28
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended April 30, 1996
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: 0-15188
INTERSOLV, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-0990382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9420 Key West Ave.
Rockville, Maryland 20850
(Address of principal executive offices)
(301) 838-5000
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Preferred Stock Purchase Rights
(Title of class)
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_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the average of the high and low price of the
Common Stock on June 30, 1996 as quoted by NASDAQ was $172,090,595.
The number of shares outstanding of the registrant's Common Stock $0.01 par
value on June 30, 1996 was 19,960,951 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange within
120 days after April 30, 1996 (items 10 through 13, Part III)
___________________________________________________________________________
________________________________________________________
PART I
ITEM 1. BUSINESS
GENERAL
INTERSOLV, Inc. (the "Company" or "INTERSOLV") was incorporated under
the laws of the State of Delaware in 1985, successor to the business begun
in 1982. INTERSOLV develops, markets and supports a broad line of
client/server software tools that facilitate the development, delivery and
deployment of business information systems. The Company strategy is to
offer customers a broad family of software development tools that are
independent of rapidly changing hardware, operating systems and database
management technology.
The Company's principal executive offices are located at 9420 Key West
Avenue, Rockville, MD 20850, and its telephone number at that address is
(301) 838-5000. The Company's common stock is traded over the counter on
the National Market under the NASDAQ symbol "ISLI".
COMPANY OVERVIEW
INTERSOLV focuses on application enablement software for
client/server, Internet and intranet applications. The Company's products
and services support a broad range of approaches, ranging from the
development of new client/server systems to the maintenance of traditional
systems. The Company's product strategy emphasizes an open architecture
which permits its products to be used separately, with the Company's other
products and with software development products and approaches offered by
other companies. The Company's objective is to build products that deliver
high productivity on simple projects and are powerful enough to handle
scalability requirements of production-grade information systems without
retooling.
INTERSOLV offers software products and services in the following
solution areas:
Software Configuration Management (SCM) - INTERSOLV offers a
comprehensive SCM product suite. SCM offerings involve versioning,
building, tracking and the transfer into production of application systems.
The Company's SCM offerings leverage team development on the local area
network (LAN) while supporting multi-operating systems and multi-tool
environments.
Data Connectivity - INTERSOLV technologies connect applications
and decision-support tools to databases, Internet servers and other
applications. Offerings include business intelligence tools and tools to
deploy cross-platform applications accessing multiple databases.
Object Oriented (OO) Development - This new product group
features a truly object-oriented, component-based development environment
for rapid assembly of client/server applications. INTERSOLV recently
introduced its initial offering in this tool set and plans to introduce
several additional modules during the next several months.
Enterprise Client/Server Development - INTERSOLV offers tools to
help traditional developers leverage existing assets while providing an
accelerated migration path from mainframe-based applications to a
client/server architecture. These tools can be used for rapid application
development (RAD), design driven development or for maintenance and reuse
of legacy applications, including addressing the Year 2000 problem.
The Company markets and distributes its products on a worldwide basis
through multiple channels. Sales are made through Company owned and
operated entities which use a combination of field, telesales and third
party distribution channels. The Company's direct sales effort is
augmented with a network of independent software vendors, dealers,
distributors and value added resellers in more than 30 countries around the
world.
PRODUCTS
INTERSOLV offers a variety of open solutions to address various
aspects of client/server development. These solutions are database
independent and work across a variety of operating system platforms. A key
differentiator for INTERSOLV products is their ability to function across
different operating environments and in conjunction with different
databases. The Company has four major solution areas, as discussed below.
Software Configuration Management Solution
INTERSOLV PVCS Series is a comprehensive family of software
configuration management products which enables software developers to
manage software changes in a team development environment, such as on a
LAN. The PVCS family includes tools for revision management, version
management, build management, promotion management and problem tracking.
The PVCS products provide an audit trail of activity, file revision
histories, support for parallel development, exact image rebuilds and
support for quality assurance. PVCS provides control over the
configuration of application software and documentation, whether developers
work alone, in a group, on a LAN or on multiple operating systems. PVCS
can also prevent problems associated with software developers
simultaneously accessing the same module. PVCS allows users to manage and
resolve problems and change requests which threaten software quality and
production schedules. The PVCS products operate on personal computers with
Microsoft Windows, Windows NT, Windows 95, IBM OS/2 and on a wide variety
of LANs and on UNIX operating systems. The PVCS products support
development in C, C++ and COBOL code and work with most commonly used
development workbenches such as Borland Delphi, Sybase/PowerSoft
PowerBuilder and Microsoft Visual Basic.
Data Connectivity Solutions
INTERSOLV DataDirect Series is focused on providing fast, seamless
access to corporate information. DataDirect products provide data
access/connectivty solutions whether the application is of the decision-
support type, such as data warehousing, or operationally oriented as in
client/server middleware. The four core products are as follows:
DataDirect Explorer is a query and reporting tool which provides
the end user with easy, direct access to data in personal, departmental and
enterprise-wide databases without requiring them to understand the
underlying technical details.
DataDirect ODBC drivers allow software developers to build and
deploy software for multiple databases from one application programming
interface (API).
DataDirect SequeLink is a server-based, data access technology
that provides a single connection to hetrogenous data sources and servers
and supports large user populations.
DataDirect SmartData provides a user-friendly, intelligent
interface to multiple databases to facilitate the creation of virtual data
warehouses.
OO Development Solutions
The new INTERSOLV Allegris Series is a true object-oriented, component
based development environment for the assembly of client/server
applications. The Allegris Workshop was released for sale in fiscal 1996,
with plans to release several additional modules in fiscal 1997. The core
modules are as follows:
Allegris Workshop is for professional C++ developers creating
multi-platform, reusable components that can be assembled into a variety of
applications.
Allegris Object Repository is a workgroup environment and
management framework to store, manage and revise software components.
Allegris Constructor is for business-oriented developers to
assemble components to deliver applications in the form of compiled C++
code.
Allegris DataDesigner is for application developers and database
specialists to design relational databases for distributed-object
applications.
Enterprise Client/Server Development Solutions
INTERSOLV AppMaster Series is focused on providing traditional
developers with an evolutionary path to client/server architecture, while
leveraging existing assets. The core products are as follows:
INTERSOLV AppMaster Builder (formerly called APS) is an
application development system enabling the reduction of development time
and minimizing the cost of building applications software. AppMaster
Builder may be used alone, with AppMaster Designer or with other analysis
and design products. AppMaster Builder can be used to generate new
applications or to enhance existing applications. AppMaster Builder can be
used to build simple to complex production-grade applications for a wide
range of DBMS and production environments.
INTERSOLV AppMaster Designer (formerly called Excelerator II) is
a flexible toolset for analysis, design and documentation of business
information systems. AppMaster Designer automates the process of analyzing
and translating business requirements and functions into a high-level model
of the desired software. AppMaster Designer accommodates a broad range of
software development methodologies and techniques, from traditional rapid
application development (RAD) to object oriented (OO). AppMaster Designer
interfaces easily with complementary software and is designed to allow
customers to customize the design environment to meet their requirements.
INTERSOLV AppMaster Renovator (fomerly called Maintenance
Workbench) is a desktop maintenance solution providing interactive and
application-wide research, analysis and documentation capabilities for
existing applications, allowing customers to maintain and update existing
systems more productively. AppMaster Renovator permits existing
applications to be analyzed and translated into a higher level format which
facilitates software changes and documentation. This product can be used
to address the Year 2000 problem that many companies presently face. These
capabilities enable existing software to be modified to support new
business goals, meet new user requirements and be regenerated as new
applications more quickly and easily.
SERVICES
INTERSOLV offers a wide variety of support services, known as
INTERSOLV ServiceDirect, which are intended to help customers quickly gain
benefits from the suite of product solutions that are available. The range
of services offered is described below.
Maintenance Services
INTERSOLV offers its customers the opportunity to purchase maintenance
services for its products. The services consist primarily of enhancements
and updates to the products as well as telephone support concerning their
operation. Annual fees for maintenance services typically equal 17 percent
of the product's list price and commence upon expiration of the initial 30
day warranty period.
