-----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, K1ZhqGCONs8t+oD0MgNKiG5G681jU//o33n/KTLWsmeWOT98ud9j4PDdh39cjXBX h5jkgUQQHnWC3QRnaq8lvQ== 0000950135-00-002892.txt : 20000517 0000950135-00-002892.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950135-00-002892 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROJECT SOFTWARE & DEVELOPMENT INC CENTRAL INDEX KEY: 0000920354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042448516 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23852 FILM NUMBER: 636402 BUSINESS ADDRESS: STREET 1: 100 CROSBY DR D CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 7812802000 MAIL ADDRESS: STREET 1: 100 CROSBY DRIVE CITY: CAMBRBEDFORD STATE: MA ZIP: 01730 10-Q 1 PROJECT SOFTWARE DEVELOPMENT INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 (mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _______________ to __________________ Commission File Number 0-23852 PROJECT SOFTWARE & DEVELOPMENT, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2448516 (State or other jurisdiction (I.R.S employer incorporation or organization) identification number) 100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730 (Address of principal executive offices, including zip code) (781) 280-2000 (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 [ ] Number of shares outstanding of the Registrant's common stock as of the latest practicable date: 21,805,570 shares of common stock, $.01 par value per share, as of April 30, 2000. 2 PROJECT SOFTWARE & DEVELOPMENT, INC. 10-Q INDEX PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE Consolidated Balance Sheets (unaudited) as of March 31, 2000 and 3 September 30, 1999. Consolidated Statements of Operations (unaudited) for the three and six 4 months ended March 31, 2000 and 1999. Consolidated Statements of Cash Flows (unaudited) for the three and six 5 months ended March 31, 2000 and 1999. Notes to Consolidated Financial Statements (unaudited). 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 13 OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29 SIGNATURE 31
2 3 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS MARCH 31, SEPTEMBER 30, 2000 1999 -------- --------- (IN THOUSANDS,EXCEPT SHARE DATA) Current assets: Cash and cash equivalents $ 30,928 $ 59,903 Marketable securities 8,709 30,920 Accounts receivable, trade, less allowance for doubtful accounts of $2,907 at March 31, 2000 and $2,867 at September 30, 1999, respectively 47,712 38,736 Prepaid expenses 7,215 3,919 Other current assets 1,131 1,171 Deferred income taxes 2,228 2,017 --------- --------- Total current assets 97,923 136,666 --------- --------- Marketable securities 2,161 7,413 Property and equipment, net 14,675 12,055 Intangible assets, net 54,508 1,509 Other assets 383 406 Deferred income taxes 1,327 984 --------- --------- Total assets $ 170,977 $ 159,033 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 15,393 $ 12,172 Accrued compensation 6,077 8,429 Income taxes payable 3,517 4,227 Deferred revenue 18,116 16,580 Deferred income taxes 94 187 --------- --------- Total current liabilities 43,197 41,595 --------- --------- Deferred rent 130 146 Deferred revenue 143 92 Commitments and contingencies Equity in minority interest -- 44 Stockholders' equity Preferred stock, $.01 par value;1,000,000 authorized, none issued and outstanding Common stock, $.01 par value;50,000,000 authorized; 21,804,570 and 21,301,674 issued at March 31, 2000 and September 30, 1999, respectively 218 213 Additional paid-in capital 73,162 67,418 Retained earnings 55,169 50,210 Accumulated other comprehensive income (1,042) (685) --------- --------- Total stockholders' equity 127,507 117,156 --------- --------- Total liabilities and stockholders' equity $ 170,977 $ 159,033 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (in thousands, except per share data) Revenues: Software $ 18,644 $ 13,470 $ 34,381 $ 27,876 Support and services 22,977 19,440 45,226 38,951 -------- -------- -------- -------- Total revenues 41,621 32,910 79,607 66,827 -------- -------- -------- -------- Cost of revenues: Software 845 1,516 1,504 2,660 Support and services 12,172 9,700 24,700 19,283 -------- -------- -------- -------- Total cost of revenues 13,017 11,216 26,204 21,943 -------- -------- -------- -------- Gross margin 28,604 21,694 53,403 44,884 Operating expenses: Sales and marketing 15,824 9,339 29,688 20,198 Product development 5,522 3,628 10,017 7,104 General and administrative 3,517 2,515 6,569 5,382 Goodwill amortization 1,132 121 1,301 217 -------- -------- -------- -------- Total operating expenses 25,995 15,603 47,575 32,901 -------- -------- -------- -------- Income from operations 2,609 6,091 5,828 11,983 Interest income 1,382 679 2,319 1,327 Interest expense (100) (7) (101) (24) Other income (expense), net (183) (323) (377) (251) -------- -------- -------- -------- Income before income taxes 3,708 6,440 7,669 13,035 Provision for income taxes 1,345 2,146 2,710 4,455 -------- -------- -------- -------- Net income $ 2,363 $ 4,294 $ 4,959 $ 8,580 ======== ======== ======== ======== Net income per share, basic $ 0.11 $ 0.21 $ 0.23 $ 0.43 -------- -------- -------- -------- Net income per share, diluted $ 0.10 $ 0.21 $ 0.22 $ 0.42 -------- -------- -------- -------- Shares used to calculate net income per share Basic 21,671 20,067 21,543 20,036 Diluted 23,276 20,652 22,991 20,529
The accompanying notes are an integral part of the consolidated financial statements. 4 5 PROJECT SOFTWARE & DEVELOPMENT, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2000 1999 -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income $ 4,959 $ 8,580 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,540 2,234 Gain/(loss) on sale and disposal of property and equipment 15 23 Amortization of discount on marketable securities 100 94 Deferred rent (16) 18 Deferred income taxes (715) 54 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable (8,129) (5,020) Prepaid expenses (3,189) (609) Other assets (945) (774) Accounts payable 4,388 1,830 Accrued compensation (2,709) (1,922) Income taxes payable (619) (56) Deferred revenue 2,230 1,322 -------- -------- Net cash (used in)/ provided by operating activities (2,090) 5,774 -------- -------- Cash flows from investing activities: Acquisitions of business, net of cash (55,558) 141 Acquisitions of property and equipment (4,143) (2,825) Purchase of marketable securities (51,879) (23,553) Sale of marketable securities 79,249 22,517 -------- -------- Net cash used in investing activities (32,331) (3,720) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options including related tax benefit 5,750 877 -------- -------- Net cash provided by financing activities 5,750 877 -------- -------- Effect of exchange rate changes on cash (304) (273) -------- -------- Net increase in cash and cash equivalents (28,975) 2,658 Cash and cash equivalents, beginning of period 59,903 28,454 -------- -------- Cash and cash equivalents, end of period $ 30,928 $ 31,112 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PROJECT SOFTWARE & DEVELOPMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Project Software & Development, Inc. (PSDI) and its majority-owned subsidiaries (collectively, the "Company"), as of March 31, 2000 and have been prepared by the Company in accordance with generally accepted accounting principles for interim reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. The results of operations for the periods presented herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year, which ends on September 30, 2000, or for any other future period. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, for the year ended September 30, 1999 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 29, 1999. 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 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 period. Actual results could differ from those estimates. B. INCOME PER SHARE Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted average common shares outstanding plus dilutive potential common shares. For purposes of this calculation, stock options are considered dilutive potential common shares in periods in which they have a dilutive effect. 6 7 Basic and diluted earnings per share are calculated as follows: (in thousands, except per share data)
