<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission File Number
0-22703
GREAT PLAINS SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 45-0374871
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1701 S.W. 38TH STREET, FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (Zip Code)
(701) 281-0550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of October 9, 1997, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 13,477,196.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
August 31, May 31,
1997 1997
----------- ----------
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 14,780 $ 12,101
Investments . . . . . . . . . . . . . . . . . . . . . . 54,109 4,142
Accounts receivable, net. . . . . . . . . . . . . . . . 3,409 5,452
Deferred income taxes . . . . . . . . . . . . . . . . . 2,268 3,279
Other current assets. . . . . . . . . . . . . . . . . . 2,013 1,731
-------- --------
Total current assets. . . . . . . . . . . . . . . . . 76,579 26,705
Property and equipment, net . . . . . . . . . . . . . . . 7,122 5,821
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . 409 438
Other assets. . . . . . . . . . . . . . . . . . . . . . . 1,323 250
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . $ 85,433 $ 33,214
-------- --------
-------- --------
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . $ 2,023 $ 1,788
Accrued expenses. . . . . . . . . . . . . . . . . . . . 7,301 7,811
Deferred revenue. . . . . . . . . . . . . . . . . . . . 11,075 10,448
-------- --------
Total current liabilities . . . . . . . . . . . . . . 20,399 20,047
Long-term liabilities:
Deferred tax liability. . . . . . . . . . . . . . . . . 746 746
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . 21,145 20,793
Mandatorily redeemable convertible
preferred stock . . . . . . . . . . . . . . . . . . . . -- 28,698
Stockholders' equity (deficit):
Convertible preferred stock . . . . . . . . . . . . . . -- 199
Common stock. . . . . . . . . . . . . . . . . . . . . . 134 81
Additional paid-in capital. . . . . . . . . . . . . . . 65,335 (13,843)
Accumulated deficit . . . . . . . . . . . . . . . . . . (1,181) (2,714)
-------- --------
Total stockholders' equity (deficit). . . . . . . . . 64,288 (16,277)
Total liabilities and stockholders' equity (deficit). . . $ 85,433 $ 33,214
-------- --------
-------- --------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-2-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-------------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
License . . . . . . . . . . . . . . . . . . . . . . $ 10,335 $ 6,655
Service . . . . . . . . . . . . . . . . . . . . . . 6,439 4,413
--------- ---------
Total revenues . . . . . . . . . . . . . . . . . 16,774 11,068
Cost of revenues:
License . . . . . . . . . . . . . . . . . . . . . . 1,935 1,170
Service . . . . . . . . . . . . . . . . . . . . . . 2,251 1,636
--------- ---------
Total cost of revenues . . . . . . . . . . . . . 4,186 2,806
--------- ---------
Gross profit . . . . . . . . . . . . . . . . . . 12,588 8,262
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . 6,199 4,054
Research and development. . . . . . . . . . . . . . 2,676 2,172
General and administrative. . . . . . . . . . . . . 1,894 1,224
--------- ---------
Total operating expenses . . . . . . . . . . . . 10,769 7,450
--------- ---------
Operating income. . . . . . . . . . . . . . . . . . . 1,819 812
Other income, net . . . . . . . . . . . . . . . . . . 736 83
--------- ---------
Income before income taxes. . . . . . . . . . . . . . 2,555 895
Income tax provision. . . . . . . . . . . . . . . . . 1,022 344
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . $ 1,533 $ 551
--------- ---------
--------- ---------
Net income per share. . . . . . . . . . . . . . . . . $ 0.11
Shares used in computing net income per share . . . . 13,476,290
Pro forma net income per share. . . . . . . . . . . . $ 0.06
Shares used in computing pro forma net
income per share. . . . . . . . . . . . . . . . . . 9,853,042
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-3-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-------------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Operating activities:
Funds generated by current operations:
Net income . . . . . . . . . . . . . . . . . . . . $ 1,533 $ 551
Adjustments to reconcile net income to net cash:
Depreciation and amortization. . . . . . . . . . . 662 447
Deferred taxes . . . . . . . . . . . . . . . . . . 1,011 342
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . 2,043 2,506