Training and Consulting Services
INTERSOLV also offers highly focused fee-paid consulting and training
services, to assist customers in using INTERSOLV products. Consulting
services are focused on helping the customer exploit INTERSOLV technology
through short-term, highly focused projects or through long-term projects
which integrate the Company's products with the customer's development
environment. Educational offerings include both on-site training and
training at an INTERSOLV training center and are focused on the use of
INTERSOLV technology.
MARKETING, CUSTOMERS AND SALES
The Company markets its products to end-users, line-of-business
developers, traditional information system departments, project managers
and application development executives within businesses and independent
software vendors worldwide. None of the Company's customers account for 10%
or more of annual revenues. Additionally, the Company's business does not
concentrate on any specific industry. See further discussion regarding the
segment information and significant customers in Note 4 of Notes to the
Consolidated Financial Statements on page 26 of this Form 10-K.
The Company has a multi-channel approach to sales and marketing.
The products are sold through telesales, field sales (face-to-face) and
third-parties as described below.
Telesales
Telesales representatives concentrate on sales at the project level
and to smaller accounts, selling to individual developers and project
managers. Generally telesales representatives concentrate their efforts on
one solution area. Orders can range from $100 for a single license, to
over $50,000 for multiple licenses for a fully configured project team.
Telesales are supported by mailings to lists of prospective customers and
advertising in selected trade magazines. The Company also offers special
promotions and incentive offers from time to time aimed at introducing the
Company's products to new users.
Field Sales
The Company's field sales personnel are located in Australia, Belgium,
France, Germany, Japan, United Kingdom and several major metropolitan areas
in the U.S., offering local sales and technical support to customers and
prospects. Field sales personnel are responsible for all channels and
products for a named customer or within a defined geographical area.
Field Sales builds long-term relationships with the Company's largest
customers and prospects. Field sales personnel assist prospective and
current customers in evaluating needs and solutions and guide them in the
evaluation and use of INTERSOLV products. Field sales personnel focus
their efforts primarily on large corporate prospects and customers.
Transactions through the field sales organization generally range from
$25,000 to over $1,000,000, depending on the number of products licensed
and the number of developers authorized to use the technology.
Third Parties
In addition to the Company's own field sales and telesales
organizations, the Company markets its technologies and products through a
global network of other independent software vendors ("ISV"s), value-added
resellers ("VARs") and dealers and distributors. Through third party
alliances, the Company enables selected ISVs to embed and sell certain
INTERSOLV technologies in their own products. Alliances with other ISVs
include joint development and marketing arrangements. INTERSOLV also has
arrangements with VARs, dealers and distributors to resell the Company's
products in markets which the Company cannot cost effectively reach on a
direct basis.
COMPETITION
The market for development tools is highly competitive and
characterized by rapid changes in technology and user needs. The Company
encounters competition from established companies and new companies that
are now developing or may develop and market comparable products. Some of
the Company's actual and potential competitors have substantially greater
financial, marketing and technological resources than the Company.
INTERSOLV believes that the principal competitive factors in the industry
are the compatibility of products with the customer's computer hardware and
software, ease of use, price, quality of documentation, customer support,
training, installation and the ability of a family of products to work
together effectively.
PRODUCT DEVELOPMENT
Due to the rapid technological changes the computer software industry
is subject to, the Company expects to continue to dedicate significant
resources to enhance its current products and develop new ones. The
Company spent $25.9 million, $22.7 million and $16.6 million before
capitalization of certain internal software development costs for the
fiscal years ended April 30, 1996, 1995, and 1994, respectively.
While certain INTERSOLV products have been developed internally, the
Company, however, has in the past and intends to continue to acquire
certain software technology from others and integrate those technologies
into its family of products.
PRODUCT PROTECTION
The Company relies on a combination of trade secret, copyright and
trademark laws, license agreements and technical measures to protect its
rights in its software products. Like many software companies, the Company
has no patents.
INTERSOLV products are generally licensed to end users pursuant to a
license agreement that restricts the use of the products to a designated
number of authorized developers. The Company also relies on copyright laws
and embedded technology to protect the proprietary rights in its products
and to help ensure they are used in accordance with their license terms.
The degree and scope of legal protection available for the Company's
software products may vary in certain foreign countries. The company
licenses the majority of its products through "shrink wrap" licenses that
are included as part of the product's packaging.
The Company protects the source code version of its products as a
trade secret and as an unpublished copyrighted work. The Company has made
portions of the source code available to its customers only under very
limited circumstances and for restricted uses. The Company has been and
may be required from time to time to enter into source code escrow
agreements with certain customers and distributors. These agreements
require release of source code to the customer or distributor in the event
the Company breaches its support and maintenance obligations to the
customer. If source code is released to a customer or distributor, the
customer or distributor is required to maintain its confidentiality and, in
general, to use the source code solely for internal maintenance purposes.
EMPLOYEES
As of April 30, 1996, the Company employed 877 persons including 358
in sales and marketing, 244 in consulting, training and technical support,
187 in product development and 88 in general and administration. None of
the Company's employees are represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relations are
good.
ITEM 2. PROPERTIES
The Company leases all of its office space for its corporate
headquarters, sales, distribution and development offices. Major facility
leases include the following:
Location Purpose Facility Size
Rockville, MD Corporate Headquarters 67,000 sq. ft.
Beaverton, OR Sales/Development 48,000 sq. ft.
Raleigh, NC Sales/Development 37,500 sq. ft.
Framingham, MA Development 19,000 sq. ft.
Gaithersburg, MD Distribution Center 13,000 sq. ft.
The aggregate rental payments for all facilities for fiscal 1996 was
approximately $5.4 million, and all leases are subject to renewal clauses
and rent increase provisions, which are typical of similar leases in the
relevant geographic areas.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any material pending or
threatened legal proceedings except as further described below.
Prior to April, 1986, certain revenues associated with discontinued
operations were generated under cost-plus-fee contracts with the U.S.
government and are subject to adjustments upon audit by the Defense
Contract Audit Agency. Audits through January 31, 1986 have been
completed. On December 3, 1990, INTERSOLV received a notice questioning
certain charges aggregating approximately $2.4 million made by the
Company's discontinued operations in fiscal 1985 and 1986. The Company
filed a response in April, 1991 which provided additional information
regarding the issues raised in the notice. The amount of the liability, if
any, cannot be ascertained.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market.
There have been no dividends paid on INTERSOLV common stock since the
Company's initial public offering in 1986. See the market price information
in Note 12 of Notes to the Consolidated Financial Statements on page 32 on
this Form 10-K. The market price information represents "last sale"
quotations and does not include markups, markdowns or commissions.
The number of holders of record of the Company's common stock was
approximately 246 at June 30, 1996.
ITEM 6. SELECTED FINANCIAL DATA
(amount in thousands, except per share data)
Fiscal Year Ended April 30
1996 1995 1994 1993 1992
Revenues $145,313 $134,517 $99,568 $88,263 $87,792
Income (loss) before income taxes (383) 16,083 (28,738)(14,889) 6,068
Net income (loss) (3,711) 10,974 (29,045)(14,929) 3,560
Fully diluted (loss) per share ($0.19) $0.55 ($1.90) ($0.99) $0.24
Total assets 110,917 104,808 84,313 64,962 73,561
Long-term liabilities
(including current portion) 8,387 3,226 2,368 1,254 2,499
Notes:
Fiscal 1996 operating results include pretax charges totaling $13.6 million
(after-tax effect of $0.67 per share) resulting from the acquisitions of
TechGnosis International, Inc. ("TechGnosis") and PC Strategies and
Solutions, Inc. ("PCS"). Prior year data has been restated to include
TechGnosis and PCS, acquisitions accounted for using the "pooling-of-
interest" method.
Fiscal 1994 operating results include pretax charges totaling $40.7 million
(after-tax effect of $2.47 per share) resulting from the acquisition of Q+E
Software, Inc.