THREE MONTHS ENDED BASIC EPS 03/31/00 03/31/99 - -------------------------------------------------------------------- Net income $ 2,363 $ 4,294 Weighted average common Shares outstanding 21,671 20,067 Basic income per share $ 0.11 $ 0.21 DILUTED EPS - ------------------------------------------------------------------- Net income $ 2,363 $ 4,294 Weighted average common shares outstanding 21,671 20,067 Dilutive potential common shares 1,605 585 -------------------- Total diluted shares 23,276 20,652 Diluted income per share $ 0.10 $ 0.21
SIX MONTHS ENDED BASIC EPS 03/31/00 03/31/99 - -------------------------------------------------------------------- Net income $ 4,959 $ 8,580 Weighted average common shares outstanding 21,543 20,036 Basic income per share $ 0.23 $ 0.43 DILUTED EPS - ------------------------------------------------------------------- Net income $ 4,959 $ 8,580 Weighted average common shares outstanding 21,543 20,036 Dilutive potential Common shares 1,448 493 -------------------- Total diluted shares 22,991 20,529 Diluted income per share $ 0.22 $ 0.42
C. ACQUISITIONS On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a leading provider of MRO ("Maintenance, Repair and Operations") content management tools and cataloging services. The acquisition, recorded under the purchase method of accounting, included the purchase of the outstanding shares of common stock of INTERMAT, Inc. for $55.1 million in cash plus acquisition costs of $1.3 million. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of acquisition while the remaining balance of $53.1 million was recorded as goodwill and other intangible 7 8 assets. Goodwill of $46.6 million is being amortized over a period of 5 years on a straight-line basis. Other intangible assets of $6.5 million is being amortized over a period of 3 to 5 years on a straight-line basis. Other intangible assets consist primarily of workforce in place of $1.5 million which is being amortized over 5 years; completed technology of $4.5 million being amortized over 4 years, and the balance of $500 thousand being amortized over 3 years. The following is certain unaudited financial information for PSDI and INTERMAT, Inc. for the period before the combination was consummated that are included in the current combined net income: (in thousands)
THREE THREE SIX SIX MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED 03/31/00 03/31/99 03/31/00 03/31/99 -------- -------- -------- -------- REVENUE: PSDI $ 41,621 $ 32,910 $ 79,607 $ 66,827 INTERMAT $ 1,532 $ 2,124 $ 3,629 $ 5,317 -------- -------- -------- -------- Combined $ 43,153 $ 35,034 $ 83,236 $ 72,144 -------- -------- -------- -------- NET INCOME: PSDI $ 2,363 $ 4,294 $ 4,959 $ 8,580 INTERMAT $ 16 $ (7) $ (204) $ 758 Amortization of goodwill and intangible assets $ (2,653) $ (2,653) $ (5,306) $ (5,306) -------- -------- -------- -------- Combined $ (274) $ 1,634 $ (551) $ 4,032 -------- -------- -------- -------- Basic (loss) income $ (0.01) $ 0.08 $ (0.03) $ (0.20) per share Diluted (loss) $ (0.01) $ 0.08 $ (0.03) $ (0.20) income per share
D. INTANGIBLE ASSETS
SIX MONTHS ENDED MARCH 31, (in thousands) 2000 1999 ---- ---- Goodwill ........................ $ 49,049 $ 2,711 Other intangible assets ......... 8,269 -- -------- -------- $ 57,318 $ 2,711 Less accumulated amortization ... (2,810) (1,430) -------- -------- $ 54,508 $ 1,281 ======== ========
Amortization expense was $1.3 million and $216 thousand for March 31, 2000 and March 31, 1999, respectively. 8 9 E. SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid for interest and taxes were as follows:
SIX MONTHS ENDED MARCH 31, (in thousands) 2000 1999 ------ ------ Interest ........................ $ 1 $ 25 Income taxes .................... 3,124 4,559
Acquisitions of businesses were as follows:
SIX MONTHS ENDED MARCH 31, -------------------- (in thousands) 2000 1999 ------- ------- Fair value of assets acquired .... $56,953 $ 592 Fair value of liabilities assumed 753 729 Net cash payments ................ $55,100 180
F. COMPREHENSIVE INCOME The following table reflects the components of comprehensive income:
(in thousands) THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 - --------------------------------------------------------------------------------- Net income $ 2,363 $ 4,294 - --------------------------------------------------------------------------------- Other comprehensive income, net of tax: Unrealized gain/(loss) on Securities arising during Period 34 (41) Foreign currency translation Adjustment (198) (412) - --------------------------------------------------------------------------------- Comprehensive income $ 2,199 $ 3,841 - ---------------------------------------------------------------------------------
9 10
SIX MONTHS SIX MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 - -------------------------------------------------------------------------------- Net income $ 4,959 $ 8,580 - -------------------------------------------------------------------------------- Other comprehensive income, net of tax: Unrealized gain/(loss) on Securities arising during Period 6 (17) Foreign currency translation Adjustment (363) (376) - -------------------------------------------------------------------------------- Comprehensive income $ 4,602 $ 8,187 - --------------------------------------------------------------------------------
G. SEGMENT INFORMATION, GEOGRAPHIC DATA AND MAJOR CUSTOMERS: The following is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company has identified two reportable industry segments: the development, marketing and support of asset maintenance management software (MAXIMO) and internet e-Commerce software products and network services (MRO.com(TM)). Asset information by reportable segment is not reported, since the Company does not produce such information internally. The Company also manages these segments across geographic reportable segments: United States, Other Americas (Canada and Latin America), Europe/Middle East and Africa, and Asia Pacific. All segments are managed by the same board of directors and executive officers. A summary of the Company's operations by segment was as follows:
THREE MONTHS ENDED MARCH 31, (in thousands) 2000 1999 -------- -------- Revenues: Asset maintenance software and services .............................. $ 32,886 $ 32,594 Internet e-Commerce software and services .............................. 8,735 316 -------- -------- $ 41,621 $ 32,910 ======== ======== Income from operations: Asset maintenance software and