Accounts payable . . . . . . . . . . . . . . . . 235 (386)
Accrued expenses . . . . . . . . . . . . . . . . (510) (1,605)
Deferred revenue . . . . . . . . . . . . . . . . 627 (1,891)
Other current assets . . . . . . . . . . . . . . (282) 119
--------- ---------
Net cash provided by operating activities. . . 5,319 83
--------- ---------
Investing activities:
Purchase of property, plant and equipment, net . . . (1,934) (569)
Purchase of other assets . . . . . . . . . . . . . . (1,073) 0
Purchase of investments. . . . . . . . . . . . . . . (49,967) (2,095)
--------- ---------
Net cash used by investing activities. . . . . . (52,974) (2,664)
--------- ---------
Financing activities:
Principal payments on long-term debt and capital
leases obligations . . . . . . . . . . . . . . . . 0 (347)
Sale (repurchase) of stock . . . . . . . . . . . . . 50,243 (12)
Exercise of stock options. . . . . . . . . . . . . . 91 0
--------- ---------
Net cash provided (used) by financing activities 50,334 (359)
--------- ---------
Net increase (decrease) in cash. . . . . . . . . . . . 2,679 (2,940)
Cash at beginning of period. . . . . . . . . . . . . . 12,101 8,256
--------- ---------
Cash at end of period. . . . . . . . . . . . . . . . . $14,780 $5,316
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
-4-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The information at August 31, 1997 and 1996 and for the three-month periods
then ended is unaudited, but includes all adjustments (consisting only of normal
recurring adjustments) which the Company's management believes to be necessary
for the fair presentation of the financial position, results of operations and
changes in cash flows for the periods presented. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Despite
management's best effort to establish good faith estimates and assumptions,
actual results may differ.
The accompanying interim financial statements should be read in conjunction
with the financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended May 31, 1997. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted as permitted by rules and regulations of the Securities and Exchange
Commission. Interim results of operations for the three-month period ended
August 31, 1997 are not necessarily indicative of operating results for the full
fiscal year.
2. Earnings per Share
For the three months ended August 31, 1997, net income per share is
computed on the basis of weighted average number of shares outstanding plus
common stock equivalents, consisting of outstanding dilutive stock options
(using the treasury stock method).
Pro forma net income per share for the three months ended August 31, 1996
is based on the pro forma weighted average number of common stock and common
equivalent shares outstanding for the period. It assumes the conversion of the
Company's Series A Convertible Preferred Stock and the Series B Mandatorily
Redeemable Convertible Preferred Stock into 1,847,627 shares of common stock
effective June 1, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS
128 establishes new standards for computing and presenting earnings per share
and will be effective for the Company's interim and annual periods ending after
December 15, 1997. Early adoption of SFAS 128 is not permitted. SFAS 128
requires restatement of all previously reported earnings per share data that are
presented. SFAS 128 replaces primary and fully diluted earnings per share with
basic and diluted earnings per share. The Company has calculated the basic
earnings per share and the diluted earnings per share to be $0.12 and $0.11,
respectively, for the three months ended August 31, 1997.
-5-
<PAGE>
3. Initial Public Offering
In June 1997, the Company sold 3,450,000 shares of common stock at an
offering price of $16.00 per share (the "Initial Public Offering"). The
transaction generated more than $50 million of proceeds to the Company. As a
result of the Initial Public Offering, the Series A Preferred Stock and the
Series B Preferred Stock were converted to common stock. In connection with the
Initial Public Offering, certain other resolutions of the Company's Board of
Directors became effective, including authorization of a four-for-three stock
split of the issued and outstanding shares of the Company's common stock, in the
form of a stock dividend, which was issued immediately prior to the Initial
Public Offering. All references to common stock amounts, shares and per share
data have been adjusted to give retroactive effect to the stock split.