Fiscal 1993 operating results include a pre-tax charge of $16.6 million
(after-tax effect of $1.27 per share) resulting from a non-cash adjustment
to reduce unamortized capitalized software costs based on older operating
systems to net realizable value and certain other restructuring costs.
Fiscal 1992 operating results include a pre-tax charge of approximately $0.8
million (after-tax effect of $0.05 per share) attributable to certain
restructuring costs associated with the acquisition of Index Technology
Corporation in fiscal 1991.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following table sets forth, for the periods indicated, the
percentages which selected items in the Consolidated Statements of
Operations are to total Revenues:
Year to Year
Selected Items as a
Percentage of Revenues Increase (Decrease)
1996 1995
Year Ended April 30 Compared to Compared to
1996 1995 1994 1995 1994
Revenues:
License fees 61.3% 64.6% 64.5% 3% 35%
Service fees 38.7 35.4 35.5 18 35
Total 100.0 100.0 100.0 8 35
Cost and expenses:
Cost of products 10.8 8.9 8.4 31 43
Cost of services 17.9 16.0 13.8 21 57
Sales and marketing 44.0 42.7 45.4 12 27
Research and development 10.1 10.1 10.1 7 36
General and administrative 8.8 10.5 9.6 (10) 48
Purchased research and
development 0.5 --- 34.9 N/M N/M
Restructuring charges 8.9 --- 6.6 N/M N/M
Total 101.0 88.2 128.8 24 (8)
Operating income (loss) (1.0) 11.8 (28.8) N/M N/M
Other income, net 0.7 0.2 (0.1) 295 N/M
Income (loss) before income
taxes (0.3) 12.0 (28.9) N/M N/M
Provision (benefit) for income
taxes 2.3 3.8 0.3 (35) N/M
Net income (loss) (2.6%) 8.2% (29.2%)N/M N/M
N/M - Changes not meaningful
RESULTS OF OPERATIONS
Revenues
The Company's products are generally licensed to end users pursuant to
a license agreement that restricts the use of the product to a designated
number of developers. The Company also offers its customers a broad range
of services, including maintenance, support, training and consulting.
Maintenance services consist primarily of enhancements and upgrades to
products as well as telephone support concerning the use of the Company's
products. Training and consulting services are focused on assisting
customers in using the Company's products.
The Company's product and service offerings are focused in four primary
solution areas: Software Configuration Management ("SCM"), Data
Connectivity, Object Oriented ("OO") Development and Enterprise
Client/Server Development. A group of the Data Connectivity solutions were
new offerings in fiscal 1995 as a result of the April 1994 acquisition of
Q+E Software, Inc. ("Q+E"), in a transaction accounted for using the
"purchase" method. The Company began selling OO Development solutions in
fiscal 1997. The Company acquired TechGnosis International Inc.
("TechGnosis") in October 1995 and PC Strategies and Solutions, Inc. ("PCS")
in May 1995 in transactions accounted for using the "pooling-of-interests"
method. INTERSOLV's historical financial results have been restated to
include the results of operations for both of these companies.
Total Revenue
Total revenue for fiscal 1996 was $145.3 million, which is an 8%
increase over fiscal 1995. Total revenue for fiscal 1995 was $134.5
million, or 35% greater than fiscal 1994. Growth in both the Software
Configuration Management products and Data Connectivity product series were
the primary reasons for the growth. The growth in these areas more than
offset a decline in the Enterprise Client/Server Development tools for
traditional developers. Growth in the Software Configuration Management and
Data Connectivity series resulted from increased license fee revenue
related to increased demand for these software products and increased
service fee revenue driven by the demand for consulting and training
services. The decrease in Enterprise Client/Server products is due to
decreased demand for COBOL based software solutions. The Enterprise
Client/Server product series accounted for approximately 26% of total
revenues in fiscal 1996 and declined 20%. The other product series,
accounting for 74% of total revenues in fiscal 1996, increased 23% in the
aggregate.
License Fee Revenue ("LFR")
Fiscal 1996 LFR was $89.1 million, or a 3% increase over fiscal 1995.
Fiscal 1995 LFR was $87 million, or 35% greater than the prior year. Growth
in new license sales for Software Configuration Management products and the
Data Connectivity products, were the primary reasons for the increase. LFR
growth for the above areas was offset by a LFR decline in the Company's
Enterprise Client/Server development tools area.
Service Fee Revenue ("SFR")
Fiscal 1996 SFR was $56.2 million, which is a 18% increase over fiscal
1995. Fiscal 1995 SFR was $47.6 million, or 35% more than fiscal 1994.
Increased demand for consulting and training services, combined with growth
in the installed customer base and renewal of existing maintenance contracts
led to the growth during the three year period.
North American Revenue
In fiscal 1996, North American revenue grew 8% to $96.9 million. In
fiscal 1995 North American revenue increased 34% to $89.6 million. In
fiscal 1996, growth in Software Configuration Management and Data
Connectivity product revenues more than offset decreased revenue from the
Enterprise Client/Server products. In fiscal 1995, revenue growth in the
Software Configuration Management products, along with revenue
contributions from the new Data Connectivity products were the reasons for
the increase. Revenue from the Enterprise Client/Server products declined
in fiscal 1996 and 1995.
International Revenue
In fiscal 1996, International revenue was $48.4 million or 8% greater
than last year. International revenue was $44.9 million in fiscal 1995, or
37% greater than the prior year. In fiscal 1996, growth in Europe was
approximately 6% and in Asia-Pacific was 10%, with the Software
Configuration Management product series providing most of the increase. In
fiscal 1995, growth in the Software Configuration Management area and
revenue contributions from the new Data connectivity area were the primary
reasons for the increase. Changes in currency exchange rates increased
fiscal 1996 and 1995 revenues by $0.4 million and $1.6 million,
respectively, when compared to prior fiscal years.
Cost of Products
In fiscal 1996, cost of products increased 31% to $15.6 million. Cost
of products includes costs of software media, freight, royalties and
amortization of capitalized software development costs and purchased
technology costs. Cost of products for fiscal 1995 increased 43% to $11.9
million. Cost of products as a percentage of revenues was 10.8%, 8.9%, and
8.4% in fiscal 1996, 1995 and 1994 respectively. The 1996 and 1995
increases in amount and as a percentage of revenues were primarily the
result of higher amortization of software development costs caused by
significant new product releases during each of the three years.
Cost of Services
Cost of services includes personnel and related overhead costs to
provide training, consulting and telephone support to customers who are
deploying the Company's products. Cost of services for fiscal 1996
increased 21% to $26.1 million. Cost of services for fiscal 1995 increased
57% to $21.6 million. Cost of services as a percentage of SFR was 46%,
45%, and 39% in fiscal 1996, 1995 and 1994 respectively. The increases in
amount and as a percentage of revenues during this three year period was
primarily the result of increased investment in personnel needed to support
the increased demand for training and consulting services. Personnel was
also added to the telephone support functions, to support the growing
customer base.
Sales and Marketing
In fiscal 1996, sales and marketing expenses were $64 million, which
is a 12% increase over fiscal 1995. Sales and marketing expenses for
fiscal 1995 were $57.4 million, which is a 27% increase when compared to
fiscal 1994 level of $45.2 million. Sales and marketing expenses as a
percentage of revenues were 44%, 43%, and 45% in fiscal 1996, 1995 and
1994, respectively. The increase in fiscal 1996 and 1995 was due to higher
levels of investment in marketing programs, telesales and third party sales
channels. In particular, TechGnosis increased its investment in marketing
programs prior to its acquisition as it attempted to expand its presence in
the North American market. Sales and marketing expenses as a percentage of
revenue decreased in fiscal 1995, as the Company began to realize some of
the benefits of the multi-channel sales model, which helped the Company
grow revenues at a faster rate than corresponding sales and marketing
costs.
Research and Development
Fiscal 1996 research and development costs were $14.6 million or 7%
higher than fiscal 1995. Fiscal 1995 research and development expenses
were $13.6 million, or 36% higher than fiscal 1994 levels of $10.1 million.
