<PAGE> 1
ANNUAL REPORT 2000
MAXIMS FOR SUCCESS
IN THE NEW ECONOMY
from
INFINIUM
[INFINIUM LOGO]
do great work
<PAGE> 2
[PICTURE OMITTED]
"BY 2004, ENTERPRISES THAT IGNORED ANTI-ERP SENTIMENT AND CONTINUED TO FUND ERP
INITIATIVES WILL BE GROWING TWICE AS FAST AS THEIR COMPETITORS. "
-- Bruce Bond, GartnerGroup Symposium, ITxpo 2000
<PAGE> 3
[2 PICTURES OMITTED]
DEAR SHAREHOLDER:
DURING FISCAL 2000 INFINIUM MADE THE LARGEST INVESTMENTS IN THE COMPANY'S
HISTORY SO THAT WE COULD CONTINUE TO PROVIDE THE CRITICAL SOLUTIONS OUR
CUSTOMERS NEED TO STAY COMPETITIVE IN THE GLOBAL ECONOMY. THIS SIGNIFICANT
INVESTMENT WAS NOT AN OPTION. IT WAS CRITICAL TO INFINIUM'S LONG-TERM VIABILITY,
THE SUCCESS OF OUR CUSTOMERS, AND OUR ABILITY TO INCREASE SHAREHOLDER VALUE. OUR
ACCOMPLISHMENTS WERE SIGNIFICANT, AND EFFECTIVE. SPECIFICALLY, WE: > Began
delivering new Web versions of our core business enterprise resource planning
(ERP) products, creating a reliable, integrated digital engine for our
customers' e-commerce initiatives > Launched an application service provider
(ASP) initiative that allows companies to outsource mission-critical enterprise
solutions, making us the first and only ASP to offer single-source
accountability - and opened one of the largest, fully featured enterprise
hosting facilities in the world, giving us complete control over our ASP hosting
and operations environment > Acquired a customer relationship management (CRM)
solution, and created an integrated e-business solution that will enable
world-class businesses to build stronger, more meaningful customer relationships
> Implemented an organizational restructuring, which included an aggressive
revenue acceleration and cost rollback program to achieve profitability, enhance
shareholder value, and streamline operations.
We believe that before the end of fiscal 2000 all of our investments and
internal operational initiatives were proving to be strategically sound. Our
software license fees began to return to their historical levels with
quarter-over-quarter increases throughout fiscal 2000. Sales were even stronger
than we expected in the fourth quarter, with slightly more than $7 million in
new software license fees. This represented a 37 percent increase over the third
quarter, compared to an average third-to-fourth- quarter increase of 9 percent
in the previous two years. Coincidentally, 37 percent of those fiscal 2000
fourth-quarter license fees came from new customers. CRM emerged as a driver for
those new, larger deals - five of which were more than $1 million - as more
companies began to see the value proposition of an integrated CRM/ERP as a
requirement for success in the new market. (continued)
<PAGE> 4
1 TRIED-AND-TRUE ERP
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BUILD RELIABLE FOUNDATIONS
A successful business strategy begins with back-office information that people
at every level of the enterprise can access easily and use efficiently.
Enterprise resource planning (ERP) applications built for the Web enable
companies to automate and integrate critical business operations while extending
their businesses into new areas. The successful digital-era ERP vendor provides
organizations with an integrated end-to-end solution that:
> STREAMLINES PROCESSES for human resources and payroll, financial management,
supply management, and customer relationship management
> Is DESIGNED FOR THE WEB, enabling anytime, anywhere access
> Is TAILORED TO FIT - and change with - your company's business processes
> INTEGRATES SEAMLESSLY with third-party and/or industry-specific applications
> Offers FLEXIBLE DEPLOYMENT and is optimized for data-hosting options
[GRAPHIC]
> We began our Internet initiative this year by building new Web versions of our
ERP solutions, extending the power of Infinium's TRIED-AND-TRUE ERP to the
Internet. In fiscal 2000 we also undertook an important initiative to
discontinue products that weren't Web-oriented, and to develop new products that
were. Operational support for these discontinued products ended as scheduled on
1 November 2000. With this shift to the Web, our proven ERP and e-business
solutions will make it easier than ever for companies to streamline critical
business operations while extending their businesses into new areas quickly and
effectively. We have already seen the value of being able to offer an
integrated, end-to-end solution to our process manufacturing customers. Now,
with our enhanced integration capabilities, we can offer those same benefits to
our customers in other industries by partnering with vendors that offer the
solutions our customers need to be competitive. As industry analysts predict an
increased demand for cross-enterprise integration and ERP systems with
integrated
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 5
2 KNOW YOUR ASPS
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OUTSOURCE MISSION-CRITICAL
ENTERPRISE SOLUTIONS
[GRAPHIC]
Companies must begin thinking - and behaving - like virtual organizations,
focusing on core business strengths instead of maintaining business data and
software. A single-source application service provider (ASP) can be a fiscally
practical, low-risk means of outsourcing mission-critical business processes.
Yet the difference between one ASP and another can vary greatly. The right ASP
delivers value-enhanced benefits such as:
> A SINGLE SOURCE of contact, so help is always just one call away
> FULLY ACCOUNTABLE hosting for an organization's mission-critical software
> REDUCED DEPLOYMENT time and integration expenses
> WORLD-CLASS DATA CENTERS, ensuring the highest levels of security and systems
availability
> ZERO-MAINTENANCE desktops, with access to reliable, scalable solutions
"SINGLE-SOURCE ACCOUNTABILITY AND A TRACK RECORD OF OUTSTANDING CUSTOMER
SERVICE ARE VERY IMPORTANT ELEMENTS WITHIN THE ASP WORLD....INFINIUM ASP EXCELS
IN THESE AREAS AND WILL BE WELL POSITIONED IN THE ASP MARKETPLACE. "
-- Audrey Apfel, VP and Research Director of Networking Technologies,
GartnerGroup
CRM, we believe Infinium is well positioned to be the leader in the
next-generation ERP space.
Something else happened this fiscal year: Organizations facing IT skill
shortages began to realize that the ASP model was more than a passing fad, and
increasingly turned to Infinium ASP to host their core business applications.
With the fiscal 2000 launch of Infinium ASP, we became the world's first and
only single-source, fully accountable ASP. While most vendors in the ASP space
are offering patched or partial solutions, only Infinium maximizes the full
potential of the ASP model, providing an end-to-end solution that enables
companies to OUTSOURCE MISSION-CRITICAL ENTERPRISE SOLUTIONS.
Infinium took five new ASP customers live in the fourth quarter alone and signed
contracts with five additional ASP customers. The ASP business ended fiscal 2000
with 10 ASP customers signing three-year contracts that will generate $5.9
million for Infinium. With the completion of our Enterprise Hosting >
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 6
3 WORK THE WIRELESS WORLD
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CONNECT WITH YOUR CUSTOMERS
Wireless technology increases opportunities for meaningful customer
transactions. To manage those transactions efficiently, companies need a
robust customer relationship management (CRM) solution. CRM builds a central
two-way data source at the heart of the enterprise, connecting core front- and
back-office applications with current information generated by sales, marketing,
call centers, field service technicians, and online support services. Successful
businesses must rely on CRM to:
> IDENTIFY CUSTOMER NEEDS, and how best to meet them
> ENABLE SHARED NETWORKS of products and services
> Collect and process REAL-TIME DATA from disparate sources
> Act on up-to-the-minute customer INFORMATION ON THE GO - from a PDA or laptop
> MANAGE ACCOUNTS with maximum efficiency and effectiveness
[GRAPHIC]
> Center this past summer, we took our outstanding customer support to a new
level, providing customers with the highest degree of security, availability,
and reliability for their Infinium ASP-hosted enterprise systems.
As Web and wireless technologies deliver more and more options to consumers,
companies need to focus all their resources on identifying customers proactively
and responding to their needs efficiently. The ability to consistently engage in
PERSONALIZED CUSTOMER INTERACTIONS is a tremendous competitive advantage that
requires real-time information from every level of the organization. At
Infinium, we believe the right CRM system is a gateway to successful e-commerce.
In January 2000 we acquired Dexton Information Systems, a European CRM provider
that serves more than 180 customers in 13 countries and offers its solution in
six different languages. We rapidly
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 7
4 E-BUSINESS WITHOUT BOUNDARIES
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MAXIMIZE YOUR WEB POTENTIAL
[GRAPHIC]
Businesses today need to successfully leverage their knowledge resources and
extend their organizations' reach through electronic collaboration and
workflow. Integrated e-business solutions - for self-service, e-procurement, and
business analytics - process all the important information gathered from
customers, employees, business partners, and prospects in Internet time,
enabling effective collaboration beyond the walls of the enterprise. Used with
CRM and/or ERP Web applications, these tools provide end-to-end e-business
solutions that:
> PROVIDE SELF-SERVICE to revolutionize business processes
> Help implement systems that can CUT TRAINING COSTS dramatically
> Enable managers to MAKE SMARTER DECISIONS with Web-deployed business analytics
> Automate purchase processing and OPTIMIZE SUPPLY MANAGEMENT
> ACCELERATE HIRING PROCESSES and streamline recruitment efforts
"INFINIUM HAS GARNERED FIRST-MOVER STATUS IN THE IMPORTANT AREA OF WIRELESS CRM
BY DELIVERING A FULLY INTEGRATED PDA- AND WEB-ENABLED SOLUTION."
-- Denis Pombriant, Senior CRM Analyst Aberdeen Group
integrated Dexton's CRM solution into our e-business portfolio, and by the
fourth quarter, Infinium CRM became a significant driver in attracting new
customers looking for a next-generation ERP solution. Because it integrates into
Infinium's as well as other leading ERP solutions, Infinium CRM can consolidate
and route information from every customer transaction - whether online, via
email, over the phone, or on a PDA - so businesses can manage activities
throughout the customer life cycle. Over the next year, we plan to enhance
wireless capabilities for all our Web products, and design new portal
functionality that maximizes Infinium's digital integration capabilities.
To further help organizations integrate their business processes and extend
their reach via the Web, we also rolled out enhanced STRATEGIC E-BUSINESS
SOLUTIONS for self-service, e-procurement, and business intelligence analytics.
These Web-based tools empower people at every level of the enterprise to make
more informed decisions, and run their organizations more profitably. >
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 8
5 INTEGRATION IS EVERYTHING
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THINK BEYOND THE ENTERPRISE
As companies increasingly share more data - for collaborative commerce, or as
global expansion strategies further opportunities for inter-enterprise business
initiatives - business applications must integrate easily in order to share
information effectively. A business software provider that offers
easy-to-integrate solutions can help companies mesh disparate core business data
and processes without having to overhaul their entire infrastructure.
Integration enables:
> Inclusive INFORMATION EXCHANGE across and between enterprises
> EFFECTIVE CONVERSION of customers' custom code
> PDA FUNCTIONALITY that enables personalized business transactions, anywhere
> A single, UNIVERSAL OPERATING ENVIRONMENT for all users
> CUSTOMIZATION to accommodate user preferences
[GRAPHIC]
> As companies strive to increase revenues through global expansion strategies,
they face the challenges of managing operations around the world. These
companies will need to adopt technologies that are flexible and inclusive enough
to INTEGRATE DATA AND PROCESSES FROM DISPARATE SOURCES - such as subsidiaries,
customers, and partners - without having to overhaul their entire
infrastructure. While integration has not been a priority for all software
providers before now, Infinium's high-quality business applications were
designed from day one to enable smooth integration with any industry-specific
software our customers were running. Today, our new ERP applications enable easy
integration with other vendors' Web applications.
Meanwhile, the QUALITY OF OUR CUSTOMER SUPPORT and professional services
continues to set the standard in the industry. In a third-party survey conducted
with 500 Infinium customers this year, Infinium customer support received a 9.1
rating out of a possible 10. We are also introducing new
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 9
6 SECURITY, RELIABILITY, SUPPORT
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FIND A TRUSTED TECHNOLOGY PARTNER
As businesses increasingly rely on strong technology partners to help support
their business strategies and optimize information management, vendors with
customer-centric ideologies - delivering accountable, reliable support and
customer service, consistently - will be the most successful. When initiating a
relationship with an enterprise service provider, companies should expect:
> Centralized PHONE AND WEB SUPPORT, so every inquiry is tracked from initiation
to resolution
> Experienced support representatives with ADVANCED BUSINESS, TECHNICAL, AND
PLATFORM KNOWLEDGE
> Service professionals with REAL-WORLD BUSINESS EXPERIENCE
> CROSS-SUITE KNOWLEDGE and support for integrated, third-party software
> PROFESSIONAL ON-SITE TRAINING for new users, and complementary online training
and support
[GRAPHIC]
self-training guides as part of all our Web-based applications that complement
the expertise of our professional services teams.
Whatever other challenges companies continue to face, finding and retaining
quality employees is among the greatest. At Infinium, we recognize that our
continued success depends on OUR TRUE CORE COMPETENCY: OUR PEOPLE. Now that we
have realigned our goals, processes, and resources, we have a new commitment to
merging individual and company goals. We will continue working to create a
team-based environment that fosters open and timely communication, assigns
ownership, and furthers our employees' ability to do great work.
We're executing rapidly on our plan. In fiscal 2000 we began rebuilding our core
products as Web products, discontinued two product lines, and invested more than
$25 million in four new product lines. >
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 10
7 PEOPLE ARE YOUR CORE COMPETENCY
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HONOR YOUR VALUED EMPLOYEES
The new economy is centered around innovation and change, so every successful
company relies on a loyal, committed workforce as its ongoing intellectual
capital. Now, more than ever, organizations need to create an environment that
attracts and retains talented, qualified employees and encourages them to share
in a dedication to excellence. For organizations to realize the true potential
of their people and win staff loyalty, they must implement strategies that:
> ENCOURAGE OWNERSHIP by assigning and honoring responsibility at every level of
the organization
> ENSURE OPEN AND TIMELY COMMUNICATION throughout the company
> REWARD HARD WORK and meet interest with opportunity and training
> RESPECT AND SUPPORT each individual's professional - and personal - goals
> PROMOTE CREATIVE TEAMWORK that empowers people to DO GREAT WORK
[GRAPHIC OMITTED]
> We ended fiscal 2000 with a strong fourth quarter. Moving into fiscal 2001, we
have the equivalent of approximately 40 percent of fiscal 2000's revenue in our
12-month revenue commitment ratio, which we define as deferred services,
maintenance, and ASP fees to be recognized in the new fiscal year.