10 11 services .............................. $ 5,845 $ 7,716 Internet e-Commerce software and services .............................. (3,236) (1,625) -------- -------- $ 2,609 $ 6,091 -------- --------
SIX MONTHS ENDED MARCH 31, (in thousands) 2000 1999 -------- -------- Revenues: Asset maintenance software and services .............................. $ 67,776 $ 63,601 Internet e-Commerce software and services .............................. 11,831 3,226 -------- -------- $ 79,607 $ 66,827 ======== ======== Income from operations: Asset maintenance software and Services .............................. $ 13,217 $ 12,954 Internet e-Commerce software and services .............................. (7,389) (971) -------- -------- $ 5,828 $ 11,983 -------- --------
A summary of the Company's operations by geographical area was as follows:
THREE MONTHS ENDED MARCH 31, (in thousands) 2000 1999 -------- -------- Revenues: United States ......................... $ 27,169 $ 16,641 Other Americas ........................ 2,587 2,160 Intercompany revenues ................. 81 3,943 -------- -------- $ 29,837 $ 22,744 Europe/Middle East and Africa ......... $ 10,396 $ 11,619 Asia/Pacific .......................... 1,469 2,490 Consolidating eliminations ............ (81) (3,943) -------- -------- $ 41,621 $ 32,910 -------- --------
SIX MONTHS ENDED MARCH 31, (in thousands) 2000 1999 -------- -------- Revenues: United States ......................... $ 48,188 $ 33,874 Other Americas ........................ 5,361 4,612 Intercompany revenues ................. 2,102 8,558 -------- -------- $ 55,651 $ 47,044
11 12 Europe/Middle East and Africa ......... $ 21,676 $ 22,872 Asia/Pacific .......................... 4,382 5,469 Consolidating eliminations ............ (2,102) (8,558) -------- -------- $ 79,607 $ 66,827 -------- --------
The Company has subsidiaries in foreign countries, which sell the Company's products and services in their respective geographic areas. Intercompany revenues primarily represent shipments of software to international subsidiaries and are eliminated from consolidated revenues. Income (loss) from operations excludes interest income, interest expense, provision for income taxes and transaction gains and losses. H. ACCOUNTING STANDARDS On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes some of the staff's interpretations of the application of generally accepted accounting principles to revenue recognition. All registrants are expected to apply the accounting and disclosure requirements that are described in SAB 101. Any changes in accounting and disclosures related to SAB 101 must be reported no later than the first quarter of the fiscal quarter of the fiscal year beginning after December 15, 1999. The Company is in the process of evaluating the impact of this interpretation on its future financial statements. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 to certain issues including: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for the exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 are applicable retroactively to specific events occurring after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS In addition to historical information this, Quarterly Report contains forward-looking statements identified by footnotes in the text. The forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Factors Affecting Future Performance". Readers should carefully review the risk factors described in other documents that the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K filed by the Company on December 29, 1999. OVERVIEW The Company develops, markets and supports business-to-business MRO ("Maintenance, Repair, and Operations") e-commerce systems and enterprise asset maintenance software. Through its subsidiary MRO.com, Inc., the Company complements its MAXIMO work and materials management software with an Internet-based business-to-business marketplace for MRO buyers and suppliers, a suite of online procurement software products that improve purchasing efficiency, and Internet-based content management tools and cataloging services. Businesses, government agencies, and other organizations use the Company's products across their enterprise to assist in the management of their high-value capital assets, such as plants, facilities, and production equipment, to cut inventories and supply chain costs, control maintenance expenses, reduce downtime, and more effectively deploy productive assets, personnel and other resources. The Company's revenues are derived primarily from two sources: (i) software licenses and (ii) fees for services, including support contracts, training and consulting services and commerce fees for on-line charges to engage in electronic commerce for Maintenance, Repair and Operations. ACQUISITIONS On March 2, 2000, the Company completed the acquisition of INTERMAT, Inc., a leading provider of MRO content management tools and cataloging services. The acquisition, recorded under the purchase method of accounting, included the purchase of the outstanding shares of common stock of INTERMAT, Inc. for $55.1 million in cash plus acquisition costs of $1.3 million. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of acquisition while the remaining balance of $53.1 13 14 million was recorded as goodwill and other intangible assets. Goodwill of $46.6 million is being amortized over a period of 5 years on a straight-line basis. Other intangible assets of $6.5 million is being amortized over a period of 3 to 5 years on a straight-line basis. Other intangible assets consist primarily of workforce in place of $1.5 million which is being amortized over 5 years, completed technology of $4.5 million being amortized over 4 years, and the balance of $500 thousand being amortized over 3 years. RESULTS OF OPERATIONS REVENUES
Three Three Six Six Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99 - -------------------------------------------------------------------------------------------------------------- Software licenses $18,644 38% $13,470 $34,381 23% $27,876 Percentage of total revenues 45% 41% 43% 42% Support and services $22,977 18% $19,440 $45,226 16% $38,951 Percentage of total of revenues 55% 59% 57% 58% Total revenues $41,621 26% $32,910 $79,607 19% $66,827
MAXIMO client/server revenues for the current quarter increased by 2% to $32.4 million compared to $31.9 million for the same period in the prior year. Year to date MAXIMO client/server revenues increased by 8% to $66.8 million compared to $61.9 million for the same period in the prior year. MRO.COM, Inc. revenues for the current quarter increased by 2,600% to $8.7 million compared to $316 thousand for the same period in the prior year. Year to date MRO.COM, Inc. revenues increased by 2,700% to $11.8 million compared to $3.2 million for the same period in the prior year. During the quarter, the Company concluded a significant license agreement for MRO supplier content management tools for approximately $4.4 million with a digital marketplace provider. Revenues from sales outside the United States decreased by 11% to $14.5 million or 35% of total revenues for the current quarter compared to $16.2 million or 49% of total revenues for the same period in the prior year. Year to date revenues from sales outside the United States decreased by 5% to $31.4 million or 40% of total revenues compared to $32.9 million or 49% of total revenues for the same period in the prior year. The decrease period over period occurred in the European and Asia Pacific regions and is due to seemingly stagnant asset maintenance market conditions in these regions. 