As a percentage of revenues, research and development expenses were 10% in
each of fiscal 1996, 1995, and 1994 respectively. Research and
development expenses, before capitalization of certain internal software
development costs, were $25.9 million, $22.7 million and $16.6 million for
the fiscal years ended April 30, 1996, 1995, and 1994 respectively. The
increase in fiscal 1996 and 1995 is due primarily to the Company's
increased investment in SCM, Data Connectivity and OO Development tools
solutions.
General and Administrative
General and administrative expenses for fiscal 1996 were $12.7 million
or 10% lower than fiscal 1995. General and administrative expenses for
fiscal 1995 were $14.2 million or 48% higher than fiscal 1994. General and
administrative expenses as a percentage of revenues were 9%, 10% and 10%
for fiscal years 1996, 1995 and 1994, respectively. The fiscal 1996
decrease was due to elimination of duplicative functions of TechGnosis.
The increase in 1995 is due primarily to higher administrative costs
associated with supporting a larger business and duplicative administrative
costs incurred by TechGnosis prior to its acquisition.
Restructuring Charges and Purchased Research and Development
TechGnosis Acquisition Charges
In October 1995, the Company incurred $11.6 million of non-recurring
charges related to the acquisition of TechGnosis. This includes $3.3
million to restructure certain distributor agreements, $2.5 million for
consolidation of offices and equipment, $2.2 million for severance and
related costs, $2 million to write-off overlapping technologies and $1.6
million of direct transaction and other transition expenses. As of April
30, 1996, charges remaining to be disbursed relate to office
consolidations, severance and restructuring of distributor agreements.
PCS and C++ Views Product Line Acquisition Charges
In May 1995, the Company incurred $2 million of non-recurring charges
related to the acquisition of PCS and the C++/Views product line from Liant
Software, Inc. Acquisition charges included a $0.7 million charge for
purchased research and development related to the C++/Views transaction.
The remaining $1.3 million charge was for direct transaction expenses,
severance and costs to consolidate operations. All charges were disbursed
by April 30, 1996.
Q+E Acquisition Charges
In April 1994, the Company incurred $40.7 million of non-recurring
charges related to the acquisition of Q+E. Acquisition charges included the
write-off of $34.8 million of purchased research and development and $5.9
million in one-time costs for severance, costs to consolidate certain
facilities, write-downs of various assets and re-negotiation costs related
to existing distributor/dealer contracts.
Operating Income (Loss)
Prior to acquisition related charges, the Company reported operating
income of $12.2 million, $15.8 million and $12.7 million in fiscal 1996,
1995 and 1994, respectively. As a percentage of revenues, this would be
8.4%, 11.8% and 12.7% respectively. Operating income before acquisition
related charges dropped in fiscal 1996 because TechGnosis was investing in
sales and marketing to expand its market in the United States. After
acquisition charges, the Company reported operating income (loss) of ($1.4)
million, $15.8 million and ($28.6) million in fiscal 1996, 1995 and 1994,
respectively.
Other Income
Other income, which is primarily net investment income, for fiscal
1996 was $1 million, which is a 295% increase from fiscal 1995. Other
income for fiscal 1995 was $0.3 million, compared to ($0.1) million in
fiscal 1994. Other income varied during the three year period primarily as
a result of changes in the amount of cash available for investment.
Taxes
The Company's effective tax rates were 870%, 32% and 1% for fiscal
1996, 1995 and 1994, respectively. In fiscal 1996, the variance from the
statutory rate is because the Company did not recognize the benefit of net
operating losses resulting primarily from acquisition charges, particularly
from its foreign operations. In fiscal 1995, the variance from the
statutory rate is due to research and experimentation tax credits and
foreign tax rates that are lower than U.S. statutory rates. In fiscal
1994, the variance from the statutory rate is because the Company did not
recognize the full benefit of net operating loss carryforwards.
Factors That May Affect Future Results
The Client/Server development tools market is characterized by rapid
changes in technology and user needs. Compatibility of the Company's
products with customers' preferred operating systems and database
management systems are important to future results of the Company. The
current market trend appears to be weighted towards building client/server
and cooperative applications using a changing mix of operating systems.
Revenue from the Company's Enterprise Client/Server tools area declined 20%
this past year. Products in this area accounted for 26% of fiscal 1996
revenue, and the Company expects demand for these products to remain flat
or continue to decline. This decline was more than offset by increased
revenues from the Company's new client/server products. Because of the
rapidly changing market, there is no assurance that this substantial growth
will continue. Future operating results could be affected by the market's
acceptance of the Company's existing and new products in this rapidly
changing market.
Competition in the software development tools market is very intense.
New and established companies continue to develop and market competitive
products. Principal factors affecting competition are product performance
and functionality, compatibility with the customer's operating environment,
ease of use, price and quality of customer support, documentation and
services. The Company anticipates that it will continue to experience
competition from current vendors and new firms entering the market.
The Company markets and sells its products directly through its own
operations in the United States, United Kingdom, Germany, France, Belgium,
Japan and Australia and through a network of dealer/distributors in 30
other countries. Consequently, the Company's results are affected by
changes in the global economies and foreign currency exchange rates.
Although the Company does not believe that its business is subject to
seasonal variations, sales historically tend to be strongest during the
fourth quarter of a fiscal year. As a result, the Company typically
experiences lower revenues for the first quarter of a fiscal year than in
the fourth quarter of the prior fiscal year. The Company's experience has
also been that a major portion of its revenue is recognized during the last
month of a fiscal quarter and that fluctuations in revenue and earnings may
occur due to the timing of orders. Quarterly results therefore can vary to
the extent that sales for a quarter are delayed, particularly since a large
portion of the Company's expenses do not vary with revenues.
During 1995, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. Statement of Financial Accounting
Standards No. 123 - "Accounting for Stock-Based Compensation" ("FAS 123"),
which became effective in 1996. Under FAS 123, companies can either elect
to recognize compensation expense based upon the estimated fair value of
employee stock options and other equity instruments issued to employees at
the date the instruments are granted or they can elect to continue to
follow the guidance under APB Opinion 25 - Accounting for Stock Issued to
Employees ("APB 25"), and disclose in the footnotes the pro forma net
income and earnings per share as if FAS 123 had been applied. The Company
will continue to follow the guidance of APB 25.
Inflation has not had a material effect on the past results of the
Company, however, there can be no assurance that the results of operations
will not be affected in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
In fiscal 1996, operating activities generated $18.2 million in cash,
after spending $8.3 million for various acquisition costs. Investing
activities used $17.7 million, as the Company invested $12.9 million in
capitalized and purchased software and $4.9 in fixed assets. Financing
activities in the form of stock option exercises and purchases under the
employee stock purchase plans generated $8.7 million. The Company also
spent $4.8 million to acquire common stock from TechGnosis International
shareholders and $1.1 million to repay various debt obligations and $1.1
million associated with the Q+E acquisition. Overall cash increased $1.6
million.
In fiscal 1995, operating activities generated $12.9 million in cash,
after spending $4.4 million for various restructuring and acquisition
costs. Investing activities used $13.5 million as the Company invested
$9.4 million in capitalized and purchased software and $3.7 million in
fixed assets. Financing activities in the form of stock option exercises
and purchases under the employee stock purchase plan generated $7.4
million, while the issuance of convertible subordinated notes generated $4
million. The Company also spent $5 million to reacquire shares of its
common stock, and $2.2 million to satisfy installment obligations
associated with its acquisition of Q+E Software, Inc. Overall cash
increased $4.1 million in fiscal 1995.
Fiscal 1994 operating activities generated $16.7 million in cash as
the charge for purchased research and development was non-cash in nature.
Investing activities used $6.8 million as the Company invested $6.6
million in software and a net $.9 million in fixed assets, which was offset
by other investing activities. Financing activities in the form of stock
option exercises and purchases under the employee stock purchase plan
generated $3.5 million. The Company's initial cash outlays to acquire Q+E
were substantially offset by Q+E's existing cash balances. Overall cash
increased $13.1 million in fiscal 1994.