Fiscal 2000 was a transition year, and I am proud of our achievements. We made
investments in a strategy that will build on our strong reputation as a
customer-centric business software company. By focusing on what our customers
need to succeed, we also built a strong foundation for the success of our
employees and our shareholders in fiscal 2001 and beyond.
/s/ Robert A. Pemberton
Robert A. Pemberton, Chief Executive Officer
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 11
F I N A N C I A L S
<TABLE>
<S> <C>
Selected Financial Data 10
Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Report of Independent Accountants 20
Consolidated Balance Sheet 21
Consolidated Statement of Operations 22
Consolidated Statement of Stockholders' Equity 23
Consolidated Statement of Cash Flows 24
Notes to Consolidated Financial Statements 25
</TABLE>
<PAGE> 12
SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Software license fees ........................... $ 20,473 $ 32,437 $ 40,704 $ 29,781 $ 24,115
Services revenue ................................ 72,582 89,568 73,490 56,861 47,261
-------------------------------------------------------------
TOTAL REVENUE .............................. 93,055 122,005 114,194 86,642 71,376
=================================================================================================================
OPERATING COSTS AND EXPENSES:
Cost of software license fees (1) ............... 7,101 14,518 7,210 5,070 3,823
Cost of services ................................ 33,828 40,389 32,330 22,400 16,562
Research and development (1) .................... 21,352 19,140 19,071 16,614 13,775
Sales and marketing ............................. 40,810 40,135 36,632 30,449 23,822
General and administrative (1) .................. 17,024 14,514 9,351 7,336 6,616
Write-off of in-process research
and development acquired (2) ................. -- -- 11,196 6,846 --
-------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES ...... 120,115 128,696 115,790 88,715 64,598
-------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS ................... (27,060) (6,691) (1,596) (2,073) 6,778
Other income, net ............................... 6,104 2,633 1,744 1,923 1,526
-------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM)
INCOME TAXES ................................. (20,956) (4,058) 148 (150) 8,304
Provision for (benefit from) income taxes (3) ... 6,860 (1,698) 47 (263) 3,008
-------------------------------------------------------------
NET INCOME (LOSS) ............................... $ (27,816) $ (2,360) $ 101 $ 113 $ 5,296
=================================================================================================================
EARNINGS/(LOSS) PER SHARE:
Basic ........................................ $ (2.20) $ (0.19) $ 0.01 $ 0.01 $ 0.53
Weighted average shares outstanding - basic .. 12,668 12,421 12,399 11,777 10,051
Diluted ...................................... $ (2.20) $ (0.19) $ 0.01 $ 0.01 $ 0.47
Weighted average shares outstanding - diluted 12,668 12,421 13,808 12,539 11,378
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In fiscal year 1999, the Company incurred expenses of $9.5 million as a
result of costs associated with the write-off of discontinued product lines. Of
this amount, $6.3 million is included in cost of software license fees, and $3.2
million is included in general and administrative costs. (See Note 8 to the
consolidated financial statements.) Excluding these charges, net income for
fiscal year 1999 is $3.7 million. In fiscal year 2000, the Company realized
operating losses from its discontinued product lines of $5.7 million.
Operating expenses of $6.2 million were incurred to produce maintenance and
support transition for customers to alternative software platforms and to
resolve disputes. Expenses for the discontinued lines recorded in cost of
service, research and development, and general and administrative were $1.9
million, $2.1 million, and $2.2 million, respectively.
(2) In connection with the acquisition of Time Open Systems Limited in 1997 and
Cort Directions, Inc. in 1998, $6.9 million and $7.8 million, respectively,
allocated to in-process research and development had not reached technological
feasibility and was charged to operations at the acquisition date. Also in 1998,
the Company acquired software code developed by a third party for $3.4 million
and determined that it had not reached technological feasibility. Accordingly,
$3.4 million was written-off at the acquisition date, aggregating a write-off of
$11.2 million of in-process research and development acquired in 1998. (See Note
6 to the consolidated financial statements.)
(3) During the fourth quarter of fiscal year 2000, the Company established a
valuation allowance for its deferred tax asset balances, which resulted in a
fourth quarter charge of $14.0 million. The Company also received the benefit of
a $4.9 million legal settlement associated with the defense of its intellectual
property. (See Notes 9 and 12 to the consolidated financial statements.)
10 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 13
CONSOLIDATED BALANCE SHEET DATA:
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents, and marketable securities ................. $ 20,738 $ 47,212 $ 46,293 $ 48,319 $ 43,337
Total assets ...................................................... 71,249 93,881 107,982 92,815 77,097
Deferred revenue .................................................. 36,654 37,807 42,475 36,702 29,206
Other long-term liabilities ....................................... 1,291 343 -- -- --
Total liabilities ................................................. 59,586 58,538 68,351 54,080 44,407
Stockholders' equity .............................................. 11,663 35,343 39,631 38,735 32,690
</TABLE>
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future revenue and expense levels
and capital requirements, the Company's future product development and marketing
plans, the Company's ability to generate cash from operations, and the
Company's ability to attract and retain employees, are based on current
expectations. These statements are forward-looking in nature, involve a number
of risks and uncertainties, as more fully described under "Factors Affecting
Future Performance," and are made pursuant to the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those described in
the forward-looking statements.
OVERVIEW
Infinium Software, Inc. ("Infinium" or "the Company") develops, markets and
supports enterprise-level business software applications and provides software
application services. Infinium offers Web-and server-based financial, human
resources, supply management, process manufacturing, business analytics and
customer relationship management solutions, services, support and deployment
options to its customers.
During fiscal year 2000, the Company focused on extending its offerings from
traditional back-office applications and services to e-business solutions and
application hosting services. The Company began to retool its traditional
applications for delivery over the Web, released a Web-based human resources
product, and added Web-based front office applications. The Company's entry into
the Application Service Provider (ASP) market included the opening of its
full-service, carrier-class ASP enterprise solutions-hosting center. In
addition, two acquisitions were completed during fiscal 2000. The Company
acquired iT-Soft, a privately held value-added reseller of Infinium solutions,
in November 1999. In January 2000, the Company acquired Dexton, a supplier of
customer relationship management solutions based in the Netherlands. (See Note 6
to the consolidated financial statements.)
The Company discontinued new release development of Infinium Financials for
Microsoft Windows NT and Infinium Human Resources for Microsoft Windows NT
during the fourth quarter of fiscal 1999. The Company continued to provide
maintenance and consulting services for existing customers of Infinium Human
Resources for Microsoft Windows NT until November 2000. In February 2000, the
Company divested Infinium Financials for Microsoft Windows NT to Artemis, a
Gores Technology Group company, for a cash payment of $822 thousand from the
Company to Artemis. During fiscal 2000, the Company incurred $5.7 million of
operating losses associated with its discontinued product lines.
During the fourth quarter, the Company announced a plan to significantly
reduce expenses. As a result of this plan, the Company reduced its workforce by
approximately 18%. The Company recorded a charge in the fourth quarter ending
September 30, 2000 of $1.9 million, as a result of this action. (See Note 7 to
the consolidated financial statements.) The Company also received the benefit
of a $4.9 million legal settlement associated with a claim it brought to defend
its intellectual property and established a valuation allowance for its deferred
tax assets of $14.0 million. (See Notes 9 and 12 to the consolidated financial
statements.)
During fiscal 2000, Infinium invested in its Application Service Provider (ASP)
services offering, including opening its full-service, carrier-class ASP
enterprise solutions-hosting center. The Company made ASP capital investments of
$7.2 million and incurred operating losses of $8.1 million in that part of its
business.
The Company's revenue was primarily derived from two sources: software license
fees and services revenue. Software license fees include revenue from
non-cancelable software license agreements entered into between the Company and
its customers with respect to both the Company's products and third party
products marketed and/or distributed by the Company. The Company's service
revenue is comprised of software maintenance fees, fees for consulting and
training services and fees for ASP-related services. Maintenance revenue is
recognized ratably over the maintenance period. Consulting service revenue is
recognized as the services are performed. ASP setup and subscription fees are
recognized ratably over the expected life of the consumer relationship.
YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO
YEAR ENDED SEPTEMBER 30, 1999
REVENUE
Total revenue decreased 24%, from $122.0 million for the year ended September
30, 1999 to $93.1 million for the year ended September 30, 2000. The decrease
was due to the reductions in the Company's consulting services and software
license fees.
Revenue in North America (United States and Canada) decreased 25%, from $113.5
million for the year ended September 30, 1999 to $84.9 million for the year
ended September 30, 2000. This is representative of 93% and 91% of total
revenue for fiscal 1999 and fiscal 2000, respectively. EMEA (Europe, Middle East
and Africa) revenue decreased from $8.2 million for the year ended September 30,
1999 to $7.2 million for the year ended September 30, 2000, which was 7% and 8%
of total revenue for fiscal 1999 and 2000, respectively. Other international
regions, including Asia Pacific and Latin America, contributed approximately
1% of total revenue for both fiscal 1999 and fiscal 2000.
Software license fee revenue decreased 37%, from $32.4 million for the year
ended September 30, 1999 to $20.5 million for the year ended September 30, 2000.
The Company believes that the decrease was primarily due to the elimination of
revenues related to discontinued products, potential customers deciding to
postpone software acquisitions to focus on their Year 2000 compliance issues
in the first quarter of fiscal 2000 and subsequently the slower recovery in the
market for the licensing of back office applications.
Service revenue, which includes $321 thousand of ASP-related revenues in fiscal
year 2000, decreased 19%, from $89.6 million for the year ended September 30,
1999 to $72.6 million for the year ended September 30, 2000. The decrease was
primarily attributable to lower software license fee revenue and elimination of
Year 2000 consulting services after the first quarter of 2000. The following
table summarizes the composition and decrease in the Company's service revenue:
12 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 15
<TABLE>
<CAPTION>
% OF $
FISCAL YEAR ENDED INCREASE
SEPTEMBER 30, (DECREASE)
(IN THOUSANDS ----------------------------------------------------------------------------
EXCEPT PERCENTAGE DATA) 2000 1999 1999 TO 2000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software maintenance revenue $42,836 $42,153 2 %
Consulting services revenue 29,746 47,415 (37)
-----------------------------------------------------------------------------------------
TOTAL SERVICE REVENUE ...... $72,582 $89,568 (19)%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COST OF SOFTWARE LICENSE FEES
Cost of software license fees consists primarily of amortization expense related
to capitalized software development costs, royalties on the sale of third-party
products and the cost of product media, manuals and shipping. Cost of license
fees decreased from $14.5 million or 45% of software license fees in fiscal
1999 to $7.1 million or 35% of license fees in fiscal 2000. Excluding the 1999
charges related to product discontinuance of $6.3 million (which includes $5.6
million related to the write-off of capitalized purchased software and $0.7
million related to the write-off of prepaid royalties for third-party products
sold with the discontinued product lines), cost of software license fees
decreased 13% from $8.2 million for the year ended September 30, 1999 to $7.1
million for the year ended September 30, 2000. Exclusive of the changes related
to product discontinuances in fiscal 1999, cost of software license fees as a
percentage of software license fee revenue increased from 25% for the year
ended September 30, 1999 to 35% for the year ended September 30, 2000. The
decrease in the dollar amount of such costs resulted primarily from the
elimination of amortization of capitalized software costs related to
discontinued products during fiscal 1999. Also contributing to the increase as a
percentage of license fee revenues was a decrease in software license fees and
an increase in third-party royalty fees.
COST OF SERVICES
Cost of services consists of costs to provide support, implementation,
consulting and training services to licensees as well as costs related to the
ASP services. Cost of services decreased 16% from $40.4 million for the year
ended September 30, 1999 to $33.8 million for the year ended September 30, 2000.
Cost of services as a percentage of service revenue increased from 45% for the
year ended September 30, 1999 to 47% for the year ended September 30, 2000. The
decrease in the dollar amount is due to lower third-party consulting fees
partially offset by the increased costs associated with the Company's ASP data
center. The percentage increase is primarily attributable to costs associated
with the divestiture of the Infinium Financials for Windows NT product to
Artemis and service costs associated with the ASP data center. For the year
ended September 30, 2000, the cost of services relating to the discontinued
product lines and ASP cost of service was $1.9 million and $2.6 million,
respectively.
RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of engineering personnel
costs, contractor costs, and associated facilities and computers and
communications overhead, reduced by capitalized software development costs and
research funding. The following table sets forth, for the periods indicated, the
relationship between the Company's research and development expense as recorded
on its consolidated statements of income and its total research and
development spending:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
(IN THOUSANDS) 2000 1999
---------------------------------------------------------------------------
<S> <C> <C>
Research and development expense ..... $21,352 $19,140
Capitalized software development costs 1,557 5,793
---------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT SPENDING .... $22,909 $24,933
===========================================================================
</TABLE>
Research and development expense was $19.1 million and $21.4 million for the
years ended September 30, 1999 and 2000, respectively. Research and development
expense as a percentage of total revenue was 16% for the year ended September
30, 1999 and 23% for the year ended September 30, 2000. The Company capitalized
$5.8 million for the year ended September 30, 1999 and $1.6 million for the year
ended September 30, 2000. Additionally, research and development spending
decreased 8% from $24.9 million for the year ended September 30, 1999 to $22.9
million for the year ended September 30, 2000. For the year ended September 30,
2000, research and development expenses associated with discontinued product
lines was $2.1 million. The Company continues to make significant investments
in research and development. The Company believes that this significant level of
research and development spending is critical to building long-term product and
technology advantages in the market.
