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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
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: 000-23091
J.D. EDWARDS & COMPANY
(exact name of registrant as specified in its charter)
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DELAWARE 84-0728700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE TECHNOLOGY WAY, DENVER, CO 80237
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (303) 334-4000
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 February 27, 1998, there were 94,694,117 shares of the Registrant's
Common Stock outstanding.
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J.D. EDWARDS & COMPANY
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of October 31, 1997
and January 31, 1998............................... 3
Consolidated Statements of Income for the Three
Months Ended January 31, 1997 and 1998............. 4
Consolidated Statements of Cash Flows for the Three
Months Ended January 31, 1997 and 1998............. 5
Notes to Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................. 16
Item 2. Changes in Securities and Use of Proceeds......... 16
Item 3. Defaults upon Senior Securities................... 16
Item 4. Submission of Matters to a Vote of Security
Holders................................................ 16
Item 5. Other Information................................. 16
Item 6. Exhibits and Reports on Form 8-K.................. 16
SIGNATURES.................................................. 17
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J.D. EDWARDS & COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS
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<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1998
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Current assets:
Cash and cash equivalents................................. $224,437 $190,532
Short-term investments.................................... 30,464 39,442
Accounts receivable, net of allowance for doubtful
accounts of $9,800 at October 31, 1997 and $10,900 at
January 31, 1998, respectively......................... 174,532 211,492
Prepaid and other current assets.......................... 21,436 25,843
-------- --------
Total current assets.............................. 450,869 467,309
Long-term investments....................................... 108,096 147,974
Property and equipment, net................................. 55,705 50,362
Software development costs, net............................. 11,879 10,243
Deposits and other assets................................... 16,488 21,747
-------- --------
$643,037 $697,635
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 34,915 $ 30,132
Unearned revenue and customer deposits.................... 67,104 121,370
Accrued liabilities....................................... 110,565 98,457
-------- --------
Total current liabilities......................... 212,584 249,959
Unearned revenue, net of current portion, and other......... 33,592 32,790
-------- --------
Total liabilities................................. 246,176 282,749
Commitments and contingencies (Note 3)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none outstanding........................... -- --
Common stock, $.001 par value; 300,000,000 shares
authorized; 92,822,186 and 94,236,026 issued and
outstanding as of October 31, 1997 and January 31,
1998, respectively..................................... 93 94
Additional paid-in capital................................ 294,278 307,218
Retained earnings......................................... 102,856 109,282
Cumulative translation adjustments and other, net......... (366) (1,708)
-------- --------
Total stockholders' equity........................ 396,861 414,886
-------- --------
$643,037 $697,635
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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J.D. EDWARDS & COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED
JANUARY 31,
--------------------
1997 1998
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Revenue:
License fees.............................................. $ 40,934 $ 67,990
Services.................................................. 81,887 110,266
-------- --------
Total revenue..................................... 122,821 178,256
Costs and expenses:
Cost of license fees...................................... 7,698 11,119
Cost of services.......................................... 51,493 70,588
Sales and marketing....................................... 34,706 50,421
General and administrative................................ 14,772 18,439
Research and development.................................. 10,142 19,938
-------- --------
Total costs and expenses.......................... 118,811 170,505
Operating income............................................ 4,010 7,751
Other income (expense):
Interest income........................................... 93 3,659
Interest expense.......................................... (275) (545)
Foreign currency losses and other, net.................... (131) (665)
-------- --------
Income before income taxes.................................. 3,697 10,200
Provision for income taxes................................ 1,368 3,774
-------- --------
Net income........................................ $ 2,329 $ 6,426
======== ========
Net income per common share:
Basic..................................................... $ .03 $ .07
======== ========
Diluted................................................... $ .02 $ .06
======== ========
Shares used in computing per share amounts:
Basic..................................................... 79,094 93,413
Diluted................................................... 93,520 108,116
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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J.D. EDWARDS & COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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THREE MONTHS ENDED
JANUARY 31,
----------------------
1997 1998
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Operating activities:
Net income.................................................. $ 2,329 $ 6,426
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 3,686 8,360
Amortization of software development costs................ 904 1,636
Provision for deferred income taxes....................... (204) (3,798)
Other..................................................... 1,021 1,121
Changes in operating assets and liabilities:
Accounts receivable, net.................................. (26,106) (39,031)
Prepaid and other assets.................................. 834 (6,506)
Accounts payable.......................................... (8,715) (4,459)
Unearned revenue and customer deposits.................... 28,810 54,048
Accrued liabilities....................................... (8,788) (9,274)
-------- --------
Net cash (used for) provided by operating
activities...................................... (6,229) 8,523
Investing activities:
Purchase of investments..................................... -- (48,856)
Purchase of property and equipment.......................... (4,359) (8,630)
Proceeds from sale of assets................................ 8,516 4,808
Capitalized software development costs...................... (2,399) --
-------- --------
Net cash provided by (used for) investing
activities...................................... 1,758 (52,678)
Financing activities:
Proceeds from issuance of common stock...................... 2 11,089
Proceeds from bank line of credit........................... 36,550 --
Repayment of bank line of credit............................ (36,550) --
-------- --------
Net cash provided by financing activities......... 2 11,089
Effect of exchange rate changes on cash..................... (240) (839)
-------- --------
Net decrease in cash and cash equivalents................... (4,709) (33,905)
Cash and cash equivalents at beginning of period............ 25,554 224,437
-------- --------
Cash and cash equivalents at end of period.................. $ 20,845 $190,532
======== ========
Supplemental disclosure of other cash and non-cash investing
and financing transactions:
Interest paid............................................... $ 275 $ 545
Income taxes paid........................................... $ 5,597 $ 1,585
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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J.D. EDWARDS & COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Interim Financial Statements
The accompanying financial statements of J.D. Edwards & Company ("the
Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. The unaudited
consolidated financial statements included herein have been prepared on the same
basis as the annual consolidated financial statements and reflect all
adjustments, which include only normal recurring adjustments, which are
necessary for a fair presentation in accordance with generally accepted
accounting principles. The results for the three-month period ended January 31,
1998 are not necessarily indicative of the results expected for the full fiscal
year. These consolidated financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1997.