Current Financial Position
At April 30, 1996 the Company had cash and cash equivalents of $28.2
million and no bank debt. The Company had $3.7 million in subordinated
convertible debt, which is due in September 1999. The Company's ratio of
current assets to current liabilities, or current ratio, was 1.5 to 1,
compared with 1.6 to 1 at the beginning of the fiscal year. The Company
also has in place a $12 million revolving unsecured credit facility. As of
and during the year ended April 30, 1996, the Company had no borrowings
under this credit facility.
Future Liquidity and Capital Requirements
In fiscal 1997, the Company expects to invest about $7.5 million in
fixed assets, such as computer equipment. The Company believes that the
existing cash balances, together with cash generated by operating
activities and available borrowings, will be adequate to meet the Company's
liquidity and capital needs for the foreseeable future.
The Company will also continue to evaluate the acquisition of
technologies or product lines which are consistent with its current
strategy. The Company expects to fund these transactions using cash on-
hand and cash provided from operations. If necessary or desirable, the
Company may fund these transactions using debt, equity or other sources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Accountants 15
Financial Statements:
Consolidated Statements of Operations for
the fiscal years ended April 30, 1996,
1995, and 1994 16
Consolidated Balance Sheets as of
April 30, 1996 and 1995 17 - 18
Consolidated Statements of Cash Flows
for the fiscal years ended April 30, 1996,
1995, and 1994 19
Consolidated Statements of Changes in
Stockholders' Equity for the fiscal years
ended April 30, 1996, 1995, and 1994 20
Notes to Consolidated Financial Statements 21 - 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INTERSOLV, Inc.
We have audited the consolidated financial statements and the
financial statement schedule of INTERSOLV, Inc. and Subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
INTERSOLV, Inc. and Subsidiaries as of April 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended April 30, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
May 30, 1996
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Fiscal Years Ended April 30,
1996 1995 1994
Revenues:
License fees $89,147 $86,951 $64,219
Service fees 56,166 47,566 35,349
Total revenues 145,313 134,517 99,568
Costs and expenses:
Cost of products 15,649 11,937 8,354
Cost of services 26,091 21,585 13,780
Sales and marketing 64,026 57,373 45,175
Research and development 14,626 13,646 10,069
General and administrative 12,744 14,156 9,535
Purchased research and development 680 --- 34,761
Restructuring charges 12,920 --- 6,541
Total costs and expenses 146,736 118,697 128,215
Operating income (loss) (1,423) 15,820 (28,647)
Other income (expense), net 1,040 263 (91)
Income (loss) before income taxes (383) 16,083 (28,738)
Provision for income taxes 3,328 5,109 307
Net income (loss) ($3,711) $10,974 $(29,045)
Shares used in computing primary net
income (loss) per share 19,348 19,483 15,324
Primary net income (loss) per share $(0.19) $0.56 ($1.90)
Shares used in computing fully diluted
net income (loss) per share 19,348 20,172 15,324
Fully diluted net income (loss) per share ($0.19) $0.55 ($1.90)
The accompanying notes are an integral part of the consolidated financial
statements.
INTERSOLV INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
ASSETS
as of April 30,
1996 1995
Current assets:
Cash and cash equivalents $28,215 $26,661
Accounts receivable, net of allowance for
doubtful accounts of $3,136 and $1,960 37,645 41,355
Refundable income taxes --- 580
Prepaid expenses and other current assets 7,937 5,557
Total current assets 73,797 74,153
Software, at cost 53,229 40,098
Accumulated amortization (31,259) (18,549)
Total software, net 21,970 21,549
Property and equipment:
Furniture and equipment 25,947 29,095
Leasehold improvements 4,809 2,972
Accumulated depreciation and amortization (22,921) (24,618)
Total property and equipment, net 7,835 7,449
Notes receivable and other assets 7,315 1,657
Total assets $110,917 $104,808
The accompanying notes are an integral part of the consolidated financial
statements.
INTERSOLV, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
as of April 30,
1996 1995
Current liabilities:
Short-term notes payable and current portion of
long-term debt $570 $ 1,176
Accounts payable 9,853 9,197
Accrued acquisition costs 3,953 3,335
Accrued compensation and employee benefits 9,514 8,386
Other accrued expenses 5,314 6,445
Deferred revenue 18,799 15,546
Income taxes payable 1,587 2,553
Total current liabilities 49,590 46,638
Long-term liabilities :
Deferred taxes 5,106 2,371
Minority interests 292 326
Long-term debt, less current portion 2,419 436
Total long-term liabilities 7,817 3,133
Total liabilities 57,407 49,771
Subordinated convertible notes 3,676 4,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 19,733,000 and 19,133,000 issued
and outstanding 198 191
Paid-in capital 92,967 91,673
Treasury stock, at cost --- (2,637)
Accumulated deficit (41,318) (37,607)
Cumulative currency translation adjustment (2,013) (583)
Stockholders' equity 49,834 51,037
Total liabilities and stockholders' equity $110,917 $104,808
The accompanying notes are an integral part of the consolidated financial
statements.
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Fiscal Years Ended April 30,
1996 1995 1994
Cash inflows (outflows)
Operating activities:
Net income (loss) ($3,711) $10,974 ($29,045)
Non-cash items:
Depreciation and amortization 14,923 11,993 8,906
Deferred income taxes 2,735 2,105 (1,449)
Write-down of purchased research &
development and software 2,386 --- 34,761
Payment of restructuring/acquisition charges (8,278) (4,409) (40)
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable 924 (12,013) (4,521)
Refundable income taxes 580 (211) 299
Prepaid expenses and other current asset (2,380) (2,338) 626
Accounts payable and accrued expenses 7,795 5,554 4,494
Deferred revenue 3,253 1,259 2,699
Net cash provided by operating activities 18,227 12,914 16,730
Investing activities:
Additions to software (12,951) (9,391) (6,615)
Acquisition of Q+E, net of cash acquired --- --- 207
Additions to property and equipment (5,721) (3,696) (2,115)
Sale/leaseback of equipment 776 --- 1,252
Other 161 (372) 482
Net cash used in investing activities (17,735) (13,459) (6,789)
Financing activities:
Issuance of subordinated convertible notes --- 4,000 ---
Purchase of common stock for treasury (264) (5,001) ---
Purchase of common stock from TechGnosis
shareholders (4,800) --- ---
Proceeds from sale of common stock 8,678 7,417 3,464
Payment of Q+E installment liabilities (1,107) (2,214) ---
Net proceeds (repayment) of debt obligation (1,062) 108 (155)
Net cash provided by financing activities 1,445 4,310 3,309
Effect of exchange rate changes on cash (383) 347 (126)
Net increase in cash and cash equivalents 1,554 4,112 13,124
Cash and cash equivalents, beginning of year 26,661 22,549 9,425
Cash and cash equivalents, end of year $28,215 $26,661 $22,549
Supplemental Data
Cash paid for interest $615 $460 $286
Cash paid for income taxes $802 $307 $391
The accompanying notes are an integral part of the consolidated financial
statements.