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions, travel,
promotional expenses, facilities, and computers and communications overhead
costs. Sales and marketing expense increased 2% from $40.1 million for the year
ended September 30, 1999 to $40.8 million for the year ended September 30, 2000.
Sales and marketing expense as a percentage of total revenue increased from 33%
for the year ended September 30, 1999 to 44% for the year ended September 30,
2000. The increase in expenses as both a dollar amount and percentage was
primarily due to increased investments in the Company's corporate image and
brand awareness marketing, including an ASP business advertising campaign. These
costs were partially offset by reduced commissions resulting from lower sales
levels.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of compensation for
executive and administrative personnel, associated facilities, computers and
communications overhead, provision for doubtful accounts, amortization of
intangible assets, insurance, outside professional fees, and a portion of the
expenses incurred related to the Company's discontinued product lines. General
and administrative expense increased 17%, from $14.5 million for the year ended
September 30, 1999 to $17.0 million for the year ended September 30, 2000.
General and administrative expense as a percentage of total revenue increased
from 12% for the year ended September 30, 1999 to 18% for the year ended
September 30, 2000. The increase in general and administrative expense was
primarily due to costs associated with the Company's increasing focus on its new
application service provider and customer relationship management lines of
business, as well as the expense incurred in connection with the discontinued
product lines. In addition, during the third quarter of fiscal 2000, general
and administrative expense included costs associated with employee attendance
at Infinium World, the Company's annual customer conference.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 13
<PAGE> 16
WRITE-OFF OF DISCONTINUED PRODUCT LINES
In the fourth quarter of fiscal year 1999, the Company decided to discontinue
new release development of Infinium Financials and Infinium Human Resources for
Microsoft Windows NT. The Company had agreed to provide maintenance and
consulting services for existing customers until November 2000. Of the $9.5
million of estimated costs related to these actions, $2.3 million is related to
impaired receivables, $5.6 million relates to the write-off of capitalized and
purchased software, $0.9 million is related to the write-off of goodwill
associated with the Company's acquisition of Time Open Systems Limited, and $0.7
million is related to the write-off of prepaid royalties for third-party
products sold with the discontinued product lines.
In fiscal year 2000, the Company realized operating losses from its dis-
continued product line of $5.7 million. Operating expenses of $6.2 million were
incurred to provide maintenance and support, to transition customers to
alternative software platforms and to resolve disputes.
Expenses recorded in cost of service, research and development, and general and
administrative were $1.9 million, $2.1 million, and $2.2 million, respectively.
OTHER INCOME, NET
Other income, net consists of interest income, interest expense, foreign
exchange gains and losses, marketable equity securities gains and losses and a
legal settlement. During the fourth quarter of fiscal 2000, the Company recorded
a $4.9 million gain associated with a legal settlement associated with a claim
it brought to defend the Company's intellectual property. Other income, net
increased 132% from $2.6 million for the year ended September 30, 1999 to $6.1
million for the year ended September 30, 2000. The increase was primarily
attributed to the settlement noted above.
PROVISION FOR (BENEFIT FROM) INCOME TAXES
The provision for (benefit from) federal, state and foreign income taxes was
($1.7) million and $6.9 million for the years ended September 30, 1999 and 2000,
respectively. The tax benefit realized during fiscal year 1999 was attributed to
the charge to operations of $9.5 million for the write-off of discontinued
product lines. The effective tax rate was (42%) for the year ended September 30,
1999 and 33% for the year ended September 30, 2000. During the fourth quarter of
fiscal 2000 the Company established a valuation allowance for its deferred tax
assets which resulted in a $14.0 million charge. (See Notes 2 and 12 to the
consolidated financial statements.)
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO
YEAR ENDED SEPTEMBER 30, 1998
REVENUE
Total revenue increased 7%, from $114.2 million for the year ended September 30,
1998, to $122.0 million for the year ended September 30, 1999. The increase was
due to an increase in maintenance and consulting services revenues.
Revenue in North America (United States and Canada) increased 7%, from $105.8
million for the year ended September 30, 1998, to $113.5 million for the year
ended September 30, 1999. This is representative of 93% of total revenue for
both fiscal 1998 and fiscal 1999. EMEA (Europe, Middle East, and Africa) revenue
increased from $7.0 million for the year ended September 30, 1998, to $8.2
million for the year ended September 30, 1999, which was 6% and 7% of total
revenue for fiscal 1998 and 1999, respectively. Other international regions,
including Asia Pacific and Latin America, contributed 1% of total revenue for
fiscal 1998 and less than 1% for fiscal 1999.
Software license fee revenue decreased 20%, from $40.7 million for the year
ended September 30, 1998, to $32.4 million for the year ended September 30,
1999. The Company believes that the decrease was primarily due to potential
customers deciding to postpone software purchases to focus on their internal
Year 2000 compliance issues.
Service revenue increased 22%, from $73.5 million for the year ended September
30, 1998, to $89.6 million for the year ended September 30, 1999. This increase
is primarily attributable to an increase in larger consulting service
engagements as well as expanded service offerings, including increased project
management and programming services. Also contributing to this increase is an
increase in the average daily rate realized for those services. The table below
summarizes the composition and growth in the Company's services revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED % OF $
SEPTEMBER 30, INCREASE
(IN THOUSANDS, -----------------------------------------
EXCEPT PERCENTAGE DATA) 1999 1998 1999 TO 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Software maintenance revenue $42,153 $38,530 9 %
Consulting services revenue 47,415 34,960 36
------- -------
TOTAL SERVICES REVENUE $89,568 $73,490 22 %
</TABLE>
COST OF SOFTWARE LICENSE FEES
Cost of software license fees consists primarily of amortization expense related
to capitalized software development costs, royalties on the sale of third-party
products, and the cost of product media, manuals, and shipping. Cost of
software license fees increased 101%, from $7.2 million for the year ended
September 30, 1998, to $14.5 million for the year ended September 30, 1999. Cost
of software license fees as a percentage of software license fee revenue
increased from 18% for the year ended September 30, 1998, to 45% for the year
ended September 30, 1999.
The increase in the dollar amount of such costs and as a percentage of software
license fees resulted primarily from the costs associated with the
discontinuance of some products. In fiscal year 1999, the Company decided to
discontinue new release development of Infinium Financials for Microsoft Windows
NT and Infinium Human Resources for Microsoft Windows NT. The Company provided
maintenance and consulting services for existing customers until November 2000.
The cost of providing the maintenance and consulting services was expensed as
incurred. The Company recognized $9.5 million of estimated costs related to the
discontinuance, of which $6.3 million (which includes $5.6 million related to
the write-off of capitalized and purchased soft-
14 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 17
ware and $0.7 million related to the write-off of prepaid royalties for
third-party products sold with the discontinued product lines) was included in
cost of software license fees for fiscal 1999. The Company will continue to
develop new releases and provide maintenance and consulting services for its
payroll and human resources products for Microsoft Windows NT acquired in the
Cort acquisition. (See Note 6 to the consolidated financial statements.) Also
contributing to the increase in cost of software license fees was $0.4 million
of amortization related to another discontinued product in the first quarter
of fiscal 1999. (See Note 8 to the consolidated financial statements.)
Additionally, the decline in software license fees for 1999 contributed to the
percentage increase.
COST OF SERVICES
Cost of services consists of costs to provide support, implementation,
consulting, and training services to licensees. Cost of services increased 25%,
from $32.3 million for the year ended September 30, 1998, to $40.4 million for
the year ended September 30, 1999. Cost of services as a percentage of service
revenue increased from 44% for the year ended September 30, 1998, to 45% for the
year ended September 30, 1999. The increase in cost of services in both dollar
amount and percentage resulted primarily from an increase in staffing in the
consulting and support organizations in response to the increased demand for
consulting services and an increase in the use of third-party contractors.
RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of engineering personnel
costs, contractor costs, and associated facilities and computers and
communications overhead, reduced by capitalized software development costs and
research funding. The following table sets forth, for the periods indicated, the
relationship between the Company's research and development expense as recorded
on its consolidated statement of operations and its total research and
development spending:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------
(IN THOUSANDS) 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C>
Research and development expense ..... $19,140 $19,071
Capitalized software development costs 5,793 4,698
Funded research ...................... -- 430
--------------------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT SPENDING .... $24,933 $24,199
============================================================================================
</TABLE>
Research and development expense was $19.1 million for the years ended September
30, 1998, and 1999. Research and development expense as a percentage of total
revenue was 17% for the year ended September 30, 1998, and 16% for the year
ended September 30, 1999. The Company capitalized $4.7 million of software
development costs for the year ended September 30, 1998, and $5.8 million for
the year ended September 30, 1999. Additionally, research and development
spending increased 3%, from $24.2 million for the year ended September 30, 1998,
to $24.9 million for the year ended September 30, 1999.
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions, travel,
promotional expenses, and associated facilities, computers, and communications
overhead. Sales and marketing expense increased 10%, from $36.6 million for the
year ended September 30, 1998, to $40.1 million for the year ended September 30,
1999. Sales and marketing expense as a percentage of total revenue increased
from 32% for the year ended September 30, 1998, to 33% for the year ended
September 30, 1999. The increase in expenses as both a dollar amount and
percentage was primarily due to increased investments in the Company's corporate
image and brand awareness marketing, including an advertising campaign.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of compensation for
executive and administrative personnel, associated facilities, computers and
communications overhead, provision for doubtful accounts, amortization of
intangible assets, insurance, and outside professional fees. General and
administrative expense increased 55%, from $9.4 million for the year ended
September 30, 1998, to $14.5 million for the year ended September 30, 1999.
General and administrative expense as a percentage of total revenue increased
from 8% for the year ended September 30, 1998, to 12% for the year ended
September 30, 1999.
The increase in general and administrative expense was primarily due to costs
relating to the discontinuance of Infinium Financials for Microsoft Windows NT
and Infinium Human Resources for Microsoft Windows NT. The Company recognized
$9.5 million of estimated costs related to the discontinuance, of which $3.2
million (which includes $2.3 million related to impaired receivables and $0.9
million related to the write-off of goodwill associated with the Company's
acquisition of Time Open Systems Limited) was included in general and
administrative costs for fiscal 1999.
The remainder of the increase was primarily due to expenses related to the
handling and resolution of a dispute with a former business partner, expenses
relating to a potential acquisition that was never consummated, and an
increase in employee severance costs.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT ACQUIRED
As discussed in Note 6 to the consolidated financial statements, the Company
recorded a charge to operations of $11.2 million during the year ended September
30, 1998, representing purchased in-process research and development.
In fiscal year 1998, the Company acquired Cort. Upon consummation of the Cort
acquisition, the Company expensed $7.8 million of in-process research and
development that had not yet reached technological feasibility and had no
alternative future use as determined by an independent appraiser. Accordingly,
this amount was charged to operations at the acquisition date. The value was
determined by estimating the future net cash flows from the in-process
technology and discounting the net cash flows back to their present value. The
estimated net cash flows used in the aforementioned valuation were based on
management's estimates of revenue, cost of sales, research and development
costs, sales and marketing costs, general and administrative costs, and
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 15
<PAGE> 18
income taxes related to the technology. The discount rate used included a factor
that took into account the uncertainty surrounding the successful development
of the purchased in-process technology.
The $7.8 million of in-process research and development represented in-process
research and development for 32-bit versions of Cort's payroll and human
resources applications for Microsoft Windows NT. At the time of the acquisition,
the software required significant modifications in order to reach
technological feasibility. The 32-bit version of the software was necessary in
order to operate the software with current versions of Microsoft Windows NT. In
addition, the 32-bit version was designed to utilize the Microsoft SQL Server
database. The software was completed in June 1999. Actual costs of completion
were not materially different from estimates; however, actual revenue received
was less than expected. The Company believed the shortfall in revenue was
primarily due to potential customers deciding to postpone software purchases to
focus on their internal Year 2000 compliance issues.
Also in fiscal year 1998, the Company acquired technology to support and enable
operation of transaction-based functionality specific to a Microsoft Windows
NT-based application for $3.4 million. The technology as received had not met
technological feasibility as defined by the Statement of Financial Accounting
Standards No. 86 (SFAS 86), Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed. Accordingly, the acquisition of the
technology for $3.4 million was written-off upon delivery.
OTHER INCOME, NET
Other income, net consists of interest income, interest expense, foreign
exchange gains and losses, and gains and losses on the sale of marketable
equity securities. Other income, net increased 51%, from $1.7 million for the
year ended September 30, 1998, to $2.6 million for the year ended September 30,
1999. The increase was primarily attributed to a gain on the sale of marketable
equity securities.
PROVISION FOR (BENEFIT FROM) INCOME TAXES
The provision for (benefit from) federal, state, and foreign income taxes was
$0.1 million and ($1.7) million for the years ended September 30, 1998, and
1999, respectively. The tax benefit realized during fiscal year 1999 was
attributed to a charge to operations of $9.5 million for the write-off of
discontinued product lines. The effective tax rate was 32% for the year ended
September 30, 1998, and 42% for the year ended September 30, 1999. (See Note 12
to the consolidated financial statements.)
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash, cash equivalents, and marketable
securities of $20.7 million, resulting from a net use of cash, cash equivalents,
and marketable securities of $26.4 million during fiscal year 2000. Operating
activities consumed $12.4 million. Net loss, which includes an $8.1 million
operating loss associated with the ASP business unit, and a $5.7 million
operating loss from discontinued operations, totaled $27.8 million. The impacts
on operating activities of depreciation and amortization, and deferred income
tax reductions of $8.9 and $7.3 million, respectively. Additionally, the Company
received $4.0 million of proceeds associated with a legal settlement.
Investing activities included $1.6 million used to fund capitalized software,
and $10.0 million used to fund purchases of property, computers and equipment,
of which $7.2 million was associated with the Company's ASP business unit. The
acquisitions of iT-Soft and Dexton consumed an additional $4.6 million. Proceeds
from the exercise of stock options and the employee stock purchase plan provided
$1.8 million. In July 2000, the Company entered into an agreement with a
major financial institution for $3.0 million line of credit. No borrowings are
outstanding against this line of credit.