-6-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in the Company's
consolidated condensed statement of income.
<TABLE>
<CAPTION>
For the Three Months Ended
August 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
As a percentage of total revenues
Revenues:
License . . . . . . . . . . . . . . . . 61.6% 60.1%
Service . . . . . . . . . . . . . . . . 38.4 39.9
----- -----
Total revenues. . . . . . . . . . . . 100.0 100.0
----- -----
Cost of revenues:
License . . . . . . . . . . . . . . . . 11.6 10.6
Service . . . . . . . . . . . . . . . . 13.4 14.8
----- -----
Total cost of revenues. . . . . . . . 25.0 25.4
----- -----
Gross margin. . . . . . . . . . . . . 75.0 74.6
----- -----
Operating expenses:
Sales and marketing . . . . . . . . . . 37.0 36.6
Research and development. . . . . . . . 16.0 19.6
General and administrative. . . . . . . 11.2 11.1
----- -----
Total operating expenses. . . . . . . 64.2 67.3
----- -----
Operating income. . . . . . . . . . . . . 10.8 7.3
Other income. . . . . . . . . . . . . . . 4.4 .8
----- -----
Income before taxes . . . . . . . . . . . 15.2 8.1
Income tax provision. . . . . . . . . . . 6.1 3.1
----- -----
Net income. . . . . . . . . . . . . . 9.1% 5.0%
</TABLE>
REVENUES
REVENUES. Revenues for the quarter ended August 31, 1997 were $16.8
million, representing an increase of 51.6% over revenues of $11.1 million
for the quarter ended August 31, 1996. This increase in revenues was
primarily due to increased demand for the Company's Dynamics C/S+ and
Dynamics products (together, the "client/server products") and related
service fees and continued demand for a recent upgrade to the Company's Great
Plains Accounting software system (the "heritage product") from its installed
base of customers.
-7-
<PAGE>
The following table sets forth for the periods indicated client/server and
heritage product revenues, each as a percentage of total revenues:
Three Months Ended August 31,
-----------------------------
1997 1996
-----------------------------
Client/Server product revenues 83.8% 77.3%
Heritage product revenues 16.2% 22.7%
Client/server product revenues, including license and service fees, were
$14.1 million for the quarter ended August 31, 1997, representing an increase of
64.4% over client/server product revenues of $8.6 million for the quarter ended
August 31, 1996.
Heritage product revenues, including license and service fees, were $2.7
million for the quarter ended August 31, 1997, representing an increase of
7.8% over revenues of $2.5 million for the quarter ended August 31, 1996.
This increase in heritage product revenues was primarily due to continued
demand for an upgrade to the Company's heritage product line, which began
shipping in February 1997. The Company does not necessarily anticipate
continued revenue increases in its heritage business.
The Company's international revenues increased to $2.3 million for the
quarter ended August 31, 1997, representing 13.5% of total revenues and an
increase of 81.1% over international revenues of $1.2 million for the quarter
ended August 31, 1996. This increase is primarily a result of growth in
existing markets and additional distribution arrangements in new markets.
LICENSE. Total license fee revenues for the quarter ended August 31,
1997 were $10.4 million, representing an increase of 55.3% over license
revenues of $6.7 million for the quarter ended August 31, 1996. This increase
in total license fees is largely attributable to increased market acceptance
and demand for the Company's Windows NT client/server product
offerings--Dynamics and Dynamics C/S+. In addition, license fee revenues
from the Company's heritage products also increased due to sales of an
upgrade to existing customers. The Company does not necessarily anticipate
continued growth in its heritage license fee revenues.
SERVICE. Service revenues for the quarter ended August 31, 1997 were
$6.4 million, representing an increase of 45.9% over service revenues of $4.4
million for the quarter ended August 31, 1996. Service revenues as a
percentage of total revenues were 38.4% for the three months ended August 31,
1997 as compared with 39.9% of total revenues for the three months ended
August 31, 1996. This increase in service revenues is largely a result of the
service revenues associated with the increased number of client/server
licenses as well as renewals of existing maintenance and support contracts
from the increasing base of client/server customers.