14 15 Total software licenses increased for the current quarter compared to the same period in the prior year, as well as, year to date compared to the same period in the prior year. MAXIMO client/server software license revenue for the current quarter decreased by 16% to $11 million compared to $13.2 million for same period in the prior year. Year to date MAXIMO client/server software license revenues decreased by 2% to $24.0 million compared to $24.6 million for the same period in the prior year. The decreases are attributable to the seemingly stagnant asset maintenance market conditions in Europe and Asia Pacific. MRO.COM(TM) software license revenue for the current quarter increased to $7.6 million compared to $83 thousand for the same period in the prior year. Year to date MRO.COM(TM) software license revenue increased to $10.2 million compared to $2.7 million for the corresponding period in 1999. The increases are attributable to a significant license agreement for MRO supplier content management tools for approximately $4.4 million with a digital marketplace provider during the current quarter and an increase in the number of licenses sold. Support and services revenues increased for the current quarter compared to the same period in the prior year, as well as, year to date compared to the same period in the prior year. Consulting services grew by 14% over the same period in the prior year's quarter and by 13% year to date and continues to be a large percentage of total revenues due to additional service demands in connection with large scale implementations of the Company's MAXIMO product. MRO.COM(TM) services were not a significant portion of revenues and represented only 7% and 1% of service revenues for the current quarter compared to the same period in the prior year. Year to date MRO.COM(TM) services were also not a significant portion of revenues and represented only 4% and 1% of services revenues for the current year compared to the same period in the prior year. Support services grew to 23% over the same period in the prior year's quarter as a percentage of revenues and 21% year to date. The increase in the percentage of support revenues is related to the sequential increases in software license revenues and the high renewal rate for MAXIMO maintenance contracts. 15 16 COST OF REVENUES
Three Three Six Six Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99 - -------------------------------------------------------------------------------------------------------------- Software licenses $ 845 (44%) $ 1,516 $ 1,504 (43%) $ 2,660 Percentage of software licenses 5% 11% 4% 10% Support and services $12,172 25% $ 9,700 $24,700 28% $19,283 Percentage of support and services 53% 50% 55% 50% Total cost of revenues $13,017 16% $11,216 $26,204 19% $21,943 Percentage of total revenues 31% 34% 33% 33%
Cost of software licenses revenues consists of software purchased for resale, royalties paid to vendors of third party software, the amortization of capitalized software, the cost of software product packaging and media, and certain employee costs related to software duplication, packaging and shipping. The decrease in the cost of software licenses revenues was due primarily to a decrease in the amount of software purchased for resale and production materials and no amortization of capitalized software in the current year to date. The decrease as a percentage of software licenses period over period was due to the decrease in royalties paid to third-party vendors as a result of a decrease in the amount of third-party software sold. Cost of support and services consists primarily of personnel costs for employees and the related costs of benefits and facilities. The increase in the cost of support and services for the three months ended March 31, 2000 over the prior year's period was attributable to the hiring of employees for the Company's support and services organization. The increase in the cost of support and services for the six months ended March 31, 2000 over the prior year's period was attributable to the hiring of employees for the Company's support and services organization and the use of third-party consultants contracted to perform services for the Company. The Company utilizes the services of these higher cost third-party consultants in order to meet demand for its services and backlog. The increase as a percentage of revenues for the three months ended March 31, 2000 over the prior year's period is attributable to expenses incurred to hire and train new personnel. The increase as a years percentage of revenues for the six months ended March 31, 2000 over the prior year's period is attributable to low utilization of services personnel during the first quarter of the fiscal year related to year 2000 factors, a European services meeting held in the first quarter of fiscal 16 17 2000 and expenses related to the costs incurred to grow the MRO.com, Inc. consulting services organization. OPERATING EXPENSES
Three Three Six Six Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99 - -------------------------------------------------------------------------------------------------------- Sales and marketing $15,824 69% $ 9,339 $29,688 47% $20,198 Percentage of total revenues 38% 28% 37% 30% Product development $ 5,522 52% $ 3,628 $10,017 41% $ 7,104 Percentage of total revenues 13% 11% 13% 11% General and administrative $ 3,517 40% $ 2,515 $ 6,569 22% $ 5,382 Percentage of total revenues 8% 8% 8% 8% Goodwill amortization $ 1,132 836% $ 121 $ 1,301 500% $ 217 Percentage of total revenues 3% -- 2% --
The increase in sales and marketing expenses was due to increases in sales, sales support and marketing personnel for the MRO.com, Inc. organization, sales commissions, marketing research and telemarketing expenses and higher travel costs. The Company has been and will continue to make significant investments in the MRO.COM(TM) sales and marking organzations. (1) The increase in product development expenses was primarily due to the hiring of additional employees to further enhance and develop MRO.COM(TM) products. There were no internally developed software costs capitalized in fiscal year 1999 or fiscal 2000. The Company intends to continue to make investments in electronic commerce products for MRO supply chain management. (1) The Company will also continue to invest in client/server MAXIMO and Java applications. (1) The increase in general and administrative expenses was primarily due to the hiring of additional personnel and related benefits, as well as, other expenses to support the global expansion of the Company. The current quarter also included a provision for bad debt. The days sales outstanding were 103 days for the quarter ended March 31, 2000 compared to 98 days for the quarter ended March 31, 1999. - ----------------------------- (1) Forward looking statement 17 18 NON-OPERATING EXPENSES
Three Three Six Six Months Months Months Months Ended Change Ended Ended Change Ended (in thousands) 3/31/00 % 3/31/99 3/31/00 % 3/31/99 - ---------------------------------------------------------------------------------------------------- Interest income $1,382 104% $ 679 $2,319 75% $1,327 Interest (expense) $ (100) 1,329% $ (7) $ (101) 321% $ (24) Other income (expense) $ (183) (43)% $ (323) $ (377) 50% $ (251)