Days sales outstanding (DSO) increased to 58 days at September 30, 2000,
compared to 47 days at September 30, 1999. The Company calculates DSO by
dividing the ending accounts receivable balance, net of allowance for doubtful
accounts, by the annualized revenue for the most recent fiscal quarter,
multiplied by 360. The Company believes that this method of deriving DSO is
indicative of actual results due to the cyclical nature of software license and
service transactions, which are often consummated near the end of the quarter,
as well as the fluctuation of transactions from one quarter to the next. The
Company's accounts receivable balance at September 30, 2000, net of the
allowance for doubtful accounts, was $16.2 million. This compares with $16.5
million as of September 30, 1999.
Deferred revenue decreased $1.1 million, from $37.8 million at September 30,
1999, to $36.7 million at September 30, 2000. The decrease in deferred revenue
primarily resulted from a decrease in the deferred consulting services component
of revenue.
The Company believes that cash, cash equivalents, and marketable securities on
hand and cash flows from operations will be sufficient to fund its operations at
least through fiscal 2001. While operating activities may provide cash in
certain periods, to the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash,
and, consequently, such growth may require the Company to obtain additional
sources of financing.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, as
amended by SAB 101A and SAB 101B, which is effective in the first quarter of
fiscal year 2001. SAB 101 clarifies the Securities and Exchange Commission's
view regarding recognition of revenue. The Company is currently evaluating the
effects of this change but anticipates that the adoption of SAB 101 will not
have a material effect on the Company's financial position or results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging
Activities, which established accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company will adopt SFAS No. 133, as required by SFAS No. 137, Deferral of the
Effective Date of the FASB Statement No. 133, in fiscal year 2001. The adoption
of SFAS No. 133 is not expected to have a material impact on the Company's
financial position or results of operations.
16 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 19
IMPACT OF THE YEAR 2000
The Year 2000 issue related primarily to computer software and operating
systems in which dates have been abbreviated. Unless corrected, these systems
may have recognized the date of "January 1, 2000" as "January 1, 1900." The
Company instituted a Year 2000 project in which Year 2000 issues were assessed
and addressed in the development of its software systems, its relationships with
third parties, and its internal operating systems. The Company has not
experienced any material issues or failures related to the Year 2000.
FACTORS AFFECTING FUTURE PERFORMANCE
The Company's quarterly revenue and operating results have varied sig-
nificantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's common stock. Quarterly revenue and operating results may
fluctuate as a result of a variety of factors, including the Company's lengthy
sales cycle, the proportion of revenue attributable to license fees versus
services revenue, changes in the level of operating expenses, demand for the
Company's products, the introduction of new products and product enhancements by
the Company or its competitors, changes in customer budgets, competitive
conditions in the industry, and general economic conditions. Further, the
purchase of the Company's products often involves a significant commitment of
capital by its customers with the attendant delays frequently associated with
large capital expenditures and authorization procedures within an organization.
For these and other reasons, the sales cycles for the Company's products are
typically lengthy and subject to a number of significant risks over which the
Company has little or no control. The Company historically has operated with
little software license backlog because its software products are generally
shipped as orders are received. The Company has often recognized a substantial
portion of its revenue in the last month of the quarter and often in the last
week of that month. As a result, license fees in any quarter are substantially
dependent on orders booked and shipped in the last month or last week of that
quarter. Accordingly, a small variation in the timing of recognition of revenue
for specific transactions would adversely and disproportionately affect the
Company's operating results for a quarter because the Company establishes its
expenditure levels on the basis of its expected future revenue and only a small
portion of the Company's expenses varies with its revenue. The Company believes
that period-to-period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
For the fiscal year ended September 30, 2000, the Company had net losses of
$27.8 million. There can be no assurance that the Company will not continue to
incur losses for the foreseeable future. The Company's future profitability will
depend on its ability to generate and sustain substantial revenues from software
license fees and services revenue, including revenues from its new ASP
offering. If the Company does become profitable in the future, it may not be
able to sustain or increase profitability on a quarterly or annual basis.
The Company's business has experienced and is expected to continue to experience
significant seasonality. In recent years, the Company has had greater demand for
its products in its fourth fiscal quarter and has experienced lower revenue in
its succeeding first and second fiscal quarters. The fluctuations are caused
primarily by customer purchasing patterns and the Company's sales recognition
programs, which reward and recognize sales personnel on the basis of achievement
of annual performance quotas.
The business applications software market is characterized by rapid
technological change, frequent new product introductions, evolving industry
standards, and changes in customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. The Company's success will
depend in part on its ability to enhance products and services to meet changing
customer requirements. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products that
respond to technological change or evolving industry standards; that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction, and marketing of these products and enhancements; or
that any new products or product enhancements it may introduce will achieve
market acceptance. In addition, there can be no assurance that the Company
will not encounter product development delays in the future or that, despite
testing by the Company, errors will not be found in new products or product
enhancements after commencement of commercial shipments, resulting in loss of
market share, delay in market acceptance, or warranty claims that could have a
material adverse effect upon the Company's business, operating results, and
financial condition.
As the Company's primary current source of revenue comes from customers using
IBM midrange computers, future revenue from licenses of present products and
sales of services and recurring maintenance revenue are therefore dependent on
continued widespread use of the AS/400 and the continued support of such
computers by IBM. In addition, because the Company's current AS/400 product line
requires the use of IBM's OS/400 operating system, the Company may be required
to adapt its products to any changes made in such operating systems in the
future. The Company's inability to adapt to future changes in the OS/400
operating system, or delays in doing so, could have a material adverse effect on
the Company's business, operating results, and financial condition.
In fiscal year 1999, the Company decided to discontinue new release development
of Infinium Financials for Microsoft Windows NT and Infinium Human Resources for
Microsoft Windows NT, in order to focus additional resources towards deploying
its other financial and human resource systems over the Internet and expanding
the breadth of its product lines. The Company is continuing to develop its
financial and human resources systems for the IBM AS/400 and the Advantage Human
Resources and Payroll systems for Microsoft Windows NT, which it acquired from
Cort. The Company has worked with the customers of the discontinued products
to provide various alternative solutions, including migration to the Company's
other financial and human resources applications and identifying partners to
continue to provide new release development of the discontinued products.
However, there can be no assurance that the Company will not continue to
encounter customer claims resulting from this discontinuance that could have a
material adverse effect upon the Company's financial condition.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 17
<PAGE> 20
The Company is continuing to develop software applications to operate over the
Internet, within corporate intranets, and in an outsourced model. The Company's
development and implementation of versions of its business software applications
to operate in this manner involves more intense competition from a larger number
of competitors. The adoption of Internet-based software applications could be
limited by concerns over transaction security and user privacy, the performance
of the Internet, and potential customers not seeing the value of these
solutions.
The business applications software market is highly competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. In addition, a number of companies
are planning to offer products over the Internet competitive to the Company's
products. The Company believes its ability to compete depends upon many factors
within and outside its control, including the timely development and production
of new products and product enhancements, product functionality, performance,
price, reliability, customer service and support, sales and marketing efforts,
and product distribution. The Company believes that competition in its industry
is undergoing rapid change and that the barriers to competition between market
segments that have previously existed are decreasing. Due to the relatively
low barriers to entry in the software market, the Company expects additional
competition from other established and emerging companies in the client/server
business applications software market as well as from companies in the expanding
Internet business applications market that the Company has entered. Increased
competition may result in price reductions, reduced gross margins, and loss of
market share, any of which would have a material adverse effect on the Company's
business, operating results, and financial condition. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, operating results, and financial condition.
Revenue from customers outside North America represented 7%, 7%, and 9% of the
Company's total revenue in fiscal 1998, 1999, and 2000, respectively. The
Company believes that its revenue and future operating results will depend, in
part, on its ability to increase sales in international markets. There can be
no assurance that the Company will be able to maintain or increase its current
level of international revenue.
There can be no assurance that the Company will be able to sell its ASP offering
to existing customers of its software products and consulting services, or to
new customers. If the Company's ASP offering does not meet with market
acceptance, the Company may incur substantial additional costs or delays in the
further development and expansion of its ASP offering.
To provide its ASP offering, the Company depends on third parties to supply
telecommunications and other equipment and services to its data center. The
Company's failure to maintain a continuous supply of any of these equipment and
services could temporarily prevent it from delivering its ASP offering. A
disruption in its ability to provide its ASP offering could keep the Company
from maintaining required standards of service and cause it to incur contractual
penalties and lose customers.
Market acceptance of the Company's ASP offering, and its ability to increase its
related revenues, will depend on continuing acceptance of use of the Internet
and related technologies for e-business. This acceptance may be limited
without the further development of the Internet's infrastructure and related
technologies. This continued development includes maintenance of reliable
networks with the necessary speed, data capacity and security to provide viable
marketplaces for e-business, as well as timely development of complementary
products for providing reliable, easy-to-use access and services. Other
factors that may affect the growth of the Internet and related technologies as
media for e-business include increases in access costs; government regulation;
uncertainty regarding intellectual property ownership; reluctance to adopt new
business methods; and costs associated with the obsolescence of existing
infrastructure. Management cannot be certain that the Internet and related
technologies will provide viable marketplaces for e-business in the long term.
Questions surrounding the secure transmission of confidential information to
and from Infinium's secure data center form a potential barrier to the growth of
the Company's ASP services. The Company's ASP services rely on encryption and
authentication technology licensed from third parties to provide the security
required to safely transmit confidential information. While the Company has
implemented a variety of state of the art network security systems to protect
against unauthorized access, computer viruses, other intentional acts and acci-
dents and disruptions may occur. Infinium's clients may experience service
interruptions or delays as a result of accidental or intentional disruptions.
Such acts could jeopardize the security of confidential client information. This
could potentially result in liability to Infinium, loss of existing clients or
the loss of reputation leading to difficulties in attracting new clients.
Although the Company plans to continuously upgrade its security systems,
Infinium's security could be circumvented in the future. The costs required to
avoid the intrusion of or to eliminate computer viruses or to alleviate other
potential or real security threats could be expensive, and any additional
efforts required to address security issues could result in service
interruptions or delays to clients which would have a material adverse effect on
Infinium's business, results of operations and financial condition.
Risks inherent in the Company's international business activities generally
include unexpected changes in regulatory requirements, tariffs, and other trade
barriers, costs, and difficulties of localizing products for foreign countries,
lack of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences, including restrictions on the
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws, and economic instability. There can be no assurance that such
factors would not have a material adverse effect on the Company's future
international revenue and, consequently, on the Company's business, operating
results, and financial condition.
18 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 21
During fiscal 2000, Infinium invested in its Application Service Provider (ASP)
services offering, including opening its full-service carrier-class ASP
enterprise solutions-hosting center. The Company made ASP capital investments of
$7.2 million and incurred operating losses of $8.1 million in that part of its
business. The Company has limited operating history in the ASP environment. Its
current and potential competitors in the ASP business include many companies
focussed exclusively on the application hosting business. Many of the
competitors in the ASP business have longer operating histories, greater name
recognition, more established relationships, greater resources and other
competitive advantages over the Company's ASP business. As a result, the
Company's ASP business is subject to many of the same types of risks related to
the Company's product offerings as noted above.
Due to the foregoing factors and the factors set forth under "Results of
Operations" above, it is likely that in some future quarter the Company's
operating results will be below the expectations of the Company and public
market analysts and investors. In such an event, the price of the Company's
common stock would likely be materially adversely affected.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk involves forward
looking statements. Actual results could differ materially from those discussed
in the forward looking statements. The Company is exposed to market risk related
to changes in interest rates and foreign currency exchange rates. The Company
does not use derivative financial instruments for speculative or trading
purposes.
INTEREST RATE RISK
The Company is exposed to market risk from changes in interest rates primarily
through its investing and borrowing activities. In addition, the Company's
ability to finance future acquisition transactions may be impacted if the
Company is unable to obtain appropriate financing at acceptable rates. The
Company's investing strategy to manage interest rate exposure is to invest in
short-term, highly liquid investments. The Company maintains a portfolio of
highly liquid cash equivalents and short-term investments (primarily in
high-grade municipal notes). At September 30, 2000, the fair value of the
Company's short-term investments approximated market value.