COSTS AND EXPENSES
COST OF LICENSE FEES. Cost of license fees consists primarily of the
costs of product manuals, media, shipping and royalties paid to third
parties. Cost of license fees for the quarter ended August 31, 1997 increased
to $1.9 million from $1.2 million in the quarter ended August 31, 1996,
representing 18.7% and 17.6% of total license fee revenues, respectively. The
dollar increase in cost of license fees in the quarter ended August 31, 1997
is primarily attributable to the overall growth in license fee revenues and
an increase in royalties paid to third party vendors. The increase in cost
of license fees as a percentage of total license fee revenues is primarily
due to royalties paid to third party vendors. The cost of license fees as a
percentage of license fee revenues may increase if the Company continues to
add third party relationships.
-8-
<PAGE>
COST OF SERVICES. Cost of services consists of the costs of providing
telephone support, training and consulting services to the Company's
customers and distribution channel. Cost of services for the quarter ended
August 31, 1997 increased to $2.3 million from $1.6 million for the quarter
ended August 31, 1996, representing 35.0% and 37.1% of total service
revenues, respectively. The increase in cost of services is primarily due to
the expansion of the Company's service resources. Cost of services as a
percentage of service revenues has decreased as a result of improved
efficiency. The Company anticipates that cost of services will increase in
dollar amount as service revenues increase, but will remain relatively
constant as a percentage of service revenues.
SALES AND MARKETING. Sales and Marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses. Sales and marketing
expenses increased to $6.2 million for the quarter ended August 31, 1997,
compared with $4.1 million for the quarter ended August 31, 1996,
representing 37.0% and 36.6% of total revenues, respectively. The increase in
sales and marketing expenses is attributable to the hiring of additional
sales personnel, increased commission expenses associated with higher
revenue, continued investments in expanding the capacity and capability of
the channel for its Windows NT client/server products, and increased
marketing expenses for the Company's client/server product line for Microsoft
SQL Server. In addition, the Company has increased sales and marketing
expenses related to the operation of an Australian subsidiary which was
formed in May 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation of development personnel and depreciation of
equipment. Total research and development expenses were $2.7 million for the
quarter ended August 31, 1997, compared with $2.2 million for the quarter
ended August 31, 1996, representing 16.0% and 19.6% of total revenues,
respectively. Research and development expenditure increases are directly
attributable to increases in the Company's salary cost of software engineers
and the associated infrastructure costs required to support product
development initiatives in the following areas: (i) expansion and enhancement
of the Company's core client/server product offerings, (ii) research and
development of Internet-based products which enhance the functionality of the
Company's financial management solutions, and (iii) additional research and
development to optimize the Company's client/server products for the latest
technologies. The Company anticipates that it will continue to devote
substantial resources to its research and development effort and that
research and development expenses will increase in dollar amount in future
periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive, financial, human resources and information
services personnel as well as outside professional fees. General and
administrative expenses for the first quarter of fiscal 1998 were $1.9 million,
compared with $1.2 million in the first quarter of fiscal 1997, representing
11.3% and 11.1% of total revenues, respectively. These increases in dollar
amounts were primarily due to increased professional fees related to the
requirements of being a publicly held company. The Company believes that its
general and administrative expenses will increase in dollar amount in the future
to support the expansion of its operations and as a result of expenses
associated with being a public company.
OTHER INCOME, NET. Other income, net consists primarily of earnings from
investments, foreign exchange gains or losses and gains or losses from
disposal of fixed assets, net of any interest expense. Other income, net
increased to $0.7 million for the quarter ended August 31, 1997, compared
with $0.1 million for the quarter ended August 31, 1996. The increase in
dollar amount was primarily from increased investment earnings due to
increased investment levels as a result of the more than $50 million received
from the Company's initial public offering of its common stock and improved
profitability.