Use of Estimates
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,
disclosure 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 those estimates.
(2) EARNINGS PER COMMON SHARE
The Company was required to apply Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," in its consolidated financial
statements effective for the quarter ended January 31, 1998. Prior period
earnings per common share ("EPS") were restated to conform with the new
statement. This pronouncement established new standards for computing and
presenting EPS on a basis that is more comparable to international standards and
provides for the presentation of basic and diluted EPS, replacing the previously
required primary and fully-diluted EPS. The basic EPS was computed by dividing
net income by the weighted average number of shares outstanding during the
period. Diluted EPS was computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent shares
consist of stock options, and the weighted average shares outstanding for each
period have been adjusted to include all common shares issuable under stock
options using the treasury stock method.
In August 1997, the Company effected a 70-for-one stock split with 300.0
million authorized shares of $.001 par value common stock and 5.0 million
authorized shares of $.001 par value preferred stock. All references in the
consolidated financial statements to shares, share prices, and per share amounts
have been adjusted retroactively for all periods presented to reflect the stock
split.
(3) COMMITMENTS
In November 1997, the Company entered into a six-year agreement to lease an
office building to be constructed on a portion of land owned by the Company. The
lessor, a wholly-owned subsidiary of a bank, and the bank collectively committed
to finance up to $30.0 million in construction costs through a combination of
equity and debt financing. The Company is acting as agent for the lessor to
design and undertake construction of the building and land improvements. In the
event the building is sold during the lease term, the Company will guarantee a
residual value of the building up to approximately 84% of the building's
original cost. The Company's rent obligation is calculated as a return on the
lessor's costs of funding and may be adjusted from
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time to time to reflect any changes in the Company's leverage ratio. In March
1998, the Company announced plans for the construction of a third office
building after receiving a commitment from the bank to underwrite up to $30.0
million in additional funds though either an expansion of the existing agreement
or through another similarly structured arrangement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE
PURSUANT TO THE PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS,
ESTIMATES AND PROJECTIONS ABOUT J.D. EDWARDS' INDUSTRY, MANAGEMENT'S BELIEFS,
AND CERTAIN ASSUMPTIONS MADE BY J.D. EDWARDS' MANAGEMENT. WORDS SUCH AS
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES,"
VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT
ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS
AND UNCERTAINTIES INCLUDE THOSE SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 UNDER "FACTORS AFFECTING THE
COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION" ON PAGES 17
THROUGH 25. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY
REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY
FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
PARTICULARLY THE QUARTERLY REPORTS ON FORM 10-Q AND ANY CURRENT REPORT ON FORM
8-K.
RESULTS OF OPERATIONS
The quarterly results for the first quarter of fiscal 1998 reflect a
continuation of the Company's strong position in the middle market. The
Company's first quarter operating income grew 93% to $7.8 million. Net income
increased 176% to $6.4 million compared to $2.3 million for the same period last
year, and first quarter diluted EPS increased to $0.06 compared to $0.02 last
year. The net income and operating income growth was primarily the result of a
45% increase in total revenue to $178.3 million for the first quarter of 1998.
Net income for the 1998 period also benefited from an increase in interest
income from the investment of proceeds from the Company's initial public
offering ("IPO") in September 1997.
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The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income as a percentage of total
revenue (except for gross margin data):
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THREE MONTHS
ENDED JANUARY 31,
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1997 1998
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Revenue:
License fees.............................................. 33.3% 38.1%
Services.................................................. 66.7 61.9
----- -----
Total revenue..................................... 100.0 100.0
Costs and expenses:
Cost of license fees...................................... 6.3 6.2
Cost of services.......................................... 41.9 39.6
Sales and marketing....................................... 28.2 28.3
General and administrative................................ 12.0 10.4
Research and development.................................. 8.3 11.2
----- -----
Total costs and expenses.......................... 96.7 95.7
Operating income............................................ 3.3 4.3
Other income (expense), net................................. (.3) 1.4
----- -----
Income before income taxes.................................. 3.0 5.7
Provision for income taxes................................ 1.1 2.1
----- -----
Net income........................................ 1.9% 3.6%
===== =====
Gross margin on license fee revenue......................... 81.2% 83.6%
Gross margin on service revenue............................. 37.1% 36.0%
</TABLE>
Total Revenue. Total revenue grew by 45% to $178.3 million for the quarter
ended January 31, 1998 from $122.8 million for the quarter ended January 31,
1997. This increase was due to stronger than usual first quarter software
license transactions together with higher revenue from services. The mix between
license fees and services as a percentage of total revenue shifted to 38% and
62%, respectively, compared to 33% and 67%, respectively, in the quarter ended
January 31, 1997. Several factors contributed to this change including a
recently completed company realignment which was strategically aimed at
addressing the Company's expansion into the open systems market while
maintaining its strong position in the AS/400 market and managing global growth.
