effect on the timing of the Company's revenue recognition or cause changes to its revenue recognition policies. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's expectations or beliefs, including, but not limited to, statements concerning the Company's operations and financial performance and condition. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors, including those described in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -13- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN 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. ITEM 5. OTHER INFORMATION None. -14- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8K No reports on Form 8K were filed during the quarter ended February 28, 1998. -15- SIGNATURES 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. Date: March 17, 1998 GREAT PLAINS SOFTWARE, INC. By /s/ Douglas J. Burgum ------------------------------------------- Douglas J. Burgum Chairman of the Board, President and Chief Executive Officer By /s/ Terri F. Zimmerman ------------------------------------------- Terri F. Zimmerman Chief Financial Officer and Group Vice President, Finance and Operations (principal financial and accounting officer) -16- EXHIBIT INDEX 27.1 Financial Data Schedule -17- -----END PRIVACY-ENHANCED MESSAGE-----