PROVISION FOR INCOME TAXES. The Company's income tax provision for the
quarter ended August 31, 1997 was $1.0 million, compared with $0.3 million for
the quarter ended August 31, 1996. The provision for income taxes was 40% of
income before income taxes for the three months ended August 31, 1997, which
represents a 2% increase from the fiscal 1997 annual effective income tax rate
of 38% as a result of full state statutory tax rates. In addition, this
increase in the provision for income taxes is primarily attributable to the
increased operating income and interest income for the Company for the three
months ended August 31, 1997, compared with the three months ended August 31,
1996.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded operations primarily through cash
provided by operations and the sale of equity securities and, to a lesser
extent, from borrowings. Currently, the Company meets its working capital needs
and capital equipment needs with cash provided by operations.
Cash provided by operating activities for the quarter ended August 31, 1997
was $5.3 million, compared with $0.08 million for the quarter ended August 31,
1996. The increase in cash provided by operations in the first quarter of fiscal
1998 was primarily due to increased profitability of the Company's operations
and an increase in deferred revenues and accrued expenses.
The Company's investing activities used cash of $53.0 million for the three
months ended August 31, 1997, compared with $2.7 million for the three months
ended August 31, 1996. The principal use of cash in investing activities for the
quarter ended August 31, 1997 was $50.0 million for the purchase of investments
following the Company's initial public offering of its common stock. In
addition, investing activities for the three months ended August 31, 1997
included capital expenditures related to the acquisition of computer equipment
and furniture required to support expansion of the Company's operations.
The Company's financing activities provided cash of $50.3 million during
the three months ended August 31, 1997, compared with cash used of $0.4 million
for the three months ended August 31, 1996. The cash provided by financing
activities during the quarter ended August 31, 1997 included $50.2 million from
the sale of the Company's common stock.
The Company's sources of liquidity at August 31, 1997 consisted principally
of cash, cash equivalents and investments of $68.9 million. Included in this
balance is more than $50 million in cash generated from the Company's initial
public offering of its common stock which was completed on June 25, 1997. The
Company also has a $5.0 million revolving line of credit facility with a bank.
The line of credit expires in November 1997 and borrowings made thereunder are
subject to certain covenants. No amounts were outstanding under the line of
credit at August 31, 1997. The Company believes that its existing cash, cash
equivalents and investments, cash generated from operations and the amounts
available under the line of credit will be sufficient to fund its operations for
the foreseeable future.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the Company's expectations or beliefs,
including, but not limited to, statements concerning the Company's operations
and financial performance and condition. For this purpose, any statements
contained in this Form 10-Q that are not statements of historical fact may be
deemed to be forward-looking statements. The Company cautions that these
statements by their nature involve risks and uncertainties, certain of which are
beyond the Company's control, and actual results may differ materially depending
on a variety of important factors, including those described in Exhibit 99.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997.
-10-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended August 31, 1997.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Description of Fiscal 1998 Executive Incentive Compensation
Program
11.1 Statement of Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31, 1997.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 14, 1997
GREAT PLAINS SOFTWARE, INC.