This realignment included new sales territory assignments, which were phased in
through the first quarter to allow account executives an adequate transition
period to close pending license transactions under previous territories.
Management believes that this transition period provided additional sales
incentives that contributed to the increase in license fee revenue during the
quarter ended January 31, 1998. Operations in Europe, the Middle East and Africa
("EMEA") also contributed to this shift in the first quarter of 1998 due to an
increase in license fee revenue of over 150% compared to a relatively weak first
quarter of fiscal 1997. Additionally, the Company's new strategy of relying on
third parties to contract directly with its customers for OneWorld
implementations and related services, introduced in late fiscal 1997, somewhat
contributed to the change in mix of revenues for the fiscal 1998 first quarter.
The mix between license fee and service revenue is likely to fluctuate in future
periods depending upon the Company's success in penetrating the UNIX and NT
markets with the OneWorld version of its application suites, its implementation
strategy for OneWorld, the number and size of customer implementations, the
types of applications involved in each and a number of other factors. The gross
margin on license fee revenue is generally higher than the gross margin on
service revenue, and therefore significant fluctuations in the sales mix are
likely to impact the Company's operating margin. See "Factors Affecting The
Company's Business, Operating Results and Financial Condition -- Variability of
Quarterly Operating Results; Seasonality."
While all geographic areas contributed to the increase in total revenue,
the growth was lead by EMEA's 59% increase in total revenue due to better
performance in the first quarter of 1998 compared to a weak first quarter last
year. The geographic areas defined as United States, EMEA and the rest of the
world accounted
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for 66%, 20% and 14% of total revenue, respectively, for the quarter ended
January 31, 1998 compared to 67%, 19% and 14%, respectively, for the same period
last year.
The Company licenses software under non-cancelable license agreements and
provides related services, including support, training, consulting and
implementation. Revenue is recognized in accordance with Statement of Position
("SOP") 91-1, "Software Revenue Recognition." Training, consulting and
implementation services are not essential to the functionality of the Company's
software products, are separately priced and are available from a number of
suppliers. Accordingly, revenue from these services is recorded separately from
the license fee. License fee revenue is recognized when a non-cancelable license
agreement has been signed, the product has been delivered, collection is
probable and all significant contractual obligations relating to this license
have been satisfied. Revenue on all software license transactions in which there
are significant outstanding obligations is deferred and recognized once such
obligations are fulfilled. Typically, the Company's software licenses do not
include significant post-delivery obligations to be fulfilled by the Company and
payments are due within a twelve-month period from date of delivery. Where
software license contracts call for payment terms in excess of twelve months
from date of delivery, revenue is recognized as payments become due and all
other conditions for revenue recognition have been satisfied. Revenue from
training, consulting and implementation services is recognized as services are
performed. Revenue from agreements for supporting and providing periodic
upgrades to the licensed software is recorded as unearned revenue and is
recognized ratably over the support service period, and includes a portion of
the related license fee equal to the fair value of any bundled support services.
The Company does not require collateral for its receivables and reserves are
maintained for potential losses.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued SOP 97-2, "Software Revenue Recognition," which provides
guidance on recognizing revenue on software transactions and supersedes SOP
91-1. The Company will apply the provisions of SOP 97-2 on a prospective basis
for new software transactions beginning in the first quarter of fiscal 1999.
However, the AICPA has indicated that certain provisions of SOP 97-2 may be
deferred for one year. Based upon the Company's interpretation of the
information currently available, management believes that the adoption of this
SOP will not have a material impact on its financial condition or results of
operations and will not have a significant impact on its current licensing or
revenue recognition practices.
License fees. License fee revenue grew by 66% to $68.0 million for the
quarter ended January 31, 1998 from $40.9 million for the quarter ended January
31, 1997. The growth was primarily due to an increase in the average transaction
size. The number of license transactions that exceeded $1.0 million during the
1998 quarter increased by over 130% from the prior year quarter. The Company
continues to experience increasing market acceptance of its software products
particularly with targeted middle market customers with revenues between $100
million and $2 billion. The Company has also continued to increase its capacity
to reach this market by hiring additional direct sales personnel and by forming
several new business alliances to achieve a broader market focus. The OneWorld
version of its application suites expanded the Company's target market to
include customers using UNIX and NT platforms in addition to those using the
AS/400 platform. During the quarter ended January 31, 1998, 10% of license fee
revenue was generated from customers using the UNIX and NT platforms compared to
4% in the prior year quarter. The Company expects that an increasing portion of
the Company's future license fee revenue will be generated from customers using
UNIX or NT platforms compared to the previous year. However, there can be no
assurance that the Company will be successful in implementing its strategy or
that OneWorld will achieve substantial market acceptance.