Interest income is attributable to interest earned on marketable securities and cash equivalents. The Company liquidated a portion of its marketable securities in order to complete the purchase of INTERMAT, Inc. Therefore, the Company may experience a decrease in interest income earned in future periods. (1) The decrease in other expense for the current quarter compared to the same period in the prior year was primarily attributable to foreign currency translation gains. The increase in other expense year to date compared to the same period in the prior year is due to foreign currency translation losses. To date, the Company has not engaged in currency hedging transactions. PROVISION FOR INCOME TAXES The Company's effective tax rates were 36% and 33% for the three months ended March 31, 2000 and 1999, respectively, and 35% and 34% for the six months ended March 31, 2000 and 1999, respectively. The increase in the effective tax rate is attributable to lower than expected international sales resulting in a lower foreign sales corporation benefit. The Company anticipates that its fiscal 2000 effective tax rate will not exceed 36%. (1) - ----------------------------- (1) Forward looking statement 18 19 LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2000, the Company had cash and cash equivalents and marketable securities of approximately $41.8 million and working capital of $54.7 million. The days sales outstanding were 103 days for the quarter ended March 31, 2000 compared to 98 days for the quarter ended March 31, 1999. Cash used in operations for the six months ended March 31, 2000 was $2.1 million, primarily attributable to an increase in receivables and prepaid expenses and payment of employee bonuses offset by income generated for the year, increases in deferred revenues and increases in accounts payable. Cash used in investing activities totaled $32.3 million, primarily for the sales of marketable securities offset by purchases of marketable securities. The Company liquidated a portion of its marketable securities in order to complete the purchase of INTERMAT, Inc. Therefore, the Company may experience a decrease in interest income earned in the future periods.(1) Cash provided by financing activities was $5.8 million, resulting from proceeds received from exercises of employee stock options. As of March 31, 2000, the Company's principal commitment consisted primarily of an office lease for its headquarters. Under the terms of the lease agreement, upon termination of the lease, the Company has the right to extend the lease for an additional six year term for an agreed upon fixed cost. The Company leases its facilities and certain equipment under non-cancelable operating lease agreements that expire at various dates through September 2006. The Company may use a portion of its cash to acquire additional businesses, products and technologies complementary to its business. (1) The Company also plans to make investments over the next year in its new MRO.COM(TM) web-based products and to develop content and add suppliers to www.mro.com, MRO.com, Inc.'s e-Commerce hub. The Company believes that its current cash balances and marketable securities combined with cash flow from operations will be sufficient to meet its working capital and capital expenditure requirements through at least March 31, 2001 (1) - ----------------------------- (1) Forward looking statement 19 20 FACTORS AFFECTING FUTURE PERFORMANCE The nature of forward-looking information is that such information involves assumptions, risks and uncertainties. Certain public documents of the Company and oral statements made by authorized officers, directors, employees, agents and representatives of the Company, acting on its behalf, may include forward-looking information which will be influenced by the following and other assumptions, risks and uncertainties. Forward-looking information requires management of the Company to make assumptions, estimates, forecasts and projections regarding the Company's future results as well as the future effectiveness of the Company's strategic plans and future operational decisions. Forward-looking statements made by or on behalf of the Company are subject to the risk that the forecasts, projections, and expectations of management, or assumptions underlying such forecasts, projections and expectations, may become inaccurate. Accordingly, actual results and the Company's implementation of its plans and operations may differ materially from forward-looking statements made by or on behalf of the Company. The following discussion identifies certain important factors that could affect the Company's actual results and actions and could cause such results and actions to differ materially from any forward-looking statements made by or on behalf of the Company that related to such results and actions. Other factors, which are not identified herein, could also have such an effect. RAPID TECHNOLOGICAL CHANGE The computer software industry is characterized by rapid technological advances, changes in customer requirements and frequent product introductions and enhancements. The Company's success depends upon its ability to continue to enhance its current products and to develop and introduce new products that keep pace with technological developments, respond to evolving customer requirements and achieve market acceptance. In particular, the Company believes that it must continue to respond quickly to users' needs for broad functionality and to advances in hardware and operating systems. Any failure by the Company to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could result in a loss of competitiveness and revenues. There can be no assurance that the Company will be successful in developing and marketing new products or product enhancements, or that the Company will not experience significant delays in developing such new products or product enhancements. Such delays could have a material adverse effect on the Company's results of operations. In addition, there can be no assurance that new products and product enhancements developed by the Company will achieve market acceptance. 20 21 DEPENDENCE ON MAXIMO The Company's revenues are primarily attributable to the licensing of its MAXIMO client/server product, introduced in 1991, and to related services and support. Revenues from licenses of MAXIMO and related services and support accounted for approximately 94% of the Company's total revenues in 1999. The Company's financial performance in 2000 depends largely on continued market acceptance of MAXIMO. The Company believes that continued market acceptance of MAXIMO will largely depend on its ability to enhance and broaden the capabilities of MAXIMO by among other things, developing additional application modules for MAXIMO and by developing and incorporating into the MAXIMO product technologies that are emerging in connection with the Internet. Any factor adversely affecting sales of MAXIMO, such as delays in development, significant software flaws, incompatibility with significant hardware platforms, operating systems or databases, increased competition or negative evaluations of MAXIMO, would have a material adverse effect on the Company's business and financial results. NEW PRODUCTS; NEW MARKETS In the second quarter of fiscal 1999, the Company formed a new wholly-owned subsidiary, MRO.com, Inc. MRO.com, Inc. links an on-line