FOREIGN CURRENCY RISK
The Company faces exposure to movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company does not use derivative financial
instruments to hedge foreign currency exposures or for trading. Historically,
the Company's primary exposures have been related to the operations of its
foreign subsidiaries. In fiscal 2000, the net impact of foreign currency changes
was not material.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 19
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
INFINIUM SOFTWARE, INC.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows,
present fairly, in all material respects, the financial position of Infinium
Software, Inc. and its subsidiaries at September 30, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
November 17, 2000
20 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 23
INFINIUM SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,665 $ 23,099
Marketable securities at fair market value 3,073 24,113
Accounts receivable, less allowance for doubtful accounts of $3,455 and
$4,229 at September 30, 2000 and 1999, respectively 16,218 16,510
Deferred income taxes -- 3,590
Prepaid expenses and other current assets 4,465 4,142
-----------------------
TOTAL CURRENT ASSETS 41,421 71,454
-----------------------
Property and equipment, net 16,574 10,593
Capitalized software development costs, net 5,569 5,406
Goodwill and other intangible assets, net 5,327 755
Deferred income taxes -- 3,477
Other assets 2,358 2,196
-----------------------
TOTAL ASSETS $ 71,249 $ 93,881
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,836 $ 7,775
Accrued expenses 14,293 11,709
Income taxes payable 441 795
Lease obligation, short-term portion 71 109
Deferred revenue 35,273 35,744
-----------------------
TOTAL CURRENT LIABILITIES 56,914 56,132
-----------------------
Lease obligation, long-term portion 291 343
Deferred revenue 1,381 2,063
Other long-term liabilities (Note 6) 1,000 --
-----------------------
TOTAL LIABILITIES 59,586 58,538
-----------------------
Commitments and contingencies (Note 18)
Common stock, $.01 par value; authorized 40,000 shares, issued
12,927 and 12,607 shares at September 30, 2000 and 1999 129 126
Additional paid-in capital 38,327 36,306
Retained earnings (deficit) (26,876) 1,188
Accumulated other comprehensive income (loss) 293 (257)
-----------------------
11,873 37,363
Less: treasury stock at cost, 43 and 410 shares at September 30, 2000
and 1999, respectively (210) (2,020)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 11,663 35,343
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,249 $ 93,881
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 21
<PAGE> 24
INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Software license fees $ 20,473 $ 32,437 $ 40,704
Services revenue 72,582 89,568 73,490
-----------------------------------------
TOTAL REVENUE 93,055 122,005 114,194
-----------------------------------------
OPERATING COSTS AND EXPENSES:
Cost of software license fees 7,101 14,518 7,210
Cost of services 33,828 40,389 32,330
Research and development 21,352 19,140 19,071
Sales and marketing 40,810 40,135 36,632
General and administrative 17,024 14,514 9,351
Write-off of in-process research and development acquired (Note 6) -- -- 11,196
-----------------------------------------
TOTAL OPERATING COSTS AND EXPENSES 120,115 128,696 115,790
-----------------------------------------
LOSS FROM OPERATIONS (27,060) (6,691) (1,596)
Other income, net 6,104 2,633 1,744
-----------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES (20,956) (4,058) 148
Provision for (benefit from) income taxes 6,860 (1,698) 47
-----------------------------------------
NET INCOME (LOSS) $ (27,816) $ (2,360) $ 101
=================================================================================================================
BASIC PER SHARE DATA:
Net income (loss) per share - basic $ (2.20) $ (0.19) $ 0.01
Weighted shares outstanding - basic 12,668 12,421 12,399
DILUTED PER SHARE DATA:
Net income (loss) per share - diluted $ (2.20) $ (0.19) $ 0.01
Weighted shares outstanding - diluted 12,668 12,421 13,808
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 25
INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998, 1999, AND 2000 (IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON ADDITIONAL OTHER TREASURY
SHARES COMMON PAID-IN RETAINED COMPREHENSIVE STOCK
ISSUED STOCK CAPITAL EARNINGS INCOME (LOSS) AT COST
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 12,162 $ 122 $ 33,325 $ 5,298 $ (10) --
----------------------------------------------------------------------------------------------------------------------------------
Stock issued upon exercise of
stock options 405 4 1,990
Stock issued in connection with
employee stock purchase plan 40 326
Income tax benefit from exercise
of stock options and employee
stock purchase plan 1,003
Purchase of treasury stock at cost $ (2,944)
Treasury stock reissued upon
exercise of stock options and
employee stock purchase plan (926) 1,651
Comprehensive loss:
Net income for the year 101
Cumulative translation adjustment (309)
Comprehensive loss
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 12,607 126 36,644 4,473 (319) (1,293)
----------------------------------------------------------------------------------------------------------------------------------
Income tax provision from
exercise of stock options (338)
Purchase of treasury stock at cost (2,968)
Treasury stock reissued upon exercise
of stock options and employee
stock purchase plan (925) 2,241
Comprehensive loss:
Net loss for the year (2,360)
Unrealized gain on marketable
equity securities 74
Cumulative translation adjustment (12)
Comprehensive loss
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 12,607 126 36,306 1,188 (257) (2,020)
----------------------------------------------------------------------------------------------------------------------------------
Stock issued in connection with
Dexton acquisition 320 3 1,837
Treasury stock reissued upon
exercise of stock options and
employee stock purchase plan 184 (248) 1,810
Comprehensive loss:
Net loss for the year (27,816)
Unrealized gain on marketable
equity securities 525
Cumulative translation adjustment 25
Comprehensive loss
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 12,927 $ 129 $ 38,327 $(26,876) $ 293 $ (210)
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL COMPREHENSIVE
STOCKHOLDERS' INCOME
EQUITY (LOSS)
--------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 $ 38,735
--------------------------------------------------------------------------
Stock issued upon exercise of
stock options 1,994
Stock issued in connection with
employee stock purchase plan 326
Income tax benefit from exercise
of stock options and employee
stock purchase plan 1,003
Purchase of treasury stock at cost (2,944)
Treasury stock reissued upon
exercise of stock options and
employee stock purchase plan 725
Comprehensive loss:
Net income for the year 101 $ 101
Cumulative translation adjustment (309) (309)
--------
Comprehensive loss $ (208)
--------------------------------------------------------- ========
BALANCE AT SEPTEMBER 30, 1998 39,631
---------------------------------------------------------
Income tax provision from
exercise of stock options (338)
Purchase of treasury stock at cost (2,968)
Treasury stock reissued upon exercise
of stock options and employee
stock purchase plan 1,316
Comprehensive loss:
Net loss for the year (2,360) $ (2,360)
Unrealized gain on marketable
equity securities 74 74
Cumulative translation adjustment (12) (12)
--------
Comprehensive loss $ (2,298)
--------------------------------------------------------- ========
BALANCE AT SEPTEMBER 30, 1999 35,343
---------------------------------------------------------
Stock issued in connection with
Dexton acquisition 1,840
Treasury stock reissued upon
exercise of stock options and
employee stock purchase plan 1,746
Comprehensive loss:
Net loss for the year (27,816) $(27,816)
Unrealized gain on marketable
equity securities 525 525
Cumulative translation adjustment 25 25
--------
Comprehensive loss $(27,266)
--------------------------------------------------------- ========
BALANCE AT SEPTEMBER 30, 2000 $ 11,663
=========================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 23
<PAGE> 26
INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(27,816) $ (2,360) $ 101
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,944 15,138 6,780
Allowance for doubtful accounts (774) 2,679 977
Deferred income taxes 7,295 (1,287) (2,634)
Write-off of in-process research and development acquired (Note 6) -- -- 11,196
Changes in operating assets and liabilities, net of effects from
corporate acquisitions
Accounts receivable 1,603 8,181 (9,165)
Prepaid expenses and other current assets (325) 1,941 (1,123)
Other assets (162) 969 (272)
Accounts payable (1,233) (360) 2,829
Accrued expenses 1,519 (2,834) 1,713
Income taxes payable (315) (2,525) 1,750
Deferred revenue (1,136) (4,644) 5,215
--------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (12,400) 14,898 17,367
------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (4,148) (20,714) (55,640)
Sale of marketable securities 25,713 30,186 60,595
Purchase of property and equipment (10,050) (6,473) (3,528)
Capitalization of internal software development costs (1,557) (5,843) (5,473)
Corporate acquisitions, net of cash acquired (Note 6) (4,575) -- (9,371)
Investment in unaffiliated entities -- -- (850)
--------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,383 (2,844) (14,267)
------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options,
and employee stock purchase plan 1,746 1,316 3,021
Purchase of treasury stock -- (2,968) (2,944)
--------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 1,746 (1,652) 77
========================================================================================================================
EFFECT OF FOREIGN EXCHANGE RATE ON CASH (163) (11) (248)
Net increase (decrease) in cash and cash equivalents (5,434) 10,391 2,929
--------------------------------------
Cash and cash equivalents, beginning of year 23,099 12,708 9,779
CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,665 $ 23,099 $ 12,708
------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 25 $ -- $ --
Income taxes paid (refunded), net of refunds received (785) 2,209 804
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under capital leases $ -- $ 452 $ --
Common stock issued in acquisition $ 1,840 $ -- $ --
Note payable incurred in acquisition $ 1,500 $ -- $ --
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 27
INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Founded in 1981, Infinium develops, markets, and supports enterprise- level
business software applications. The Company's software products automate the
financial management, human resource management, and materials management
functions of organizations in a broad range of industries worldwide. The Company
also offers a specialized manufacturing system designed to manage
process-manufacturing operations. The Company offers products that are designed
for IBM's AS/400 computers and for the Microsoft Windows NT operating system. In
addition to different operating systems, the Company's products can be deployed
in a number of different networking environments, including local area networks,
wide area networks, intranets, and the Internet.
In fiscal 2000, the Company acquired Dexton Information Systems, a supplier of
Web-based customer relationship management solutions (CRM). The Company's CRM is
a fully integrated, highly flexible, Web-enabled solution that supports business
relationship management, sales and marketing, and support services with a
single, central market database, current market overview, and tremendous
integration potential.
During fiscal year 2000, the Company focused on extending its offerings from
traditional back-office applications and services to e-business solutions and
application hosting services. The Company retooled its traditional applications
for delivery over the Web, and added Web-based front office applications. The
Company's entry into the Application Service Provider (ASP) market included the
opening of its full-service, carrier-class ASP enterprise solution-hosting
center.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned domestic and foreign subsidiaries. All intercompany
transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
REVENUE RECOGNITION
The Company recognizes software revenues in accordance with the provisions of
Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition. Revenue
from software license fees is recognized when there is evidence of an
arrangement, the product has been delivered, fees are fixed or determinable, and
collection of the related receivable is deemed probable. Revenue from sales
through distributors is recorded net of distributor commissions. Maintenance
revenues, including those bundled with the initial license fee, are deferred and
recognized ratably over the service period. Consulting and training service
revenues are recognized as the services are performed.
Revenues from the Company's application services provider business consist of
monthly fees from ongoing services, including hosting, and are recognized daily
as earned over the contract term, typically three years. The monthly fee for
application services is typically fixed for the life of the contract, but
subject to increases in the event a customer requires additional applications,
increases its number of users or increases frequency of use. The Company
recognizes set-up fees for these arrangements over the expected life of the
customer relationship. Recognition of revenue related to these arrangements
commences on the date that the customer is able to access and utilize the
features and functionality of the applications as intended.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company invests its excess cash primarily in securities of government
agencies, high-grade commercial paper, and mutual funds that invest primarily in
the securities of government agencies. These investments are subject to
minimal credit and market risk. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Marketable securities include equity investments and
securities purchased with an original maturity of greater than three months.
The Company accounts for its investments under the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain
Investments in Debt and Equity Securities. SFAS 115 requires that, except for
debt securities classified as held-to-maturity, investments in debt and equity
securities should be reported at fair value. At September 30, 2000 and 1999, all
of the Company's investments are classified as available-for-sale.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their estimated
useful lives using the straight-line method. Property and equipment held under
capital leases, which involve a transfer of ownership, are amortized over the
estimated useful life of the asset. Other property and equipment held under
capital leases and leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the related asset. Upon retirement or
sale, the cost of assets disposed of and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income. Repairs and maintenance costs are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets are recorded at the purchase price. Amortization is calculated
using the straight-line method over the estimated useful lives of the assets,
typically five years. The Company evaluates the possible impairment of
long-lived assets, including intangible assets, whenever events or circumstances
indicate the carrying value of the asset may not be recoverable.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk include accounts receivable. To minimize this risk, the Company
generally requires a cash deposit upon contract signing.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY|INFINIUM ANNUAL REPORT 2000 25
<PAGE> 28
In addition, the Company maintains reserves for potential credit losses. Such
losses, in the aggregate, have not exceeded management expectations. At times,
the Company may maintain cash balances in excess of federally insured limits.
RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Research and development expenses, other than certain software development
costs, are charged to expense as incurred. In accordance with the provisions of
Statement of Financial Accounting Standards No. 86, (SFAS 86), Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, the
Company capitalizes certain software development costs upon technological
feasibility. Amortization of capitalized software development costs is provided
upon commercial release of the products at the greater of the ratio of current
product revenue to the total of current and anticipated product revenue or on a
straight-line basis over the estimated economic life of the software, which the
Company has determined is not more than five years.
FOREIGN CURRENCY TRANSLATION
During fiscal 1998, the functional currency of the Canadian entity, which had
been determined to be the U.S. dollar for all previous years, was determined to
be the local currency. Under this approach, assets and liabilities are
translated at current exchange rates. Income and expense items are translated
using average rates during the year.
Translation adjustments are not included in determining consolidated net income
but rather are accumulated and reported as a separate component of
stockholders' equity.
The functional currency of the Company's other foreign subsidiaries is the U.S.
dollar. Monetary assets and liabilities of the subsidiaries are translated into
U.S. dollars at the exchange rate in effect at period end, and non-monetary
assets and liabilities are remeasured at historic exchange rates. Income and
expenses are remeasured at the average exchange rate for the period. Translation
gains and losses are reflected in other income, net in the consolidated
statement of operations.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax con-
sequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their tax bases. Deferred tax
assets and liabilities are measured using enacted statutory tax rates in effect
in the year in which the differences are expected to reverse. A deferred tax
asset is established for the expected future benefit of net operating loss and
credit carry-forwards. Under Statement of Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income Taxes, the Company cannot recognize a deferred
tax asset for the future benefit of its net operating losses, tax credits and
temporary differences unless the Company can establish that it is "more likely
than not" that the deferred tax asset would be realized. Due to the Company's
recent history of net losses, the Company is precluded form recognizing a tax
asset and has recorded a full valuation allowance against its otherwise
recognizable deferred tax asset, in accordance with SFAS 109.
NET INCOME PER SHARE
Basic earnings per share is determined by dividing net income applicable to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is determined by dividing net
income applicable to common stockholders by the weighted average number of
common shares and common share equivalents outstanding during the period. Common
share equivalents are included in the diluted earnings per share calculation
when dilutive. Common share equivalents consisting of common stock issuable upon
exercise of outstanding common stock options are computed using the treasury
stock method.
The difference between basic shares outstanding and dilutive shares outstanding
is the conversion of common stock equivalents (stock options) in the amounts of
131 thousand shares for fiscal year 2000 and 180 thousand shares for fiscal year
1999.