Services. Service revenue grew by 35% to $110.3 million for the quarter
ended January 31, 1998 from $81.9 million for the quarter ended January 31,
1997. This increase was primarily due to higher revenue from consulting, which
is the largest component of services, although training and support revenue also
increased. In any quarter, total service revenue is dependent upon license
transactions closed during the current and proceeding quarters, the growth in
the Company's installed base of customers, the amount and size of consulting
engagements, the number of Company and business partner consultants available to
staff engagements, the number of customers who have contracted for support and
the amount of the related fees, billing rates for consulting services and
training courses, and average training course sizes. The Company continued to
experience strong demand for services which, as a percentage of total revenue,
remained higher
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than license fee revenue primarily as a result of the Company's emphasis on
providing consulting and training services that complement its software products
and the increased support revenue resulting from the growing installed base of
customers.
The Company has historically subcontracted a portion of its consulting and
training services to third parties. The portion of such subcontracted services
accounted for 43% of this revenue for the three months ended January 31, 1998
compared to 40% for the same period last year, and may vary from quarter to
quarter. Also during the quarter ended January 31, 1998, the number of
third-party personnel trained to implement OneWorld increased by over 50%. To
the extent the Company is successful in implementing its strategy of utilizing
third parties to contract directly with the Company's customers for the
implementation of its OneWorld version of its application suites, consulting
revenue is likely to be a lower percentage of total revenue compared to the
previous fiscal year.
Cost of license fees. Cost of license fees includes royalties, business
partner commissions, amortization of capitalized software development costs,
documentation costs and software delivery expenses. Primarily as a result of the
higher volume of license transactions and related business partner commissions,
the cost of license fees increased to $11.1 million for the quarter ended
January 31, 1998 from $7.7 million for the quarter ended January 31, 1997,
representing an increase of 44%. Gross margin on license fee revenue also
increased to 83.6% for the quarter ended January 31, 1998 from 81.2% for the
quarter ended January 31, 1997 primarily due to the higher license revenue
volume compared to the same period last year. Gross margin on license fee
revenue varies quarter to quarter depending upon the revenue volume in relation
to certain fixed costs such as the amortization of software development costs.
Additionally, the proportion of the Company's software products that are subject
to royalty payments affects gross margin on license fees.
Royalties decreased during the quarter ended January 31, 1998 compared to
the quarter ended January 31, 1997 primarily due to the renegotiation of certain
royalty agreements. The amortization of capitalized software development costs
increased to $1.6 million for the quarter ended January 31, 1998 compared to
$0.9 million for the quarter ended January 31, 1997 as the result of the
amortization of capitalized OneWorld development costs which will be amortized
through fiscal 1999. In future quarters, business partner costs may represent a
larger percentage of revenue compared to the previous year if the Company is
successful in establishing certain business alliances to expand its sales
channels.
Cost of services. Cost of services includes the personnel and related
overhead costs for training and customer support services, together with fees
paid to third parties for subcontracted services. Cost of services increased to
$70.6 million for the quarter ended January 31, 1998 from $51.5 million for the
quarter ended January 31, 1997, representing an increase of 37%. This increase
in the dollar amount was primarily due to additional personnel and subcontracted
service costs to support the growth in demand for implementation and consulting
services as well as an increase in customer support staff. Personnel and related
overhead costs as well as business partner service costs were a slightly higher
percentage of the related service revenue this year. As a result, gross margin
on service revenue decreased to 36.0% for the quarter ended January 31, 1998
from 37.1% for the quarter ended January 31, 1997.
Generally, the gross margin on support revenue is higher than on consulting
and training revenue, and any change in the mix in types of services will affect
the gross margin on total service revenue. In particular, the extent to which
the Company is successful in implementing its strategy of relying on third
parties to contract directly with the Company's customers for OneWorld
implementations and related services will affect gross margin on service
revenue.
Sales and marketing. Sales and marketing expense consists of personnel,
commissions and related overhead costs for the sales and marketing activities of
the Company, together with advertising and promotion costs. Sales and marketing
expense increased to $50.4 million for the quarter ended January 31, 1998 from
$34.7 million for the quarter ended January 31, 1997, representing 28.3% and
28.2% of total revenue, respectively. The increase in the total dollar amount
was primarily the result of additional direct sales personnel and related costs
to meet the Company's sales goals as well as to address the UNIX and NT markets
and growth from the OneWorld version of its application suites. Additional
personnel were also hired
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to support the Company's marketing and promotion efforts. Increased license fee
revenue during the quarter also resulted in higher commission expense as
compared to the same period last year.
General and administrative. General and administrative expense includes
personnel and related overhead costs for the support and administration
functions of the Company. General and administrative expense increased to $18.4
million for the quarter ended January 31, 1998 from $14.8 million for the
quarter ended January 31, 1997, representing 10.4% and 12.0% of total revenue,
respectively. The total dollar amount of expense was higher in the quarter ended
January 31, 1998 primarily due to an increase in personnel and subcontracted
services to facilitate the growth in the Company's operations. However, general
and administrative expenses as a percentage of total revenue declined primarily
as a result of the growth in revenue volume. Additionally, the Company is
focused on improving efficiencies within support functions to effectively manage
the overall growth in its operations.