community of MRO.COM(TM) suppliers and buyers to a group of Internet-based procurement products. There can be no assurance that the Company's MRO.COM(TM) products will be sold successfully in the business-to-business electronic commerce market or that the Company's MRO.COM(TM) products will achieve market acceptance. There is also no assurance that the Company can create a large enough community of sellers and buyers. The Company's future success in the electronic commerce market may depend on its ability to accurately determine the functionality and features required by its customers, as well as the ability to enhance its MRO.COM(TM) products and deliver them in a timely manner. The Internet procurement market is a nascent market that may undergo rapid technological change. The Company cannot predict the present and future size of the potential market for its MRO.COM(TM) products and services. The Company may incur substantial costs to enhance and modify its MRO.COM(TM) products and services in order to meet the demands of this growing and changing market. The Company's MRO.COM(TM) product segment is not yet profitable and may not be profitable for sometime, if ever. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company has experienced, and may in the future experience, significant period-to-period fluctuations in revenues and operating results. The Company's revenues and income from operations typically grow at a lower rate or decline in the first 21 22 quarter of each fiscal year, compared to the fourth quarter of the preceding fiscal year. In addition, revenues are typically higher in the fourth quarter than in other quarters of the year. The Company believes that these quarterly patterns are partly attributable to the Company's sales commission policies, which compensate members of the Company's direct sales force for meeting or exceeding annual quotas. In addition, the Company's quarterly revenues and operating results have fluctuated historically due to the number and timing of product introductions and enhancements, the budgeting and purchasing cycles of customers, the timing of product shipments and the timing of marketing and product development expenditures. The Company typically realizes a significant portion of its revenue from sales of software licenses in the last two weeks of a quarter, frequently even in the last days of a quarter. Large software license contracts may have a significant impact on revenues for any quarter and could, therefore, result in significant fluctuations in quarterly revenues and operating results. Accordingly, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as an indication of future performance. The Company generally ships its products upon receipt of orders and maintains no significant product backlog. As a result, revenues from license fees in any quarter are substantially dependent on orders booked and shipped in that quarter. A delay in or loss of orders can cause significant variations in operating results. A significant portion of the Company's operating expenses are fixed in the short term, and planned expenditures are based primarily on sales forecasts. Accordingly, if revenues do not meet the Company's expectations in any given quarter, operating results may be materially adversely affected. COMPETITION The market for applications software is intensely competitive and rapidly changing. While the Company believes that it has competed effectively to date, competition in its industry is likely to intensify as current competitors expand their product lines and new companies enter the market. To remain successful in the future, the Company must respond promptly and effectively to the challenges of technological change, evolving standards and its competitors' innovations by continually enhancing its own products, services and support offerings, as well as its marketing programs. There can be no assurance that the Company will continue to be able to compete successfully in the future. The market for asset maintenance software is fragmented by geography, by hardware platform and by industry orientation, and is characterized by a large number of competitors including both independent software vendors and certain enterprise resource planning vendors. Independent software vendors include 22 23 Datastream, Inc. and Indus Group. MAXIMO also competes with integrated enterprise resource planning systems which are provided by several large vendors, such as SAP and JD Edwards and others, and which include maintenance modules. Currently, the Company's client/server versions of MAXIMO compete with products of a number of large vendors some of which have traditionally provided maintenance software running on mainframes and minicomputers and are now offering systems for use in the client/server environment. MAXIMO also encounters competition from vendors of low cost maintenance management systems designed initially for use by a single user or limited number of users as vendors of these products upgrade their functionality to enter the client/server market. The Company's MRO supply chain management business using the Internet has many diverse competitors offering a wide range of differing products, services and technologies. The Company expects competition to intensify as current competitors expand their product offerings and new competitors enter the market. In addition, the market for electronic procurement solutions is relatively new and underdeveloped. While the Company believes that electronic commerce products and technologies complement the Company's existing products, there can be no assurance that the Company will be able to compete successfully in this market. Many of the Company's enterprise asset management competitors are also entering the MRO e-commerce market. The current potential competitors in the MRO e-commerce market include Ariba, Clarus, Commerce One, Concur, Connect, Harbinger, IBM, Intellisys, Microsoft, Netscape, Oracle, PeopleSoft, SAP and others. Certain of the Company's competitors have greater financial, marketing, service and support and technological resources than the Company. To the extent that such competitors increase their focus on the asset maintenance or planning and cost systems markets, or on the supply chain management business, the Company could be at a competitive disadvantage. INTERNATIONAL OPERATIONS A significant portion of the Company's total revenues are derived from operations outside the United States. The Company derived 46.4%, 45.7%, and 43.8% of its total revenue from sales outside the United States in fiscal years 1999, 1998, and 1997, respectively. The Company continues to invest in international infrastructure, global product functionality and translated versions of financial and other software products. In the event international expansion and/or product globalization efforts are not successful, the Company's business operating results and financial condition may be adversely affected. This international business is subject to various risks common to international activities, including exposure to currency fluctuations, greater difficulty in collecting accounts receivable, political and economic instability, the greater difficulty of administering business abroad and the need to comply with a wide variety of 23 24 foreign import and United States export laws and regulatory requirements. A significant portion of the Company's total revenue is derived from