The computation of basic and diluted earnings per share for the years ended
September 30, 1998, 1999, and 2000 is as follows:
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------------------
INCOME/(LOSS) SHARES PER SHARE INCOME/(LOSS) SHARES PER SHARE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Income (loss) available to
common stockholders $(27,816) 12,668 $(2.20) $ (2,360) 12,421 $(0.19)
EFFECT OF DILUTIVE SECURITIES:
Stock options N/A N/A
----------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) available to
common stockholders $(27,816) 12,668 $(2.20) $ (2,360) 12,421 $(0.19)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
1998
----------------------------------------------------------------------------
INCOME/(LOSS) SHARES PER SHARE
----------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Income (loss) available to
common stockholders $ 101 12,399 $0.01
EFFECT OF DILUTIVE SECURITIES:
Stock options 1,409
----------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) available to
common stockholders $ 101 13,808 $0.01
----------------------------------------------------------------------------
</TABLE>
26 MAXIMS FOR SUCCESS IN THE NEW ECONOMY|INFINIUM ANNUAL REPORT 2000
<PAGE> 29
STOCK COMPENSATION
The Company's employee stock plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-Based Compensation. (See Note 13.)
COMPREHENSIVE INCOME
On October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting of Comprehensive Income. Comprehensive
income for the Company includes net income, the effects of currency translation,
which are charged or credited to the cumulative translation adjustment account
within stockholders' equity, and the unrealized gain (loss) on investments
available-for-sale, which is recorded within stockholders' equity. Comprehensive
income for all periods presented is included in the consolidated statement of
stockholders' equity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, as
amended by SAB 101A and SAB 101B, which is effective in the first quarter of
fiscal year 2001. SAB 101 clarifies the Securities and Exchange Commission's
view regarding recognition of revenue. The Company is currently evaluating the
effects of this change but anticipates that the adoption of SAB 101 will not
have a material effect on the Company's financial position or results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities,
which established accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. The Company will adopt
SFAS 133, as required by SFAS 137, Deferral of the Effective Date of the FASB
Statement No. 133, in fiscal year 2001. The adoption of SFAS 133 is not expected
to have a material impact on the Company's financial position or results of
operations.
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES
Following is a summary of the fair market value of available-for-sale
securities, by balance sheet classification, as of September 30, 1999, and 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
--------------------
2000 1999
---------------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENTS:
U.S. government obligations -- $ 5,630
State government obligations $ 3,804 6,651
Corporate debt obligations -- 1,524
Money market funds 5,228 5,173
MARKETABLE SECURITIES:
State government obligations 1,998 20,293
Corporate debt obligations/securities 1,075 3,820
---------------------------------------------------------------
$12,105 $43,091
===============================================================
</TABLE>
Cash equivalents and marketable securities are carried at fair market value,
which approximates amortized cost. The contractual maturities of all
available-for-sale securities classified as cash equivalents are less than three
months. Available-for-sale securities classified as marketable securities have
contractual maturities of less than one year. All of the Company's marketable
securities are classified as current at September 30, 1999 and 2000, as these
funds are highly liquid and are available to meet working capital needs and to
fund current operations. Gross unrealized gains and losses were $74 thousand
and $599 thousand as of September 30, 1999 and 2000, respectively. Realized
gains and losses on sales of securities for the year were $1.2 million and $0
for the years ended September 30, 1999 and 2000, respectively.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY|INFINIUM ANNUAL REPORT 2000 27
<PAGE> 30
4. BALANCE SHEET COMPONENTS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
-----------------
2000 1999
-------------------------------------------------------
<S> <C> <C>
Prepaid rents and insurance $ 853 $1,035
Prepaid commissions and royalties 1,171 1,223
Non-trade receivables 1,427 753
Other prepaid expenses and
current assets 1,014 1,131
-------------------------------------------------------
$4,465 $4,142
=======================================================
</TABLE>
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
-----------------------
USEFUL LIFE 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment 2 to 5 years $ 20,554 $ 17,124
Furniture and fixtures 5 years 3,831 2,443
Leasehold improvements Lease term 10,197 4,758
Construction in progress -- 359
Land 287 287
-----------------------
34,869 24,971
Less accumulated depreciation
and amortization (18,295) (14,378)
-----------------------
$ 16,574 $ 10,593
=============================================================================
</TABLE>
During fiscal year 2000, the Company invested $7.2 million for its ASP business
unit including $4.9 million in leasehold improvements.
Depreciation expense of property, plant, and equipment for the years ended
September 30, 1998, 1999, and 2000 amounted to $3.1 million, $3.6 million, and
$4.2 million, respectively.
Capitalized software, net consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
-----------------------
2000 1999
---------------------------------------------------------
<S> <C> <C>
Internal development costs $ 25,184 $ 23,839
Purchased from third parties 3,865 1,703
-----------------------
29,049 25,542
Less accumulated amortization (23,480) (20,136)
---------------------------------------------------------
$ 5,569 $ 5,406
=========================================================
</TABLE>
During fiscal year 2000, the Company acquired Dexton, which resulted in the
capitalization of $2.1 million of software. Included in capitalized software at
September 30, 2000 and 1999 are $0 and $277 thousand, respectively, related to
products that had not yet been commercially released.
Amortization expense of capitalized software development costs for the years
ended September 30, 1998, 1999, and 2000 amounted to $3.3 million, $4.5 million,
and $3.6 million, respectively. During the year ended September 30, 1999, the
Company wrote off $5.6 million in capitalized development costs and purchased
software related to the discontinued product lines discussed in Note 8.
Goodwill and other intangible assets, net consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
---------------------
PERIOD OF
AMORTIZATION 2000 1999
---------------------------------------
<S> <C> <C> <C>
Goodwill 5 years $ 5,237 $ 1,022
Workforce in place 2 to 5 years 802 --
Customer Base 5 years 716 --
---------------------
6,755 1,022
Less accumulated amortization (1,428) (267)
-------------------------------------------------------------------------
$ 5,327 $ 755
=========================================================================
</TABLE>
During the year ended September 30, 2000, the Company recorded $5.0 million and
$766 thousand of goodwill and intangibles associated with its acquisitions of
Dexton and iT-Soft. During the year ended September 30, 1999, the Company wrote
off $853 thousand in goodwill and workforce in place related to the
discontinued product lines discussed in Note 8.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
--------------------
2000 1999
------------------------------------------------------------
<S> <C> <C>
Employee compensation and benefits $ 4,877 $ 5,649
Accrued royalties 470 509
Accrued professional fees 1,349 709
Dexton acquisition payable 500 --
Other 7,097 4,842
------------------------------------------------------------
$14,293 $11,709
============================================================
</TABLE>
5. OTHER INCOME, NET
Other income, net consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
2000 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,233 $1,445 $ 1,891
Interest expense (25) -- --
Gain on marketable equity
securities -- 1,188 --
Foreign exchange loss 26 -- (147)
Legal settlement 4,870 -- --
--------------------------------------------------------------
$ 6,104 $2,633 $ 1,744
</TABLE>
28 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 31
6. ACQUISITIONS
On January 13, 2000, the Company acquired all of the outstanding capital stock
of Dexton Information Systems, B.V. ("Dexton"), a privately held supplier of
Web-based customer relationship management solutions located in the
Netherlands. The operating results of this acquired business have been included
in the consolidated statement of operations from the date of acquisition. The
purchase price of $7.6 million was comprised of $3.5 million in cash, a $500
thousand payment due in 2001, and a $1.0 million payment due in 2002, the
issuance of 320 thousand shares of Infinium common stock and acquisition
expenses of $749 thousand. The acquisition was accounted for as a purchase,
consequently, the purchase price was allocated to the acquired assets and
assumed liabilities, based on their fair value at the date of acquisition, as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------
<S> <C>
Net tangible assets acquired $ 460
Intangible assets acquired:
Customer base 716
Work force 802
Current technology 2,162
Goodwill 3,449
------
Total $7,589
----------------------------------------
</TABLE>
The intangible assets are being amortized on a straight-line basis over two to
five years.
On November 29, 1999, the Company acquired substantially all of the assets and
liabilities of iT-Soft (M.) Sdn. Bhd. ("iT-Soft"), a privately held value-added
reseller of Infinium solutions located in Malaysia. The operating results of
this acquired business have been included in the consolidated statement of
earning from the date of acquisition. The transaction was consummated for $650
thousand in cash which was paid during the quarter ended December 31, 1999 and
$84 thousand in acquisition expenses. The difference of $766 thousand between
the purchase price and the net book value of the acquired assets and liabilities
was allocated to goodwill and is being amortized over a period of five years.
The acquisitions of Dexton and iT-Soft were accounted for as purchases.
Accordingly, the results of operations of Dexton and iT-Soft and the fair market
values of the acquired assets and assumed liabilities are included in the
Company's financial statements as of their respective acquisition dates. The
acquisitions were immaterial for purposes of pro-forma financial statement
presentation.
On June 11, 1998, the Company acquired all of the outstanding capital stock of
Cort Directions, Inc. (Cort), a privately held software concern that primarily
developed and marketed payroll and human resources applications for the
Microsoft Windows NT platform. The transaction was consummated for $7.9 million
in cash, of which $6 million was paid upon closing, $952 thousand was paid
February 1, 1999, and $952 thousand on June 11, 1999, as well as $375 thousand
of acquisition costs. An amount of $7.8 million was allocated to in-process
research and development and was charged to operations at the acquisition date.
Goodwill of $1.0 million was acquired and is being amortized over an expected
useful life of five years. Acquired software of $566 thousand is being amortized
over the expected useful life of three years.
The $7.8 million allocated to in-process research and development represented
in-process research and development for 32-bit versions of Cort's payroll and
human resources applications for Microsoft Windows NT. The value was determined
by estimating the future net cash flows from the in-process technology and
discounting the net cash flows back to their present value. The estimated net
cash flows used in the aforementioned valuation were based on management's
estimates of revenue, cost of sales, research and development costs, sales and
marketing costs, general and administrative costs, and income taxes related to
the technology. The discount rate used included a factor that took into account
the uncertainty surrounding the successful development of the purchased
in-process technology. At the time of the acquisition, the software required
significant modifications in order to reach technological feasibility. The
32-bit version of the software was necessary in order to operate the software
with the current versions of Microsoft Windows NT. In addition, the 32-bit
versions were designed to utilize the Microsoft SQL Server database. The
software was completed in June 1999. Actual costs of completion were not
materially different from estimates; however, actual revenue received has been
less than expected.
OTHER IN-PROCESS RESEARCH AND DEVELOPMENT ACQUIRED
In fiscal 1998, the Company acquired technology to support and enable the
operation of transaction-based functionality specific to a Microsoft Windows NT
server-based application for $3.4 million. The technology as received had not
met technological feasibility as defined by SFAS 86. Accordingly, the
acquisition of the technology for $3.4 million was written off upon delivery.
7. REDUCTION IN WORKFORCE
During the fourth quarter of fiscal year 2000, the Company recorded $1.9 million
of expenses related to an 18% reduction in its workforce. The expenses are
recorded in the Consolidated statement of Operations as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------
<S> <C>
Cost of service and license fees $ 539
Research and development 563
Sales and marketing 558
General and administrative 199
------
$1,859
--------------------------------------------
</TABLE>
At September 30, 2000, the Company had accrued liabilities remaining of $579
thousand associated with this reduction in workforce.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 29
<PAGE> 32
8. DISCONTINUED PRODUCT LINES
In September 1999, the Company decided to discontinue new release development of
Infinium Financials for Microsoft Windows NT and Infinium Human Resources for
Microsoft Windows NT. In February 2000, the Company divested Infinium Financials
for Microsoft Windows NT to a Gores Technology Group Company, Artemis Financials
Systems, Inc. ("Artemis"), for a cash payment of $822 thousand from the Company
to Artemis. The Company provided maintenance and consulting services for
existing customers until November 2000. Of the $9.5 million estimated costs
related to these actions, $6.3 million, including $5.6 million related to the
write-off of capitalized and purchased software due to unamortized capitalized
costs exceeding the net realizable value of those assets and $727 thousand
related to the write-off of prepaid royalties for third-party products sold with
the discontinued product lines, is included in cost of software license fees.
The remaining $3.2 million, including $2.3 million related to impaired
receivables and $853 thousand related to the write-off of goodwill associated
with the Company's acquisition of Time, is included in general and
administrative expenses. The Company will continue to develop new releases and
provide maintenance and consulting services for its payroll and human
resources products for Microsoft Windows NT acquired in the Cort acquisition.
(See Note 6)
In fiscal year 2000, the Company realized operating losses from its discontinued
product line of $5.7 million. Operating expenses of $6.2 million were incurred
to provide maintenance and support transition for customers to alternative
software platforms and resolve disputes. Expenses for the discontinued lines
recorded in cost of service, research and development, and general and
administrative were $1.9 million, $2.1 million, and $2.2 million, respectively.
9. LEGAL SETTLEMENTS
During the fourth fiscal quarter of 2000, the Company received the benefit of a
$4.9 million legal settlement associated with a claim it brought to defend its
intellectual property. The benefit is recorded in other income. During fiscal
2000, the Company settled disputes associated with its discontinued product
line. These amounts are included in general and administrative expenses.
During the second fiscal quarter of 1999, the Company settled a dispute with a
former business partner for $350 thousand. The payment is classified within
general and administrative expenses.
10. GAIN ON INVESTMENT IN CONDUIT SOFTWARE, INC.
During the third quarter of 1998, the Company made a $750 thousand equity
investment in Conduit Software, Inc. (Conduit), a developer of employee
self-service software. During the third quarter of 1999, Conduit was acquired in
a stock for stock transaction by ProBusiness Services, Inc. (ProBusiness), and
the Company was granted ProBusiness shares in exchange for its Conduit shares.
Subsequently, the Company sold 90% of its ProBusiness stock for $1.9 million.
This resulted in a realized gain of $1.2 million that is included in other
income. The remaining 10% of the stock is included in marketable securities at
fair market value, and an unrealized gain on marketable equity securities of
$136 thousand, related to the remaining 10% of the stock, is included in
stockholders' equity.