Research and development. Research and development expense includes
personnel and related overhead costs for product development, enhancements,
upgrades, quality assurance and testing. Research and development expense
increased to $19.9 million for the quarter ended January 31, 1998 from $10.1
million for the quarter ended January 31, 1997. The Company ceased capitalizing
OneWorld development costs during fiscal 1997 and, as a result, there were no
software development costs capitalized in the first quarter of fiscal 1998. For
the quarter ended January 31, 1997, capitalized software development costs were
$2.4 million. Including the amount capitalized last year, research and
development expenditures represented 11.2% and 10.2% of total revenue during the
quarter ended January 31, 1998 and 1997, respectively. Total research and
development expenditures were higher in the quarter ended January 31, 1998
primarily due to a substantial increase in personnel together with increases in
related facilities and computer systems costs necessary to meet product
development objectives. Current undertakings include enhancements of both the
World and OneWorld software versions. The Company anticipates that the total
dollar amount of research and development expense will continue to increase in
future periods compared to prior year periods.
Other income (expense). Other income (expense) includes interest income on
cash, cash equivalents and investments, interest expense, foreign currency gains
and losses, and other non-operating income and expenses. Interest income
increased to $3.7 million for the quarter ended January 31, 1998 from $93,000
for the quarter ended January 31, 1997 primarily due to interest earned on the
investment of proceeds from the Company's IPO. Foreign currency losses increased
to $746,000 for the quarter ended January 31, 1998 from $238,000 for the quarter
ended January 31, 1997 primarily due to the strengthening of the U.S. dollar
against most European and Asian currencies.
The Company has engaged in minimal hedging activities to help offset the
effects of exchange rate changes on cash exposures from receivables denominated
in foreign currencies. Such hedging activities are generally unable to
completely protect the Company from the risk of foreign currency losses as a
result of the number of currencies in which the Company conducts business, the
volatility of currency rates, and the constantly changing currency exposures.
Foreign currency gains and losses will continue to result from fluctuations in
the value of the currencies in which the Company conducts its operations as
compared to the U.S. dollar, and future operating results will be affected to
some extent by gains and losses from foreign currency exposure.
Provision for income taxes. The Company's effective income tax rate was
constant at 37.0% for both the quarters ended January 31, 1998 and 1997. For
future quarters, the Company anticipates its effective tax rate will remain
relatively stable at this rate, representing an improvement over the effective
tax rate of 37.3% for the fiscal year ended October 31, 1997.
Earnings per share. Diluted EPS increased to $.06 for the quarter ended
January 31, 1998 from $.02 for the quarter ended January 31, 1997 as a result of
net income growth of 176% to $6.4 million from $2.3 million, respectively. The
growth in earnings per share was reduced by an increase in the Company's diluted
weighted average number of shares outstanding to 108.1 million for the quarter
ended January 31, 1998 from 93.5 million for the quarter ended January 31, 1997.
The Company issued 12.8 million additional shares to the public through its IPO
in September 1997, representing 88% of the increase in shares. The remaining
increase
11
<PAGE> 12
in the number of shares outstanding was due to exercises of stock options,
shares issued through the Employee Stock Purchase Plan ("ESPP") and changes in
the dilutive effect of common stock equivalents.
The Company was required to apply SFAS No. 128, "Earnings Per Share," in
its consolidated financial statements effective for the quarter ended January
31, 1998. Prior period EPS were restated to conform with the new statement. The
basic EPS was computed by dividing net income by the weighted average number of
shares outstanding during the period. Diluted EPS was computed using the
weighted average number of common and common equivalent shares outstanding
during the period.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1998, the Company's principal sources of liquidity
consisted of $190.5 million of cash and cash equivalents, $187.4 million of
short-term and long-term investments and a $50 million, unsecured, revolving
line of credit. No amounts were outstanding under the Company's bank line of
credit during the quarter ended January 31, 1998. The Company had working
capital of $217.4 million at January 31, 1998 and a current ratio of 1.9 to one.
Included in determining such amounts are short-term unearned revenue and
customer deposits of $121.4 million. The majority of short-term unearned revenue
represents annual support payments billed to customers, which is recognized
ratably as revenue over the support service period. Without the short-term
unearned revenue and customer deposits, working capital would have been $338.8
million.
The Company calculates accounts receivable days sales outstanding (DSO) by
dividing its accounts receivable balance at the end of the quarter by the sum of
revenue for the quarter plus the net change in unearned revenue divided by 90
days. The net change in unearned revenue is included in the calculation to
better reflect sales activity timing rather than revenue recognition timing.
Calculated as such, DSO was 82 days as of the quarter ended January 31, 1998
compared to 87 days as of the quarter ended January 31, 1997. The Company's DSO
can fluctuate depending upon a number of factors, including the concentration of
transactions that occur toward the end of each quarter and the variability of
quarterly operating results. See "Factors Affecting The Company's Business,
Operating Results and Financial Condition -- Variability of Quarterly Operating
Results; Seasonality."
The Company generated operating cash flow of $8.5 million during the
quarter ended January 31, 1998 compared to $6.2 million used during quarter
ended January 31, 1997. The increase in operating cash flow was due primarily to
the increased net income plus the growth in accounts receivable being more than
offset by higher unearned revenue.