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(amounts in thousands)
Common Stock Treasury Stock
Paid-In
Shares Amount Capital Shares Amount
Balance, April 30, 1993, as previously
reported 11,943 $120 $47,692 0 $0
Pooling of interests with TechGnosis
International Inc. and PC Strategies
and Solutions, Inc. 3,117 31 7,599 317 (184)
Balance, April 30, 1993, as restated 15,060 151 55,291 317 (184)
Issuance of common to acquire Q+E
Software, Inc. 2,370 24 27,919 --- ---
Sale of common stock under stock
option and stock purchase plans 440 4 2,980 --- ---
Sale of common stock 309 3 297 --- ---
Issuance of common stock for services 103 1 66 --- ---
Net purchase (sale) of treasury stock --- --- --- (292) 147
Translation adjustment --- --- --- --- ---
Net loss --- --- --- --- ---
Balance, April 30, 1994 18,282 183 86,553 25 (37)
Acquisition of The Software
Edge, Inc. 472 5 107 --- ---
Sale of common stock under stock option
and stock purchase plans 379 3 5,013 (194)2,401
Repurchase of common shares --- --- --- 735(5,001)
Translation adjustment --- --- --- --- ---
Net income --- --- --- --- ---
Balance, April 30, 1995 19,133 191 91,673 566(2,637)
Sale of common stock under stock
option and stock purchase plans 879 8 4,608 (145)2,079
Net repurchases(reissuances) of
common shares (25) --- 1,160 (320) 563
Retire treasury shares (101) --- --- (101) (5)
Translation adjustment --- --- --- --- ---
Purchase of common stock from
TechGnosis shareholders (239) (2) (4,798) --- ---
Conversion of subordinated convertible
notes 86 1 324 --- ---
Net loss --- --- --- --- ---
Balance, April 30, 1996 19,733 $198 $92,967 0 $0
The accompanying notes are an integral part of the consolidated financial
statements
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(amounts in thousands)
Cumulative
Accumulated Translation
Deficit Adjustment Total
Balance, April 30, 1993, as previously
reported $12,156) ($1,016) $34,640
Pooling of interests with TechGnosis
International Inc. and PC Strategies
and Solutions, Inc. (7,418) (122) (94)
Balance, April 30, 1993, as restated (19,574) (1,138) 34,546
Issuance of common to acquire Q+E
Software, Inc. --- --- 27,943
Sale of common stock under stock
option and stock purchase plans --- --- 2,984
Sale of common stock --- --- 300
Issuance of common stock for services --- --- 67
Net purchase (sale) of treasury stock --- --- 147
Translation adjustment --- (161) (161)
Net loss (29,045) --- (29,045)
Balance, April 30, 1994 (48,619) (1,299) 36,781
Acquisition of The Software Edge, Inc. 38 --- 150
Sale of common stock under stock option
and stock purchase plans --- --- 7,417
Repurchase of common shares --- --- (5,001)
Translation adjustment --- 716 716
Net income 10,974 --- 10,974
Balance, April 30, 1995 (37,607) (583) 51,037
Sale of common stock under stock option
and stock purchase plans --- --- 6,695
Net repurchases(reissuances) of common
shares --- --- 1,723
Retire treasury shares --- --- (5)
Translation adjustment --- (1,430) (1,430)
Purchase of common stock from TechGnosis
shareholders --- --- (4,800)
Conversion of subordinated convertible notes --- --- 325
Net loss (3,711) --- (3,711)
Balance, April 30, 1996 $(41,318) $(2,013) $49,834
The accompanying notes are an integral part of the consolidated financial
statements
INTERSOLV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
INTERSOLV, Inc. (the "Company" or "INTERSOLV"), is engaged
in the development, marketing and support of computer software
and services used by software developers to accelerate the
development and maintenance process, improve quality and reduce
costs.
Consolidation
The consolidated financial statements include the accounts
of INTERSOLV and its wholly-owned subsidiaries and its majority-
owned joint ventures. Intercompany accounts, transactions and
profits have been eliminated in the consolidated financial
statements. The Company holds a 51% and 70% interest,
respectively, in two joint ventures in Japan. The Company
includes the financial results of both joint ventures in its
consolidated financial statements. The Company sold software
products for resale to the ultimate customer to its Japanese
joint venture minority shareholders in fiscal 1996, 1995 and 1994
totaling $2.2 million, $2.6 million and $2.7 million,
respectively. In addition the Company reimbursed one minority
shareholder $1.2 million and $1.5 million in 1995 and 1994,
respectively, for management fees which covered employees, office
space and other miscellaneous items.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues consist primarily of license and
service fees, which include fee-paid consulting and training
services and maintenance services. Software license fees are
generally recognized upon initial shipment of the product and
acceptance by the customer. Training and consulting fees are
recognized upon delivery of the services. Revenues and costs
related to maintenance services provided in the initial 30-day
warranty period, which are insignificant, are bundled with the
initial license and recognized concurrently with the license fee.
Maintenance fees for support beyond the warranty period are
recorded as deferred revenue and recognized ratably over the
period of the maintenance contract, typically twelve months.
Cash and Cash Equivalents
Cash and cash equivalents consist of time and demand
deposits and highly liquid investments purchased with a maturity
of three months or less. The Company maintains its time and
demand deposits in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company
to concentrations of credit risk, as defined by Statement of
Financial Accounting Standards No. 105, consist primarily of
trade accounts receivable. The Company's customer base is
primarily Fortune 1000 companies or branches thereof, with no
customer accounting for more than 10% of the Company's revenues,
which minimizes potential concentrations of credit risk. The
Company does not require collateral upon delivery of its
products.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("FAS
107) requires disclosure of the fair value of certain financial
instruments where it is practicable to estimate that value. The
carrying amount of cash and cash equivalents approximated fair
value as of April 30, 1996 and 1995 because of the relatively
short maturity of these instruments. The carrying amount of
notes receivable, short-term debt and long-term debt approximates
fair value as the Company believes these instruments carry terms
which are comparable to similar instruments.
Income Taxes
Deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. They are
determined annually based on the differences between financial
statement and tax bases using enacted tax laws and rates in
effect for the year in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to
be realized. The provision for income taxes is the tax payable
for the year plus the change in the deferred tax assets and
liabilities during the year.
Currency Translation
Assets and liabilities of the Company's foreign operations
are translated into U.S. dollars at the exchange rate in effect
at the balance sheet date and revenues and expenses are
translated at average rates in effect during the period. The
unrealized currency translation adjustment is reflected as a
separate component of stockholders' equity on the balance sheet.
Net Income(Loss) Per Share
Earnings (loss) per share was computed by dividing net
income (loss) by the sum of the weighted average number of shares
of common stock and common stock equivalents outstanding during
the period when dilutive and the dilutive impact of the
convertible subordinated notes. Common stock equivalents consist
of common stock issuable on the exercise of outstanding stock
options, less the shares that could have been purchased with the
proceeds from the exercise of the options (the "Treasury Stock
Method").
Statement of Cash Flows
The consolidated statements of cash flows are intended to
reflect only cash receipt and cash payment activity and does not
reflect noncash investing and financing activity. Noncash
activity for each of the three one-year periods ended April 30,
1996, 1995 and 1994 was not significant except for the
acquisition of The Software Edge, Inc. in September 1994 and Q+E
Software, Inc. in April 1994 as more fully discussed in Note 2.
Accounting for Stock-based Compensation and Impairment of Long-
Lived Assets
During 1995, the Financial Accounting Standards Board
issued Statement of Accounting Standards No. 121 - "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("FAS 121") and Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock-Based
Compensation" ("FAS 123"). Both of these standards are effective
in 1996. FAS 121 requires that assets to be held and used be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset in
question may not be recoverable. The Company will have to
estimate the future undiscounted cash flows expected from using
the asset in question and its eventual disposition. When this
amount is less than the carrying amount, an impairment loss must
be recorded using discounted cash flows. Assets to be disposed
of, with certain exceptions, would be reported at the lower of
cost or fair value less the cost to sell the asset. There was no
adjustment in the accompanying financial statements due to the
implementation of FAS 121.
Under FAS 123, companies can either elect to recognize
compensation expense based upon the estimated fair value of
employee stock options and other equity instruments issued to
employees at the date the instruments are granted or they can
elect to continue to follow the guidance under APB Opinion 25 -
Accounting for Stock Issued to Employees ("APB 25"), and disclose
in the footnotes the pro forma net income and earnings per share
as if FAS 123 had been applied. The Company will continue to
follow the guidance of APB 25.
Reclassifications
Certain amounts previously reported have been reclassified
to conform with current year presentation.
Property and Equipment
Property and equipment are stated at cost and depreciated on
a straight-line basis over their estimated useful lives.
Furniture and equipment are generally depreciated over terms of
three to five years, leasehold improvements are amortized over
the shorter of the assets' useful lives or the term of the
related lease and computer software purchased for internal use is
amortized over terms not exceeding five years. Repairs and
maintenance are charged to operations as incurred. Major
improvements and betterments are capitalized.
Research and Development
Research and development expense, before the capitalization
of certain internal software development costs, amounted to $25.9
million, $22.7 million and $16.6 million for the fiscal years
ended April 30, 1996, 1995 and 1994, respectively.