international operations that are conducted in foreign currencies. Changes in the values of these foreign currencies relative to the United States dollar have in the past adversely affected, and may in the future affect, the Company's results of operations and financial position. Gains and losses on translation to United States dollars and settlement of receivables from international subsidiaries may contribute to fluctuations in the Company's results of operations. To date, the Company has not engaged in currency hedging transactions. The Company may in the future undertake currency hedging, although there can be no assurance that hedging transactions, if entered into, would materially reduce the effects of fluctuations in foreign currency exchange rates on the Company's results of operations. DEPENDENCE ON THIRD PARTIES The client/server versions of MAXIMO operate with the Oracle, SQLServer, and SQLBase database management systems. Introduction and increased market acceptance of database management systems with which the Company's products do not operate could adversely affect the market for the Company's products. The Company has entered into nonexclusive license agreements with, among others, Broadvision Incorporated, Centura Software Corporation, Scribe Technologies, Incorporated, Cognos Corporation, Netronic Software GmbH, Intelligent Labeling Technologies, Incorporated, Verity Software, and webMethods, Inc. pursuant to which the Company incorporates into its products software providing certain application development, user interface, business intelligence, content and graphics capabilities developed by these companies. If the Company were unable to renew these licenses, or if any of such vendors were to become unable to support and enhance its products, the Company could be required to devote additional resources to the enhancement and support of these products or to acquire or develop software providing equivalent capabilities, which could cause delays in the development and introduction of products incorporating such capabilities. The MRO.com, Inc's business operations are dependent on third party data centers, which could be destroyed or damaged. MRO.com, Inc's operations are dependent upon the ability to protect computer equipment and the information stored in these third party data centers against damage that may be caused by natural disasters, fire, power loss, telecommunication or Internet failures, unauthorized intrusions, computer viruses and other similar damaging events. The Company cannot assure that any of these damaging events would not result in a prolonged outage of the Company's network services or that the Company would not experience a reduction of revenues, which 24 25 could have a material adverse effect on our business and financial results. PRODUCT DEVELOPMENT: INTERNET The Company has developed a Java-based component architect software application to incorporate into the MAXIMO product technologies emerging in conjunction with the Internet. Internet technologies and applications generally are developing and gaining acceptance rapidly in the market. MRO supply chain management using electronic commerce is a nascent market with many standards and technologies remaining to be developed. Accordingly, developing technologies pose risks to the Company. The Company believes that electronic commerce products and technologies complement the Company's enterprise asset management products. There can be no assurance that the Company will successfully anticipate trends in this market, that the Company will be successful in Internet technology development or acquisition efforts or that the Company's Internet applications, if developed, will achieve market acceptance. INTERNET If Internet usage continues to grow rapidly, its infrastructure may not be able to support customer and user demands and its performance and reliability may decline. If outages, delays, or viruses on the Internet occur frequently or increase in frequency, overall Internet usage including usage of the Company's products and services could grow more slowly or decline. The Company is dependent upon improvements being made to the entire Internet as well as to particular customers' networking infrastructures to alleviate overloading and congestion. If these improvements are not made, the ability of the Company's customers to utilize the Company's solution will be hindered, and the Company's business, operating results and financial condition may suffer. LIMITED INTELLECTUAL PROPERTY PROTECTION The Company's success is dependent upon proprietary technology. The Company currently has no patents and protects its technology primarily through copyrights, trademarks, trade secrets and employee and third party nondisclosure agreements. The Company's software products are sometimes licensed to customers under "shrink wrap" licenses included as part of the product packaging. Although, in larger sales, the Company's shrink-wrap licenses may be accompanied by specifically negotiated agreements signed by the licensee, in many cases its shrink-wrap licenses are not negotiated with or signed by individual licensees. Certain provisions of the Company's shrink-wrap licenses, including provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed program, may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect the Company's 25 26 proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or development by others of similar technology. Although the Company believes that its products and technology do not infringe on any valid claim of any patent or any other proprietary rights of others, there can be no assurance that third parties will not assert infringement claims in the future. Litigation may be necessary to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could potentially have a material adverse result on our operating results and financial condition. GENERAL ECONOMIC RISK FACTORS To date, inflation has not had a material impact on the Company's financial results. There can be no assurance, however, that inflation will not adversely affect the Company's financial results in the future. DEPENDENCE ON KEY PERSONNEL The Company is highly dependent on certain key executive officers and technical employees, the loss of one or more of whom could have an adverse impact on the future operations of the Company. The Company does not have employment contracts with, and does not maintain key person life insurance policies on, any personnel. The Company continues to hire a significant number of additional sales, services and technical personnel. Competition for hiring of such personnel in the software industry is intense, and the Company from time to time experiences difficulty in locating candidates with the appropriate qualifications within the desired geographic locations, or with certain industry specific domain expertise. It is widely believed that the technology industry is at or beyond a condition of full employment. There can be no assurance that the Company will be able to retain its existing personnel or attract additional qualified employees. CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS As part of its overall strategy, the Company plans to continue to acquire or invest in complementary companies, products, or technologies and to enter into joint ventures and strategic alliances with other companies. There can be no assurance that the Company will be successful in overcoming the risks associated or problems encountered in connection with such business combinations, investments, or joint ventures, or that such transactions will not materially adversely affect the Company's business, financial condition, or operating results. 