During the quarter ended January 31, 1998, the Company issued 380,000
shares of common stock to employees through the ESPP which generated $7.4
million in proceeds. Additionally, the Company issued 1,034,000 shares of common
stock upon the exercise of options and received $3.7 million in proceeds. The
Company did not have other significant net financing activities for the quarter
ended January 31, 1998.
The Company used $52.7 million in cash for investing activities for the
quarter ended January 31, 1998 and generated $1.8 million from investing
activities for the quarter ended January 31, 1997. The change was primarily due
to the investment of the remaining IPO proceeds during the 1998 quarter which
had not been completed by the end of the fourth quarter of fiscal 1997. During
both quarters, the Company purchased furniture, fixtures and equipment necessary
to support its expanding operations. The Company ceased capitalizing OneWorld
development costs during fiscal 1997 and, as a result, there were no software
development costs capitalized in the first quarter of fiscal 1998. The Company's
cash utilized for investing activities was offset in part by $4.8 million and
$8.5 million of proceeds from the sale of assets in the quarters ended January
31, 1998 and 1997, respectively.
In November 1997, the Company entered into a six-year agreement to lease an
office building to be constructed on a portion of land owned by the Company. The
lessor, a wholly-owned subsidiary of a bank, and the bank collectively committed
to finance up to $30.0 million in construction costs through a combination of
equity and debt financing. In March 1998, the Company announced plans for the
construction of a third office building after receiving a commitment from the
bank to underwrite up to $30.0 million in additional funds
12
<PAGE> 13
though either an expansion of the existing agreement or through another
similarly structured arrangement. See "Notes to Consolidated Financial
Statements -- Note (3) Commitments."
Management believes its cash and cash equivalents balance, short-term and
long-term investments, funds generated from operations and amounts available
under existing credit facilities will be sufficient to meet its cash needs
beyond the current fiscal year. The Company may use a portion of its short and
long-term investments to acquire businesses, products or technologies that are
complementary to those of the Company, although no specific acquisitions are
currently planned. There can be no assurance, however, that the Company will not
require additional funds to support its working capital requirements or for
other purposes, in which case the Company may seek to raise such additional
funds through public or private equity financing or from other sources. There
can be no assurance that such additional financing will be available or that, if
available, such financing will be obtained on terms favorable to the Company and
would not result in additional dilution to the Company's stockholders.
IMPACT OF THE YEAR 2000 ISSUE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
Although the Company currently offers software products that are designed to be
Year 2000 compliant, there can be no assurance that the Company's software
products contain all necessary date code changes.
The Company's business operations are significantly dependent upon the same
proprietary software products licensed to its customers. While management
believes it has successfully addressed this issue in its proprietary software
products, the Company also uses third-party software and computer technology
internally which may materially impact the Company if not Year 2000 compliant.
Further, the Company's operations may be at risk if its suppliers and other
third-parties fail to adequately address the problem or if software conversions
result in system incompatibilities with these third-parties. This issue could
result in system failures or generation of erroneous information and could
significantly disrupt business activities.
The Company has initiated correspondence with suppliers and is continuing
to review what actions will be required to make all software systems used
internally Year 2000 compliant as well as to mitigate its vulnerability to
problems with the systems used by its suppliers and other third parties. Such
actions include a review of vendor contracts and formal communication with
suppliers to request certification that products are Year 2000 compliant. The
total cost and time associated with the impact of Year 2000 compliance cannot
presently be determined.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has determined that the adoption of recently issued SFAS No.
129, "Disclosure of Information about Capital Structure," No. 130, "Reporting
Comprehensive Income," No. 131, "Disclosures about Segments of an Enterprise and
Related Information," and SOP 97-2, "Software Revenue Recognition," will not
have a material impact on its financial condition or results of operations. SFAS
No. 129 is effective for fiscal 1998 and SOP 97-2, SFAS Nos. 130 and 131 are
effective for fiscal 1999.
13
<PAGE> 14
FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION
IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM
10-Q, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING
THE COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT
IMPACT OR MAY HAVE SIGNIFICANT IMPACT IN THE FUTURE ON THE COMPANY'S BUSINESS,
OPERATING RESULTS OR FINANCIAL CONDITIONS.
Variability of Quarterly Operating Results; Seasonality. The Company's
quarterly operating results have fluctuated significantly in the past, and will
likely continue to fluctuate in the future, as a result of a number of factors,
many of which are outside the Company's control. These factors include the
demand for the Company's software products and services; the size and timing of
specific sales; the level of product and price competition that the Company
encounters; the length of sales cycles; the timing of new product introductions
and product enhancements by the Company or its competitors; market acceptance of
new products; changes in pricing policies by the Company or its competitors; the
Company's ability to hire sales and consulting personnel to meet the increased
demand for implementations of the OneWorld version of its application suites;
the Company's ability to establish and maintain relationships with third-party
implementation providers; the Company's ability to establish and maintain
relationships with hardware and software suppliers; the announcement of new
hardware platforms that cause delay of customer purchases; variations in the
length of the implementation process for the Company's software products; the
Company's ability to complete fixed-price consulting contracts on budget; the
mix of products and services sold; the mix of distribution channels through
which products are sold; the mix of international and domestic revenue; changes
in the Company's sales incentives; changes in the renewal rate of support
agreements; product life cycles; software defects and other product quality
problems; seasonality of technology purchases; personnel changes; changes in the
Company's strategy; the activities of competitors; the extent of industry
consolidation; expansion of the Company's international operations; general
domestic and international economic and political conditions; and budgeting
cycles of the Company's customers. The timing of large individual sales has been
difficult for the Company to predict, and large individual sales have, in some
cases, occurred in quarters subsequent to those anticipated by the Company.