Capitalized Software
Certain internal software development costs are capitalized
subsequent to the establishment of technological feasibility for
the product as evidenced by a working model. Capitalized
internal software development costs amounted to $11.3 million,
$9.1 million and $6.5 million for the fiscal years ended April
30, 1996, 1995 and 1994, respectively. Capitalization ceases
when the product is available for general release to customers,
at which time amortization of the capitalized costs begins. The
Company also purchases selected technologies from time to time to
supplement or expand its product lines. Capitalized software is
amortized on a straight-line basis over the estimated life of the
products, generally three years. Purchased software is amortized
over useful lives of three to five years on a straight-line
basis. Amortization of capitalized and purchased software costs
was $10.6 million, $8.2 million and $5.2 million during fiscal
1996, 1995, and 1994, respectively, and is included in cost of
sales.
The Company continually compares the unamortized costs of
capitalized software development costs and purchased software
costs to the expected future revenues for those products. If the
unamortized costs exceed the expected future net realizable
value, the excess amount is written off. The Company amortizes
capitalized software development costs for new products over
estimated useful lives of 3 years.
(2) ACQUISITIONS
TechGnosis International, Inc.
In October 1995, INTERSOLV acquired all of the outstanding
common and preferred stock of TechGnosis International, Inc.
("TechGnosis") for 2.5 million shares of INTERSOLV common
stock and $4.8 million in cash. In addition, INTERSOLV also
assumed TechGnosis' obligations under its $3.9 million of 8.4%
Subordinated Convertible Notes ("Notes") due in 1999. The
notes are convertible into 1,020,756 shares of INTERSOLV
common stock. Total value of the transaction was
approximately $80 million. TechGnosis, which is headquartered
in Belgium, provides cross-platform data access technology for
client/server environments. The transaction was accounted for
using the "pooling-of-interests" method; accordingly
INTERSOLV's historical financial statements have been restated
to include the financial position and results of operations of
TechGnosis.
PC Strategies & Solutions, Inc.
In May 1995, INTERSOLV acquired all of the outstanding
common stock of PC Strategies & Solutions, Inc. ("PCS") for
675,000 shares of INTERSOLV common stock (valued at $9.3
million). The transaction was accounted for using the "pooling-
of-interest" method; accordingly the historical financial
statements of INTERSOLV have been restated to include the
financial position and results of operations of PCS. PCS
provides consulting and training services focusing on the
implementation of object-oriented client/server technology.
Separate results of operations for the periods prior to the
acquisitions of TechGnosis and PCS are as follows (in thousands):
(Unaudited)
Quarter Ended Fiscal year ended Fiscal year ended
July 31, 1995 April 30, 1995 April 30, 1994
Revenues
INTERSOLV $28,858 $114,817 $85,393
TechGnoisis/PCS 3,806 19,700 14,175
Combined revenues $32,664 $134,517 $99,568
Net Income (loss)
INTERSOLV $473 $13,461 ($29,370)
TechGnosis/PCS (2,042) (2,487) 325
Combined net income (loss) ($1,569) $10,974 ($29,045)
C++/Views Product Line
In May 1995, INTERSOLV acquired the rights to the C++/Views
product line owned by Liant Inc. for $1.2 million. INTERSOLV did
not acquire any of the common stock of Liant Inc. As discussed
in Note 3, $0.7 million was allocated to in-process software
development efforts which had not reached technological
feasibility. This amount was charged to operations in fiscal
1996.
The Software Edge, Inc.
In September 1994, INTERSOLV acquired all of the outstanding
common stock of the Software Edge, Inc. ("Software Edge") for
approximately $5.7 million consisting of 471,819 shares of
INTERSOLV common stock. Software Edge developed and marketed a
software product which complements the Company's PVCS line of
software configuration management tools. The transaction was
accounted for using the "pooling of interest" method. Software
Edge's results of operations beginning May 1, 1994 have been
included in the Company's results. Results for previous years
have not been restated because the impact is not material.
Q+E Software, Inc.
In April 1994, INTERSOLV acquired all of the outstanding
stock of Q+E Software, Inc. ("Q+E") for approximately $37.4
million, consisting of $5.3 million in cash and installment
payments, 2,370,000 shares of INTERSOLV common stock (valued at
approximately $28 million) and $4.1 million in assumed and other
liabilities. Q+E developed and marketed software products for
end-users and software developers to access information stored in
databases resident on personal computers, mini-computers and
mainframes. The acquisition was accounted for using the
purchase method.
The transaction value was allocated among the identifiable
tangible assets and liabilities based on their respective fair
market values. In addition, the transaction value was also
allocated to certain intangible assets, such as existing software
products which had reached technological feasibility, and in-
process software development efforts which had not reached
technological feasibility ("purchased research and development").
This resulted in $34.8 million of the transaction value being
allocated to purchased research and development. This amount was
charged to operations in fiscal 1994.
(3) RESTRUCTURING CHARGES
TechGnosis Acquisition Charges
In October 1995, the Company incurred $11.6 million of non-
recurring charges related to the acquisition of TechGnosis. This
includes $3.3 million to restructure distributor agreements, $2.5
million for consolidation of offices and equipment, $2.2 million
for severance and related costs, $2 million to write-off
overlapping technologies and $1.6 million of direct transaction
and other transition expenses. As of April 30, 1996, charges
remaining to be disbursed relate to office consolidations and
restructuring of distributor agreements.
PCS and C++/Views Acquisition Charges
In May 1995, the Company incurred $2 million of non-
recurring charges related to the acquisition of PCS and the
C++/Views Product line. Acquisition charges included a $0.7
million charge for purchased research and development related to
the C++/Views transaction. The remaining $1.3 million charge was
for direct transaction expenses, severance and costs to
consolidate operations, which were all disbursed by April 30,
1996.
Q+E Acquisition Charges
Fiscal 1994 results were charged with $5.9 million of
restructuring expenses resulting from the Q+E acquisition. The
non-recurring charge includes, among other items, $1.1 million
for INTERSOLV severance and other costs to reduce the workforce,
$1.1 million for costs to close excess facilities, $1.3 million
related to write-off of older computer technology and $1.4
million for re-negotiation costs related to overlapping
dealer/distributor contracts. There is approximately $0.3
million related to office facilities to be disbursed.
Direct transaction expenses and the cost to settle Q+E
severance and contract obligations were included in the
acquisition costs and allocated to the fair market value of
acquired assets, as described in Note 2.
(4) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in one industry segment, the development
and marketing of computer software programs and related services.
The Company markets its products worldwide and operations can be
grouped into three main geographic areas. Pertinent financial
data by major geographic area is summarized below.
NORTH EUROPE ASIA/
AMERICA & OTHER PACIFIC CONSOLIDATED
Fiscal 1996:
Revenues:
Customers $96,883 $32,420 $16,010 $145,313
Intercompany 5,311 (4,711) (600) ---
TOTAL $102,194 $27,709 $15,410 $145,313
Income (loss) from operations ($1,798) ($4,215) $4,590 ($1,423)
Identifiable assets $83,361 $19,096 $8,460 $110,917
Fiscal 1995:
Revenues:
Customers $89,567 $30,413 $14,537 $134,517
Intercompany 3,276 (3,041) (235) ---
TOTAL $92,843 $27,372 $14,302 $134,517
Income (loss) from operations $14,209 ($2,611) $4,222 $15,820
Identifiable assets $79,990 $21,406 $3,412 $104,808
Fiscal 1994:
Revenues:
Customers $65,599 $23,793 $10,176 $99,568
Intercompany 3,472 (3,248) (224) ---
TOTAL $69,071 $20,545 $9,952 $99,568
Loss from operations ($27,828) ($1,004 $185 ($28,647)
Identifiable assets $64,532 $16,921 $2,859 $84,313
Intercompany revenues between geographic areas are accounted
for as transfer fees representative of transactions with
unaffiliated third parties. These fees are intended to cover
primarily software development expense and cost of goods.