26 27 POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE Fiscal 1999 and 2000 was marked by significant fluctuations in the market price of the common stock, par value $.01 per share, of the Company (the "Common Stock"). Factors such as announcements of technological innovations or new products by the Company, its competitors and other third parties, as well as quarterly variations in the Company's results of operations and market conditions in the industry, may cause the market price of the Common Stock to continue to fluctuate significantly. In addition, the stock market in general has recently experienced substantial price and volume fluctuations, which have particularly affected the market prices of many software and e-commerce companies and which have often been unrelated to the operating performance of such companies. These broad market fluctuations also may adversely affect the market price of the common stock. LITIGATION RISKS The Company is subject to the normal risks of litigation with respect to its business operation. ACCOUNTING POLICIES THAT MAY HAVE AN ADVERSE EFFECT On December 3, 1999, the staff of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes some of the staff's interpretations of the application of generally accepted accounting principles to revenue recognition. All registrants are expected to apply the accounting and disclosure requirements that are described in SAB 101. Any changes in accounting and disclosures related to SAB 101 must be reported no later than the first quarter of the fiscal quarter of the fiscal year beginning after December 15, 1999. The Company is in the process of evaluating the impact of this interpretation on its future financial statements. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 to certain issues including: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for the exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 are applicable retroactively to specific events occurring after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS The Company has no obligation to release publicly any revision or update to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 27 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary exposures to market risk are the effect of fluctuations in interest rates earned on its cash equivalents and marketable securities. At March 31, 2000, the Company held $41.8 million in cash equivalents and marketable securities consisting of taxable and tax exempt municipal securities. Cash equivalents are classified as available for sale and valued at amortized cost, which approximates fair market value. A hypothetical 10 percent increase in interest rates would not have a material impact on the fair market value of these instruments due to their short maturity. 28 29 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No.376420, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996, File No. 0-23852 and incorporated herein by reference) 3.3 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (which is attached as Exhibit A to the Rights Agreement included as Exhibit 4(b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 3.4 Amendment to Articles of Organization adopted on December 15, 1999 (included as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, File No. 0-23852, and incorporated herein by reference) 4. Instruments defining the Rights of Security Holders, Including Indentures 4.1 Specimen certificate for the Common Stock of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.2 Article 4B of the Amended and Restated Articles of Organization of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.3 Rights Agreement dated as of January 27, 1998, between Project Software & Development, Inc. and BankBoston, N.A. as Rights Agent (included as Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 29 30 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (included as Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.6 Stock Purchase Agreement dated as of January 11, 2000, between Project Software & Development, Inc. and Strategic Distribution, Inc. (included as Exhibit 2.1 to the Company's Current Report on Form 8-K dated March 15, 2000, File No. 0-23852, and incorporated herein by reference) 4.7 Amendment No. 1 to Stock Purchase Agreement dated February 29, 2000 (included as Exhibit 2.2 to the Company's Current Report on Form 8-K dated March 15, 2000, File No. 0-23852, and incorporated herein by reference) 27. Financial Data Schedule 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company filed two reports on Form 8-K during the quarter ended March 31, 2000. On February 24, 2000, the Company filed a Form 8-K related to the resignation of Paul D. Birch as executive vice president, finance & administration and chief financial officer of the Company. On March 16, 2000, the Company filed a Form 8-K related to its acquisition of all of the outstanding capital stock of INTERMAT, Inc. from Strategic Distribution, Inc. 30 31 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. PROJECT SOFTWARE & DEVELOPMENT, INC. Date: May 15, 2000 By: /s/ Carole A. Tyner ------------ ------------------- Carole A. Tyner Authorized Officer Vice President Finance, Treasurer and Clerk (Principal Financial Officer) 31 32 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996 File No. 0-23852 and incorporated herein by reference) 3.3 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (which is attached as Exhibit A to the Rights Agreement included as Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 3.4 Amendment to Articles of Organization adopted on December 15, 1999 (included as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, File No. 0-23852, and incorporated herein by reference) 4.1 Specimen certificate for the Common Stock of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.2 Article 4B of the Amended and Restated Articles of Organization of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.3 Rights Agreement dated as of January 27, 1998, between Project Software & Development, Inc. and BankBoston, N.A. as Rights Agent (included as Exhibit 4 (a) to the Company's Current Report on Form 8-K dated February 2, 1998, File No.0-23852, and incorporated herein by reference) 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (included as Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.6 Stock Purchase Agreement dated as of January 11,2000, between Project Software & Development, Inc. and Strategic Distribution, Inc. (included as Exhibit 2.1
33 to the Company's Current Report on Form 8-K dated March 15, 2000, File No. 0-23852, and incorporated herein by reference) 4.7 Amendment No. 1 to Stock Purchase Agreement dated February 29, 2000 (included as Exhibit 2.2 to the Company's Current Report on Form 8-K dated March 15, 2000, File No. 0-23852, and incorporated herein by reference) 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS SEP-30-2000 JAN-01-2000 MAR-31-2000 30,928 8,709 50,619 2,907 0 97,923 29,107 14,432 170,977 43,197 0 0 0 218 127,289 0 18,644 41,621 845 13,017 25,995 418 100 3,708 1,345 2,609 0 0 0 2,363 0.11 0.11
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