There can be no assurance that the loss or deferral of one or more significant
sales would not have a material adverse effect on the Company's quarterly
operating results.
The Company's software products are typically shipped when orders are
received, and consequently, license backlog in any quarter has in the past
represented only a small portion of that quarter's revenue. As a result, license
fee revenue in any quarter is difficult to forecast because it is substantially
dependent on orders booked and shipped in that quarter. Moreover, the Company
typically recognizes a substantial amount of its revenue in the last month of
the quarter. Since the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed in the near term, any shortfall from anticipated revenue or any
delay in the recognition of revenue could result in significant variations in
operating results from quarter to quarter. Quarterly license fee revenue is also
difficult to forecast because the Company's sales cycles, from initial
evaluation to delivery of software, vary substantially from customer to
customer. If revenue falls below the Company's expectations in a particular
quarter, the Company's operating results could be materially adversely affected.
The Company has experienced, and is expected to continue to experience, a
high degree of seasonality, with a disproportionately greater amount of the
Company's revenue for any fiscal year being recognized in its fourth fiscal
quarter and an even greater proportion of net income being recognized in such
quarter. For example, in fiscal 1997, 33% of total revenue, 39% of license fee
revenue, 30% of service revenue and 61% of net income were recognized in the
fourth fiscal quarter. In addition, because the Company's operating expenses are
relatively fixed in the near term, the Company's operating margins have
historically been significantly higher in its fourth fiscal quarter than in its
other quarters. The Company believes that such seasonality is primarily the
result of the efforts of the Company's direct sales force to meet or exceed
fiscal year-end sales quotas and the tendency of certain customers to finalize
sales contracts at or near the Company's fiscal year end. Because revenue,
operating margins and net income are greater in the fourth quarter, any
shortfall from anticipated revenue, particularly license fee revenue, in the
fourth quarter would have a disproportionately large adverse effect on the
Company's operating results for the fiscal year. In addition, the Company's
total revenue, license fee revenue, service revenue and net income in its first
fiscal
14
<PAGE> 15
quarter have historically been lower than those in the immediately preceding
fourth quarter. For example, total revenue, license fee revenue, service revenue
and net income in the first quarter of fiscal 1998 decreased 18%, 30%, 7% and
72%, respectively, from the fourth quarter of fiscal 1997 and decreased 20%,
41%, 3% and 87%, respectively, in the first quarter of fiscal 1997 from the
fourth quarter of fiscal 1996. The Company's first quarter revenue has
historically slowed during the holiday season in November and December.
Based on all of the foregoing, the Company believes that future revenue,
expenses and operating results are likely to vary significantly from quarter to
quarter. As a result, quarter-to-quarter comparisons of operating results are
not necessarily meaningful or indicative of future performance. Furthermore, the
Company believes it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts or
investors. In such event, or in the event that adverse conditions prevail, or
are perceived to prevail, with respect to the Company's business or generally,
the market price of the Company's Common Stock would likely be materially
adversely affected.
Limited Deployment of OneWorld Version; Entering New Markets. The Company
first shipped the OneWorld version of its application suites in late calendar
1996. The Company's future revenue growth is substantially dependent upon the
market acceptance of OneWorld application suites and the ability of the Company
to license OneWorld application suites to new customers who are not currently
users of the Company's WorldSoftware. The Company does not expect to generate
substantial OneWorld license fee revenue from its existing installed base of
WorldSoftware users. The Company expects that it will take a longer time to
implement the OneWorld version of its application suites than it takes to
implement the WorldSoftware version, which typically takes six to 18 months. To
date, a limited number of the Company's customers have licensed the OneWorld
version of its application suites, and, due to the lengthy implementation
process, a small number of those have completed implementation of some or all of
the licensed OneWorld applications suites. Potential and existing customers may
find it difficult, or be unable, to successfully implement OneWorld application
suites, or may not purchase OneWorld application suites for a number of reasons,
including a lack of implementation experience by the Company or its third-party
implementation providers in complex multi-platform environments; a customer's
lack of the necessary hardware, software or networking infrastructure; an
absence of required functionality in OneWorld application suites; excessive time
and cost of implementation; the failure of the OneWorld version to be
competitive with other products on the market; defects or "bugs" in OneWorld
application suites; and a failure to meet customer expectations. In addition,
because the Company is using OneWorld application suites to target potential
customers in new markets, the Company must overcome certain significant
obstacles, including new competitors who have significantly more experience and
name recognition with open systems customers, implementations and platforms; the
Company's limited relationships with third-party implementation providers; the
limited experience of the Company's sales and consulting personnel in the open
systems environment; and the Company's limited existing reference accounts in
the open systems market. If, for any reason, the Company is unable to
successfully sell or implement OneWorld in the UNIX or NT markets, the Company's
reputation would be damaged, and such failure would have a material adverse
effect on the Company's business, operating results and financial condition.