By /s/ DOUGLAS J. BURGUM
-------------------------------------
Douglas J. Burgum
Chairman of the Board, President and
Chief Executive Officer
By /s/ TERRI F. ZIMMERMAN
-------------------------------------
Terri F. Zimmerman
Chief Financial Officer and Group Vice President,
Finance and Operations
(principal financial and accounting officer)
-12-
<PAGE>
EXHIBIT INDEX
10.1 Description of Fiscal 1998 Executive Incentive Compensation
Program
11.1 Statement of Computation of Net Income Per Share
27.1 Financial Data Schedule
-13-
<PAGE>
Exhibit 10.1
DESCRIPTION OF FISCAL 1998 EXECUTIVE INCENTIVE COMPENSATION PROGRAM
On July 23, 1997, the Compensation Committee of the Board of Directors (the
"Committee") and the Board of Directors of Great Plains Software, Inc. (the
"Company") approved the fiscal 1998 executive incentive compensation program. A
description of the program follows:
The Company's fiscal 1998 incentive compensation program allows an
executive officer (other than the Chief Executive Officer) to earn additional
cash compensation in an amount up to 30% to 40% of base salary (depending
upon the specific plan approved for each executive officer) if target level
performance goals are met. The Chief Executive Officer may earn an
additional amount up to 60% of base salary if target level performance goals
are met. The total incentive compensation payable for each executive officer
is based 85% on objective performance criteria and 15% on discretionary
performance criteria, as determined by the Committee. Threshold, target and
maximum goals were set by the Committee for each of the following objective
performance criteria: operating income, revenue, revenue per employee and
customer satisfaction. Incentive compensation will be paid only if the
threshold level of operating income is attained, which reflects the
Committee's philosophy that incentive compensation payments are merited only
if the Company meets base level profitability goals. If the threshold level
of operating income is reached, incentive compensation will be paid based on
actual operating income, revenue, revenue per employee and customer
satisfaction as measured against the threshold, target and maximum goals for
each of such performance criteria. Threshold performance will result in
payment of 25% of the target level bonus. A maximum incentive bonus equal to
150% of the target level bonus can be earned if performance meets or exceeds
the maximum goal for each performance criterion used under the plan. The
operating income and revenue goals are based on both quarterly and annual
performance, while the other goals are based solely on annual performance.
The discretionary criteria for the executive officers (other than the Chief
Executive Officer) are established by the Committee in conjunction with the
Chief Executive Officer. The discretionary criteria for the Chief Executive
Officer are established by the Committee.
<PAGE>
EXHIBIT 11.1
GREAT PLAINS SOFTWARE, INC.
COMPUTATION OF NET INCOME PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Primary EPS Fully Diluted EPS
----------------------------- -----------------------------
Three Months Ended August 31, Three Months Ended August 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares 12,714,473 7,357,588 12,714,473 7,357,588
outstanding
Common Stock equivalents:
Assumed conversion of mandatorily
redeemable preferred stock (1) 1,847,627 1,847,627
Stock Options (2) 761,817 647,827 761,817 647,827
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 13,476,290 13,476,290
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Pro forma weighted average common
and common equivalent shares
outstanding (1) 9,853,042 9,853,042
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income $ 1,533,000 $ 551,000 $ 1,533,000 $ 551,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Unaudited net income per share $ 0.11 $ 0.11
Unaudited pro forma net income per share (1) $ 0.06 $ 0.06
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(1) Unaudited pro forma net income per share for the three months ended
August 31, 1996 is based upon the pro forma weighted average number of
shares of common stock and common stock equivalent shares outstanding for
the period. It assumes the conversion of the Company's Series A Convertible
Preferred Stock and the Series B Mandatorily Redeemable Convertible
Preferred Stock into 1,847,627 shares of common stock effective June 1,
1996.
(2) Effect of applying the treasury stock method to weighted average stock
options outstanding during the period.
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 14,780
<SECURITIES> 54,109
<RECEIVABLES> 6,599
<ALLOWANCES> 3,190
<INVENTORY> 511
<CURRENT-ASSETS> 76,579
<PP&E> 18,013
<DEPRECIATION> 10,891
<TOTAL-ASSETS> 85,433
<CURRENT-LIABILITIES> 20,399
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 64,154
<TOTAL-LIABILITY-AND-EQUITY> 85,433
<SALES> 10,335
<TOTAL-REVENUES> 16,774
<CGS> 1,935
<TOTAL-COSTS> 4,186
<OTHER-EXPENSES> 10,769
<LOSS-PROVISION> 162
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 2,555
<INCOME-TAX> 1,022
<INCOME-CONTINUING> 1,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,533
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