11. LINE OF CREDIT
The Company has a line of credit with a financial institution under which it can
borrow up to $3 million, based on certain asset based balances. At September 30,
2000, the Company had not borrowed under this line of credit. The interest rate
on any funds that are borrowed would be at the 30-day dealer commercial paper
rate plus 2.3%.
12. INCOME TAXES
The components of the provision for (benefit from) income taxes are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------
2000 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal $(1,169) $ (719) $ 2,370
State 67 55 249
Foreign (135) 394 356
-----------------------------------------------------------
TOTAL CURRENT (1,237) (270) 2,975
DEFERRED:
Federal 7,499 (1,253) (2,749)
State 370 (175) (179)
Foreign 228 -- --
-----------------------------------------------------------
TOTAL DEFERRED 8,097 (1,428) (2,928)
-----------------------------------------------------------
$ 6,860 $(1,698) $ 47
-----------------------------------------------------------
</TABLE>
The income tax provision differs from an amount computed by applying the U.S.
statutory federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
2000 1999 1998
-----------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax $ (7,125) $(1,379) $ 50
State income taxes (225) (79) 46
Research and development credits -- -- (942)
Foreign tax rate differential 76 139 246
Other 115 (379) 647
Increase in valuation allowance 14,019 -- --
-----------------------------------------------------------------------
$ 6,860 $(1,698) $ 47
=======================================================================
</TABLE>
30 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 33
Deferred tax assets and liabilities are composed of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss and tax
credit carryforwards $ 6,789 $ 36
Intangible assets 4,168 4,455
Deferred revenue 2,781 2,812
Accrued expenses and reserves not
currently deductible 2,151 1,716
Other 172 110
-------------------------------
TOTAL DEFERRED TAX ASSETS 16,061 9,129
------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Prepaid expenses deducted currently 550 511
Capitalized software development costs 1,076 1,551
Other 416 --
-------------------------------
TOTAL DEFERRED TAX LIABILITIES 2,042 2,062
------------------------------------------------------------------------------
Total 14,019 7,067
Less - Valuation allowance (14,019) --
-------------------------------
$ -- $7,067
==============================================================================
</TABLE>
Under SFAS 109, the Company cannot recognize a deferred tax asset for the future
benefit of its net operating losses, tax credits and temporary differences
unless the Company can establish that it is "more likely than not" that the
deferred tax asset would be realized. Due to the Company's recent history of net
losses, the Company is precluded from recording a tax asset and has recorded a
full valuation allowance against its otherwise recognizable deferred tax asset,
in accordance with SFAS 109.
As of September 30, 2000, the Company had net operating loss and tax credit
carryforwards of approximately $13.8 million and $1.6 million, respectively,
which expire at various dates through 2019.
Ownership changes, as defined in the Internal Revenue Code, may limit the amount
of net operating loss and tax credit carryforwards that can be utilized to
offset future taxable income or tax liability. The amount of the annual
limitation is determined in accordance with Section 382 of the Internal Revenue
Code.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries because those earnings are
intended to be permanently reinvested. Such earnings would become taxable upon
the sale or liquidation of these foreign subsidiaries or upon the remittance of
dividends. It is not practical to estimate the amount of additional tax that
might be payable on the foreign earnings. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject to certain
limitations, for use against the Company's U.S. tax liability. The amount of
withholding tax that would be payable upon remittance of the entire amount of
undistributed earnings would not be material.
13. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In October 1995, the Board of Directors approved the 1995 Stock Plan (the 1995
Plan), which provides for the issuance of up to 3.5 million shares of common
stock pursuant to the grant of qualified and non-qualified stock options, stock
awards or purchase rights to employees, consultants, directors, and officers of
the Company. Additionally, in February 1999, the Company amended the 1995 Plan
to provide for the issuance of an additional 1 million shares of common stock.
The options generally vest over a four-year period and have a term of 10 years.
The Compensation Committee is composed of members of the Company's Board of
Directors. The option price is set at the fair market value of the Company's
stock on the date of the option grant, as determined by the Compensation
Committee.
The Company also has a 1989 Incentive Stock Option Plan (the 1989 Plan) and a
1984 Incentive Stock Option Plan (the 1984 Plan), which authorized options for
2.8 million and 1.4 million shares of common stock, respectively, under terms
similar to those described in the preceding paragraph. In conjunction with the
approval of the 1995 Plan, the Board of Directors formally terminated the 1989
Plan, and as such no future grants will be made under this Plan. Authority to
grant additional options under the 1984 Plan has expired.
In October 1995, the Board of Directors approved the 1995 Non-Employee Director
Stock Option Plan (the Director Plan) under which options to purchase a maximum
of 210 thousand shares of the Company's common stock may be granted to
non-employee directors. Under the Director Plan, each non-employee director will
be granted an option to purchase 28 thousand shares of common stock upon first
joining the Board of Directors and 4 thousand shares at each successive annual
meeting of stockholders, beginning at the Company's annual meeting of
stockholders for the fiscal year ended September 30, 1996, at an exercise price
per share equal to the then fair market value per common share. Options granted
under the Director Plan become exercisable in four equal annual installments
commencing one year after the date of grant provided that the optionee then
remains a director or consultant. The term of each option granted under the
Director Plan will be for a period of ten years from the date of the grant.
At September 30, 2000, the Company had 2 million shares of its common stock
available for future grant and had reserved 2.6 million shares of its common
stock for issuance upon exercise of outstanding stock options under the Plans.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 31
<PAGE> 34
Transactions under the 1984, 1989, 1995, and the Director Plans during the years
ended September 30, 1998, 1999, and 2000 are summarized as follows:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF PERIOD 3,264 $ 7.57 2,926 $ 8.28 3,036 $ 6.34
Granted 1,324 4.85 1,183 5.64 609 15.36
Exercised (266) 5.10 (189) 4.06 (475) 4.93
Cancelled (1,741) 7.93 (656) 8.27 (244) 8.55
------ ----- -----
OUTSTANDING AT END OF PERIOD 2,581 6.19 3,264 7.57 2,926 8.28
-----------------------------------------------------------------------------------------------------------------------------
OPTIONS EXERCISABLE AT END OF PERIOD 1,400 6.78 1,792 7.79 1,196 6.03
-----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE FAIR VALUE OF OPTIONS
GRANTED DURING THE PERIOD $ 3.24 $ 3.62 $10.13
</TABLE>
All options were granted at fair market value in fiscal years 2000, 1999, and
1998.
The following table summarizes the employee and director stock options
outstanding at September 30, 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL YEAR ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF SHARES REMAINING AVERAGE SHARES AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.85 - $ 4.24 652 7.57 $ 3.89 260 $ 3.74
4.25 - 6.49 1,380 8.70 5.56 721 5.46
6.50 - 9.99 306 7.53 7.40 234 7.57
10.00 - 14.99 79 7.08 12.22 66 12.06
$15.00 - $22.38 164 7.34 $ 16.30 119 $ 16.28
------ ------
2,581 1,400
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's option plans and employee stock purchase
plan been determined based on the fair value at the grant dates, as prescribed
in SFAS 123, the Company's net income (loss) and net income (loss) per share
would have been as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT FOR FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------------
PER SHARE DATA) 2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $ (27,816) $ (2,360) $ 101
Pro forma (30,295) (6,014) (2,087)
Basic income (loss) per share:
As reported $ (2.20) $ (0.19) $ 0.01
Pro forma (2.39) (0.48) (0.17)
Diluted income (loss) per share:
As reported $ (2.20) $ (0.19) $ 0.01
Pro forma (2.39) (0.48) (0.15)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes method with the following assumptions used for grants during the
applicable period: dividend yield of 0.0% for all periods; risk-free interest
rates (weighted average) 5.66%, 4.66%, and 6.37% for options granted during the
year ended September 30, 1998, 1999, and 2000, respectively; weighted average
expected option term of five years for all periods; and volatilities of 75.85%
for the year ended September 30, 1998, 75.00% for the year ended September 30,
1999, and 77.00% for the year ended September 30, 2000.
1995 EMPLOYEE STOCK PURCHASE PLAN
On October 2, 1995, the Board of Directors approved the 1995 Employee Stock
Purchase Plan (the Purchase Plan), which enables eligible employees to
purchase shares of the Company's common stock. The Purchase Plan is administered
by the Compensation Committee of the Board of Directors. Under the Purchase
Plan, eligible employees may purchase common shares during six-month payment
periods. The exercise price per share is 85.00% of the lesser of the market
price per share on the first or last business day of the six-month period. The
maximum
32 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 35
number of shares of common stock that an employee may purchase in any six-month
period is 500 shares. An employee's rights under the Purchase Plan terminate
upon voluntary withdrawal from the plan at any time or upon termination of
employment. The Company has reserved 1.4 million shares of common stock for
issuance under the Purchase Plan.
The first period commenced on November 17, 1995 (the effective date of the
Company's initial public offering) and ended on June 30, 1996. Employees
purchased 48 thousand shares of stock at $9.35 per share. In subsequent
six-month periods, employees purchased 40 thousand shares of stock at $7.12 per
share, 33 thousand shares of stock at $7.44 per share, 39 thousand shares of
stock at $8.29 per share, 32 thousand shares of stock at $11.79 per share, 58
thousand shares of stock at $5.31 per share, 55 thousand shares of stock at
$4.46 per share, 48 thousand shares of stock at 4.41, and 52 thousand shares of
stock at $3.40.
STOCK REPURCHASE PROGRAM
In February 1998, the Company announced a stock repurchase program for up to
$6.0 million of common stock to use to meet requirements of its employee stock
option and stock purchase plan. No minimum number or value of shares to be
repurchased was fixed nor was a time limit set for the duration of the program.
The Company repurchased 191 thousand shares at a cost of $2.9 million and
reissued 102 thousand shares during the year ended September 30, 1998. The
Company repurchased 622 thousand shares at a cost of $3.0 million for the year
ended September 30, 1999, and reissued 301 thousand shares during that same
12-month period. During fiscal year 2000, the Company did not repurchase
additional shares and reissued 366 thousand.
On October 29, 1999, the Company's Board of Directors approved a new stock
repurchase program authorizing the Company to repurchase an additional $10
million of common stock to use to meet requirements of its employee stock option
and stock purchase plan. No minimum number or value of shares to be repurchased
has been fixed for the new program nor has a time limit as to the duration of
the program been established.
14. RETIREMENT SAVINGS PLAN
The Company has a savings and profit sharing plan covering all eligible
employees, which is qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended. The Company may, at its option, provide matching
contributions of up to 50% of each participating employee's contributions to the
plan, subject to a maximum of 2.5% of compensation. Total contributions by the
Company to the plan for the years ended September 30, 1998, 1999, and 2000 were
$705 thousand, $843 thousand, and $794 thousand, respectively.
In June 1996, a Group Personal Pension Plan was established for eligible
employees in the United Kingdom, allowing employees to contribute a percentage
of their salaries into a personal retirement savings plan. Company contributions
to individual plans aggregated $81 thousand, $157 thousand, and $135 thousand
for the years ended September 30, 1998, 1999, and 2000, respectively.
A Registered Retirement Savings Plan was established in August 1997, allowing
eligible employees in Canada to contribute a percentage of their compensation
into a retirement savings plan. Total contributions by the Company to this plan
for the years ended September 30, 1998, 1999, and 2000 were $32 thousand, $33
thousand, and $28 thousand, respectively.
Contributions in fiscal 2000 for retirement savings plans associated with the
Company's newly acquired entities in Malaysia and the Netherlands were $32
thousand and $8 thousand, respectively.
15. SEGMENT INFORMATION AND GEOGRAPHIC AREAS
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures About Segments of an Enterprise and
Related Information. SFAS 131 superseded Statement of Financial Accounting
Standards No. 14 (SFAS 14), Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for disclosures about operating
segments, products and services, geographic areas, and major customers.
The Company has determined that its reportable business segments are North
American Operations (all operations in the United States and Canada, including
Infinium, the Cort Payroll Unit and ASP) and International Operations.
The Company offers enterprise-level business software applications designed to
automate back-office and certain front-office operations of its customers. The
Company's products can function as stand-alone applications or as integrated
suites of applications and may be integrated with products from other vendors.
The Company's products are designed to provide users significant functionality
as well as the flexibility and ease of use of network-centric computing, while
retaining low cost of ownership.
The Company's entry into the Application Services Provider (ASP) market included
the opening of its full-service, carrier-class ASP enterprise solution hosting
center. The ASP offerings are designed to enable the Company's customers to
quickly and easily access the Company's business applications over the Web or
via a direct connection, without the associated costs of owning, managing and
supporting the applications and their computing infrastructure.
The Company offers through its Cort payroll unit a comprehensive human resources
management system (HRMS) developed for Microsoft's Windows NT operating system
called Infinium Advantage HRMS. This product suite includes two applications, a
payroll and a human resources information system. The Infinium Advantage Payroll
system is designed to easily manage the most complex payroll requirements. The
Infinium Advantage HRMS system is designed to be a proactive personnel,
benefits, and applicant management tool.
The Infinium Advantage HRMS and Payroll systems can be utilized either as
separate applications or as an integrated suite. The systems utilize Microsoft
SQL server database management systems.