Moreover, if the Company fails to meet the expectations of market analysts or
investors with regard to sales or implementations of OneWorld application
suites, the market price of the Company's Common Stock would likely be
materially adversely affected.
Dependence on IBM AS/400 Platform. Although the Company has recently
released the OneWorld version of its application suites to run on leading UNIX
and NT servers, the Company is and, for an extended period, expects to remain
substantially dependent upon the market for software products for the IBM AS/400
platform. The majority of the Company's revenue for fiscal 1997 and the first
quarter of fiscal 1998 was derived from its software products and related
services for the AS/400 market. The market for the AS/400 platform is expected
to grow at a minimal rate; however, there can be no assurance that the AS/400
market will grow at all in the future. Similarly, there can be no assurance that
AS/400 customers or prospective customers will respond favorably to the
Company's future or enhanced software products or that the Company will continue
to be successful in selling its software products or services in the AS/400
market. The Company's future growth will depend in part on its ability to gain
market share in the AS/400 market; however, there can be no assurance that the
Company will be able to achieve any such market share gains or
15
<PAGE> 16
maintain its current market share. Moreover, the Company's goal of gaining
market share in the AS/400 market will be more difficult to achieve since the
Company is also focusing on the UNIX and NT markets. If the Company's AS/400
installed customer base erodes, resulting in a decline in recurring support and
other service revenue, the Company's business, operating results and financial
condition will be materially adversely affected.
Other Risks. In addition to the risks presented above, the following risks
should be considered in evaluating the Company and its business: competition;
lengthy sales and implementation processes; reliance on third parties; risks
associated with new products and versions; euro currency, dependence on key
personnel, as well as other factors. For a more complete description of these
risk factors see "Factors Affecting the Company's Business, Operating Results
and Financial Condition" in the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1997.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. While the outcome of
these matters cannot be predicted with certainty, in the opinion of management,
the adverse outcome of any such current legal proceedings would not have a
material adverse effect on the Company's business, operating results or
financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of January 31, 1998, the Company had invested all of the net proceeds
from the IPO in investment grade, short-term and long-term interest-bearing
securities. The use of proceeds from the IPO does not represent a material
change in the use of proceeds described in the Company's Registration Statement
on Form S-1 effective September 23, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 -- Computation of Earnings Per Share
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
J.D. EDWARDS & COMPANY
By: /s/ RICHARD E. ALLEN
----------------------------------
Name: Richard E. Allen
Title: Chief Financial Officer,
Senior
Vice President, Finance and
Administration
and Director
(principal financial officer)
Dated: March 11, 1998
By: /s/ PAMELA L. SAXTON
----------------------------------
Name: Pamela L. Saxton
Title: Vice President of Finance,
Controller and Chief Accounting
Officer
(principal accounting officer)
Dated: March 11, 1998
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S> <C>
11.1 -- Computation of Earnings Per Share
27.1 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT # EXHIBIT TITLES
11.1 Computation of Earnings Per Common Share
EXHIBIT 11.1
J.D. EDWARDS & COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended January 31,
------------------------------
1997 1998
--------- ---------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 2,329 $ 6,426
========= =========
Weighted average number of
common shares outstanding 79,094 93,413
Basic earnings per common share $ 0.03 $ 0.07
========= =========
DILUTED EARNINGS PER SHARE
Net income $ 2,329 $ 6,426
========= =========
Shares outstanding
Weighted average number of
common shares outstanding 79,094 93,413
Assuming exercise of stock options 22,145 20,658
Assuming repurchase of treasury stock (7,719) (5,955)
--------- ---------
Net incremental shares 14,426 14,703
Weighted average number of
common shares outstanding as adjusted 93,520 108,116
========= =========
Diluted earnings per common share $ 0.02 $ 0.06
========= =========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JANUARY 31, 1998 AND STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
JANUARY 31, 1998 AS FILED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1997
<PERIOD-START> NOV-01-1997 NOV-01-1996
<PERIOD-END> JAN-31-1998 JAN-31-1997
<CASH> 190,532 20,845
<SECURITIES> 39,442 0
<RECEIVABLES> 222,392 152,393
<ALLOWANCES> 10,900 6,200
<INVENTORY> 0 0
<CURRENT-ASSETS> 467,309 178,213
<PP&E> 100,563 83,452
<DEPRECIATION> 50,201 33,329
<TOTAL-ASSETS> 697,635 255,541
<CURRENT-LIABILITIES> 249,959 156,275
<BONDS> 0 0
0 99,076
0 0
<COMMON> 94 79
<OTHER-SE> 414,792 (27,843)
<TOTAL-LIABILITY-AND-EQUITY> 697,635 255,541
<SALES> 67,990 40,934
<TOTAL-REVENUES> 178,256 122,821
<CGS> 11,119 7,698
<TOTAL-COSTS> 81,707 59,191
<OTHER-EXPENSES> 88,798 59,620
<LOSS-PROVISION> 3,218 886
<INTEREST-EXPENSE> 545 275
<INCOME-PRETAX> 10,200 3,697
<INCOME-TAX> 3,774 1,368
<INCOME-CONTINUING> 6,426 2,329
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,426 2,329
<EPS-PRIMARY> 0.07 0.03
<EPS-DILUTED> 0.06 0.02
</TABLE>