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000 33
<PAGE> 36
The Company's determination of its reportable segments is based on its internal
reporting to the key decision-maker as defined in SFAS 131. The following table
presents a summary of operating information and certain year-end balance sheet
information by business segment for the years ended September 30, 1998, 1999,
and 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30,
2000 1999 1998
===================================================================================
<S> <C> <C> <C>
REVENUE:
North American operations:
Infinium $ 79,228 $107,814 $103,777
Cort payroll unit 5,384 5,677 2,005
ASP 321 -- --
-----------------------------------------------
Total North American
Operations 84,933 113,491 105,782
International operations 8,122 8,514 8,412
-----------------------------------------------
CONSOLIDATED $ 93,055 $122,005 $114,194
===================================================================================
OPERATING INCOME (LOSS):
North American operations:
Infinium $(11,840) $ (2,505) $ 3,104
Cort payroll unit (1,140) (637) 825
ASP (8,112) -- --
-----------------------------------------------
Total North American
Operations (21,092) (3,142) 3,929
International operations (5,968) (3,549) (5,525)
-----------------------------------------------
CONSOLIDATED $(27,060) $ (6,691) $ (1,596)
===================================================================================
IDENTIFIABLE ASSETS:
North American operations:
Infinium $ 57,519 $ 87,015 $101,280
Cort payroll unit 1,902 1,798 1,360
ASP 7,211 -- --
-----------------------------------------------
Total North American
Operations 66,632 88,813 102,640
International operations 4,617 5,068 5,342
-----------------------------------------------
CONSOLIDATED $ 71,249 $ 93,881 $107,982
===================================================================================
</TABLE>
Geographically, revenues are reflected in the geographic areas from which the
sales are made. Information related to the Company's revenues from unaffiliated
customers in different geographical areas is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) FISCAL YEAR ENDED SEPTEMBER 30,
2000 1999 1998
===================================================================================
<S> <C> <C> <C>
REVENUES
United States $82,422 $109,060 $101,311
United Kingdom 5,723 7,749 6,568
Canada 2,510 4,431 4,471
Other 2,400 765 1,844
-----------------------------------------------
CONSOLIDATED $93,055 $122,005 $114,194
===================================================================================
</TABLE>
Information related to the Company's long-lived assets by geographical area is
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30,
2000 1999 1998
===================================================================================
<S> <C> <C> <C>
LONG-LIVED ASSETS
United States $28,772 $18,544 $21,617
United Kingdom 133 286 462
Canada 73 62 32
Other 850 58 312
-----------------------------------------------
CONSOLIDATED $29,828 $18,950 $22,423
===================================================================================
</TABLE>
No single customer accounted for more than 10% of the Company's consolidated
revenues for the years ended September 30, 1998, 1999, and 2000.
16. RELATED PARTY TRANSACTIONS
LIFE INSURANCE TRUSTS
One current principal stockholder and two former principal stockholders of the
Company have split-dollar life insurance policies (the Policies). The Policies
are owned by various trusts. The trusts have executed Collateral Assignment
Agreements for the benefit of the Company. Under the Collateral Assignment
Agreements, the Company originally paid the annual premiums under the Policies.
Effective October 1, 1996, the Collateral Assignment Agreements for the two
former principal stockholders were amended so that the trusts (rather than the
Company) were obligated from that date to make all premium payments under the
Policies. In March 1998, the Company paid the last premium payments required
under the current principal stockholder's Policies to make them self-funding as
of that date. The Company has made premium payments under the Policies of $88
thousand, $0, and $0 for the years ended September 30, 1998, 1999, and 2000,
respectively. The premium payments made under the Policies were recorded as
advances to the trusts and are secured by the cash surrender value of related
insurance policies. Cash advances in excess of the cash surrender value of the
related insurance policies were expensed when advanced. Total advances to the
trusts amounted to $2.1 million for the years ending September 30, 1998, 1999,
and 2000, respectively, are included in other assets in the consolidated bal-
ance sheet. The Collateral Assignment Agreement for the current principal
stockholder can be terminated at any time on 30 days' notice by either the
Company or the related trust. Upon termination of the Collateral Assignment
Agreement for the principal stockholder, (i) the Company and the trust can agree
on disposition of the Policy, (ii) the trust can repay the advances to the
Company, or (iii) the net cash surrender value would be distributed to the
Company to the extent of the advances, with the balance of the net cash
surrender value being paid to the trust. The Collateral Assignment Agreements
for the two former principal stockholders can be terminated (i) by the trust on
30 days' written notice to the Company, (ii) upon the failure of the trust to
make annual premium payments, (iii) at the trust's election to receive a release
of the assignment of the Policies from the Company, or (iv) by
34 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 37
the Company if the cash surrender value declines and the Company is not willing
to accept substitute collateral. Upon termination of the Collateral Assignment
Agreement for either of the former principal stockholders, the trust must
immediately repay to the Company the amounts of premium advances made by the
Company. If a Collateral Assignment Agreement is not terminated and the
principal stockholder dies, the death benefits will be paid first to the Company
to the extent of the advances. There is no agreement between the Company and the
remaining principal stockholder as to whether the Collateral Assignment
Agreement would be terminated on the disassociation of the stockholder from the
Company.
In October 1994, the three principal stockholders waived their rights to the
cash surrender value of the Policies through that date. Advances to the trusts
equal to the cash surrender value at October 1, 1994, of $1.3 million, were
recorded as other assets in the consolidated balance sheet as a non-cash capital
contribution.
During 1995, the trusts borrowed $875 thousand of the cash surrender value of
the Policies. The trusts' obligations to repay those funds were secured by a
pledge of an aggregate of 330 thousand shares of the Company's common stock
owned by the current and a former principal stockholder. The trusts assigned
the stock pledges to the Company as replacement collateral. During fiscal 1996,
the trusts repaid a net of $565 thousand of those borrowings and released 232
thousand shares of the Company's common stock from the pledge. During fiscal
1997, the trust borrowed an additional $47 thousand. During fiscal 1998, all
loans were repaid in full. No loans were outstanding as of September 30, 2000.
OTHER
During fiscal year 2000, the Company entered into a consulting agreement with
Wianno Ventures which is controlled by a relative of an executive officer of
the Company. The Company incurred $122 thousand in fees for services rendered,
$69 thousand of which was paid during fiscal year 2000. Management believes the
services rendered and fees incurred are based on terms and conditions which
occur during the normal course of business.
17. RESEARCH AND DEVELOPMENT AGREEMENT
During fiscal 1998, the Company amended a research funding agreement with a
third party who had funded certain research activities in fiscal years 1994 and
1995. Prior to the amendment, the Company was obligated to pay royalties to the
third party in return for the funding received in the earlier years. The
amendment released the Company from the future royalty payments in return for
the Company's obligation to develop certain e-business extensions to its
existing products. Upon the completion of the e-business extensions in fiscal
year 1998, the Company recognized a benefit of $400 thousand of funded research
against research and development expenses. The benefit recognized represented
a portion of the funding received in the prior years, which had been recorded as
a liability on the Company's balance sheet to represent the royalty obligations.
18. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has several operating lease agreements primarily involving real
estate and computers and equipment. The Company also has a capital lease
involving computer equipment. These leases are non-cancelable and expire on
various dates through 2002 except for the Company's Lexington, Massachusetts,
facility lease, which expires in 2003; Hyannis, Massachusetts, facility lease,
which expires in 2005; Alpharetta, Georgia, facility lease, which expires in
2003; London, England, facility lease, which expires in 2014; Marlboro,
Massachusetts, facility lease, which expires in 2010; Lisle, Illinois, facil-
ity lease, which expires in 2005; Las Vegas, Nevada, facility lease, which
expires in 2004; Paris, France, facility lease, which expires in 2004; Irvine,
California, facility lease, which expires in 2005; and a computer equipment
lease that expires in 2005.
The following is a schedule by year of future minimum lease payments under
capital and operating leases, together with the present value of the net minimum
lease payments as of September 30, 2000:
<TABLE>
<CAPTION>
(IN THOUSANDS)
=============================================================================
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
------ ------
<S> <C> <C>
2001 $102 $ 6,048
2002 102 4,909
2003 102 3,825
2004 102 2,851
2005 35 1,908
Thereafter 0 7,054
-----------------------------
Total future minimum lease payments $443 $26,595
Less amount representing interest (81)
Present value of net minimum
lease payments 362
Less current maturities of capital
lease obligations (71)
-----------------------------
Capital lease obligations, less current
portion $ 291
=============================================================================
</TABLE>
MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUMANNUAL REPORT 2000 35
<PAGE> 38
Total rent expense for operating leases was $4.7 million, $5.0 million, and $5.7
million for the years ended September 30, 1998, 1999, and 2000, respectively.
Total interest paid for capital leases was $0 for each of the two years ended
September 30, 1998, 1999, and $25 thousand for fiscal year 2000. Accumulated
amortization related to equipment leased under capital leases was $87 thousand
as of September 30, 2000.
LEGAL MATTERS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business, including
litigation related to the discontinuance of its NT product lines. The Company
believes that it is not a party to any legal proceedings which individually or
in the aggregate, would have a material adverse effect on the Company's results
of operations or financial position.
STOCK INFORMATION
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on the Nasdaq National Market under the
symbol "INFM." Public trading of the common stock commenced on November 17,
1995, on the Nasdaq National Market under the symbol "SFWR" until February 18,
1997, when the Company changed the corporate name to Infinium Software, Inc.
Prior to that time, there was no public market for the Company's common stock.
The following table sets forth the high and low closing prices, as reported by
Nasdaq, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
----------------------------
<S> <C> <C>
FISCAL 2000
First Quarter $7.0625 $4.0625
Second Quarter 8.000 4.9375
Third Quarter 6.625 3.000
Fourth Quarter 4.250 2.250
FISCAL 1999
First Quarter $ 9.000 $ 5.063
Second Quarter 6.938 3.813
Third Quarter 6.125 4.063
Fourth Quarter 5.813 4.281
FISCAL 1998
First Quarter $18.500 $10.375
Second Quarter 21.813 12.125
Third Quarter 22.375 9.875
Fourth Quarter 15.875 9.375
=========================================================
</TABLE>
At November 29, 2000, there were approximately 650 holders of record.
The Company has never paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business.
36 MAXIMS FOR SUCCESS IN THE NEW ECONOMY | INFINIUM ANNUAL REPORT 2000
<PAGE> 39
STOCK INFORMATION AND CORPORATE INFORMATION
STOCK LISTING
Nasdaq National Market Trading Symbol: INFM
INTERNET
Additional corporate information is available on the World Wide Web:
http://www.infinium.com
ANNUAL MEETING
The Annual Meeting of Stockholders of the Company will be held on Friday,
February 9, 2001, at 9:30 a.m., local time, at Boston's Marriott Long Wharf
Hotel.
TRANSFER AGENT
FleetBoston, N.A.
c/o Boston EquiServe, LP
Post Office Box 43010
Providence, Rhode Island 02940
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, is available in print form without charge to stockholders
upon request, and is available on the Company's Internet site: www.infinium.com.
To obtain a printed copy, please contact Investor Relations Infinium Software,
Inc. 25 Communications Way Hyannis, MA 02601 (508) 778-2000
EXECUTIVE OFFICERS
ROBERT A. PEMBERTON
Chief Executive Officer and Chairman of the Board
JOHN J. WHYTE
Executive Vice President and Chief Operating Officer
ANNE MARIE MONK
Executive Vice President, Administration, General Counsel, and Secretary
TERRY JOINT
Executive Vice President, Market Development
KEITH PHILLIPS
Executive Vice President, Sales
DENNIS KINION
Executive Vice President and General Manager, Infinium Advantage Business Unit
DIRECTORS
MANUEL CORREIA
Chief Operating Officer CoWare, Inc.
MICHAEL A. CUSUMANO
MIT Sloan School of Management Massachusetts Institute of Technology
FRED LUCONI
ROLAND D. PAMPEL
ROBERT A. PEMBERTON
Chairman
ROBERT P. SCHECHTER
Chairman and Chief Executive Officer Natural MicroSystems Corporation
INVESTOR INFORMATION
DAVID GRIFFIN
Public Relations Manager
Telephone: (508) 790-6764
[email protected]
CORPORATE HEADQUARTERS
Infinium Software, Inc.
25 Communications Way
Hyannis, MA 02601
Telephone: (508) 778-2000
ATLANTA, GEORGIA USA
2500 North Winds Parkway
Suite 600
Alpharetta, GA 30004
Telephone: (678) 319-4000
BEND, OREGON USA
500 SW Bond Street
Bend, OR 97702
Telephone: (541) 617-5100
BOSTON, MASSACHUSETTS USA
10 Maguire Road
Suite 220
Lexington, MA 02421
Telephone: (781) 372-4500
CANADA
Infinium Software Canada
90 Allstate Parkway, Suite 101
Markham, Ontario L3R 6H3
Canada
Telephone: (905) 940-3500
CHICAGO, ILLINOIS USA
3333 Warrenville Road
Suite 550
Lisle, IL 60532
Telephone: (630) 799-1800
LOS ANGELES, CALIFORNIA USA
18191 Von Karman Avenue
Suite 450
Irvine, CA 92612
Telephone: (949) 476-5800
MALAYSIA
Lot 15-2, 15th Floor,
South Wing
Menara Lien Hoe
No. 8, Persiaran Tropicana
47410 Petaling Jaya
Selangor, Malaysia
Telephone: +60 3 7047166
MARLBORO, MASSACHUSETTS USA
250 Locke Drive
Marlboro, MA 01752
Telephone: (508) 480-4600
NETHERLANDS
Doesburgweg 7, 2803 PL
Gouda
POSTBUS 50, Gouda AB
The Netherlands
Telephone: +31 182 570166
SINGAPORE
Infinium Software
Asia/Pacific, Inc.
16 Raffles Quay
Level 36, Hong Leong Building
Singapore 048581
Telephone: +65 322 1452
UNITED KINGDOM
Infinium Software Limited
Crosby House
Unit A Meadowbank
74 Furlong Road, Bourne End
Buckinghamshire SL8 5AJ
Telephone: +441628-850850
<PAGE> 40
[INFINIUM LOGO]
THE AMERICAS AND CORPORATE HEADQUARTERS
25 Communications Way
Hyannis, MA 02601
ASIA-PACIFIC HEADQUARTERS INFINIUM SOFTWARE ASIA/PACIFIC INC.
Lot 15-2, 15th Floor, South Wing
Menara Lien Hoe
No. 8, Persiaran Tropicana
47410 Petaling Jaya
Selangor, Malaysia
EMEA HEADQUARTERS
Doesburgweg 7, 2803 PL Gouda
PO Box 50, 2800 AB Gouda
The Netherlands
www.infinium.com
Infinium(R) and do great work(R) are trademarks of Infinium Software, Inc. Trade
names referenced are the service marks, trademarks, or registered trademarks of
their respective manufacturers.
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