Identifiable assets are those assets that are identifiable with
operations in each geographic area. General corporate assets in
North America include cash and cash equivalents and capitalized
software costs. No customer accounted for 10% or more of total
revenue during the fiscal years ended April 30, 1996, 1995 and
1994. Included in Europe and Other revenues is $7.3 million,
$10.4 million and $10.3 million of export revenues to countries
where the Company has no foreign owned operations. Approximately
95% of the North American revenues is to customers based in the
United States and the remainder is to customers in Canada and
Mexico.
(5) DEBT
Lines of Credit and Short-Term Notes Payable
The Company has an unsecured credit arrangement with two
banks (the "Credit Agreement"). The Credit Agreement provides
for borrowings not to exceed $12 million. The Credit Agreement
was renewed in July 1994 and is due to expire in September 1996.
Interest on borrowings would be at the LIBOR rate plus 1.5% or
prime, at the Company's option. The commitment fee is 3/8% per
annum on the unused portion of the credit line. The Credit
Agreement has various covenants which limit the Company's ability
to dispose of assets, purchase its own stock, pay dividends and
purchase other significant businesses or technologies. The
Company is also required to maintain certain financial ratios.
As of and during the years ended April 30, 1996 and 1995, there
were no borrowings outstanding.
TechGnosis had $1,083,000 of short-term debt outstanding
under foreign lines of credit and other borrowing arrangements
during fiscal 1996. Interest on the short-term debt ranged from
3.5% to 10% with varying maturity dates through December 1995.
Foreign lines of credit and other borrowing arrangements were
generally restricted for working capital purposes. The
borrowings are primarily collateralized by certain assets of the
Company's foreign operations. All amounts were repaid by April
30, 1996.
Long-term Debt
Long-term debt consists of the following at April 30:
1996 1995
(In Thousands)
Mortgage note payable to bank with interest at 7.75% at April 30,
1995; payable in monthly principal and interest installments
through July 2002 --- $214
Note payable to bank with interest at 8.25% at April 30, 1995;
payable in quarterly principal and interest installments through
December 1997 --- 75
Notes payable to two companies with interest at $5.47%; payable
in monthly principal and interest installments through February
1999 611 ---
Non-interest bearing accrued liabilities payable to four
individuals, payable in monthly installments 2,642 ---
Total debt 3,253 289
Less current portion (1,158) (35)
Long-term debt excluding current portion $2,095 $254
The maturities of long-term debt are as follows (in thousands):
1997 $1,158
1998 1,170
1999 925
$3,253
(6) COMMITMENTS AND CONTINGENCIES
Operating and Capital Lease Obligations
The Company leases office space and equipment under
noncancelable operating leases expiring through 2017. In
addition, the Company leases office equipment on a month-to-month
basis, which can be terminated at any time at the Company's
option. None of the agreements contain unusual renewal or
purchase options. Total rent expense in fiscal 1996, 1995 and
1994 was $7 million, $4.4 million and $4.7 million, respectively.
Future minimum lease payments under the noncancelable
operating lease agreements as of April 30, 1996, are as follows:
Years Ending April 30,
(in millions)
1997 1998 1999 2000 2001 Thereafter Total
$8.7 $6.8 $5.6 $3.9 $3.2 $18.8 $47.0
The Company also leases computer equipment under capital
leases. The present value of future minimum capital lease
payments as of April 30, 1996 is as follows:
1997 438
1998 238
1999 68
2000 39
2001 7
Total minimum payments 790
Less amount representing interest (101)
Present value of net minimum capital
lease payments 689
Less current installments of capital
lease obligations (365)
Long-term portion of capital lease
obligations $324
The long-term portion of capital lease obligations is included in
long-term debt in the consolidated balance sheet.
Contracting Costs (Discontinued Operations)
Prior to April 1986, certain revenues associated with
discontinued operations were generated under cost-plus-fee
contracts with the U.S. government and are subject to adjustments
upon audit by the Defense Contract Audit Agency (DCAA). Audits
through January 31, 1986 have been completed. On December 5,
1990, the Company received a notice from the DCAA questioning
certain charges aggregating approximately $2.4 million incurred
by the Company during fiscal 1985 and 1986. The Company filed a
response in April, 1991, which provided additional information
regarding the issues raised in the notice. The amount of the
liability, if any, can not be ascertained.
Sales and Income Taxes
The Company sells its products in various states through
different distribution channels, including telesales and direct
sales. On certain sales, the Company must collect and remit
sales tax to the respective states. These sales taxes are
subject to adjustment upon audit by the respective states.
Liabilities may result from this process; however, management
believes the reserves provided for these liabilities are
sufficient.
The Company's income tax returns are subject to audit by
Federal, state and foreign tax authorities. Adjustments to
increase or decrease taxable income or losses may result from the
audits. Management believes the impact of these adjustments, if
any, would not have a material impact on the Company's financial
statements taken as a whole.
(7) SUBORDINATED CONVERTIBLE NOTES
As a result of the acquisition of TechGnosis in October
1995, the Company has an obligation for $3,865,000 of 8.4%
subordinated convertible notes which are due in September 1999.
Interest is payable quarterly. The notes can be converted into
INTERSOLV common stock at the option of the holder at any time
prior to maturity. The conversion price per share is $3.7864,
which would be adjusted for certain dilutive events. The Company
may prepay the notes at any time prior to maturity. Upon
prepayment, the note holder will receive a warrant to purchase
the number of shares of INTERSOLV common stock determined by
dividing the prepayment amount by the conversion price. The
warrants shall be exercisable until 1999.
(8) CAPITAL STOCK
Stock Option Plans
The 1992 Stock Option Plan (the "1992 Plan") provides for
the granting of incentive and nonqualified stock options to
purchase up to 2,000,000 shares of common stock. The option
price must be equal to or greater than fair market value at the
date of grant. Options are granted for terms of up to ten years
and most are exercisable in cumulative annual increments of 25%
each year, commencing one year after the date of grant. This
plan expires in 2002. The 1992 Plan replaced the 1982 Stock
Option Plan (the "1982 Plan"), which has expired. There are
still outstanding options under the 1982 Plan. In addition, the
Company has 16,038 shares and 214,270 shares outstanding under
option plans that were assumed from Q+E and TechGnosis,
respectively, as a result of the acquisition of those companies.
The average price of the outstanding options is $9.86 and $0.92
under the Q+E and TechGnosis plans, respectively. No further
options will be granted under those plans.
Information regarding the Company's stock option plans are
summarized below:
1982 1992
Plan Plan
April 30, 1993 options outstanding 1,529,869 177,000
Granted --- 610,171
Exercised (338,575) ---
Canceled (96,273) (46,250)
April 30, 1994 options outstanding 1,095,021 740,921
Granted --- 537,314
Exercised (312,085) (90,826)
Canceled (41,775) (65,344)
April 30, 1995 options outstanding 741,161 1,122,065
Granted --- 1,274,998
Exercised (402,653) (196,591)
Canceled (4,075) (379,762)
April 30, 1996 options outstanding 334,433 1,820,710
Exercisable as of April 30, 1994 657,681 36,500
Exercisable as of April 30, 1995 547,347 152,207
Exercisable as of April 30, 1996 316,433 293,871
Available for future grant -0- 891,873
Average price of options exercised
Fiscal 1994 $6.91 ---
Fiscal 1995 $8.45 $7.81
Fiscal 1996 $8.95 $7.87
Average price per share for outstanding options
As of April 30, 1994 $9.32 $7.67
As of April 30, 1995 $9.53 $9.19
As of April 30, 1996 $10.21 $10.78
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan, which is
authorized to grant rights to purchase an aggregate maximum of
340,000 shares of common stock. Employees of the Company with
three months of continuous service are eligible to participate.
Rights are granted twice yearly and are exercisable
effective the succeeding June 30 or December 31. Eligible
employees may purchase shares of common stock through payroll
deductions at a purchase price which is 85% of fair market value
at the beginning or the end of each six-month offering period,
whichever is lower. During fiscal 1996, 1995 and 1994,
respectively, 102,958, 96,454 and 92,175 shares of common stock
were purchased under this plan.
Shareholder Rights Plan
The Company has a Shareholder Rights Plan (the "Rights
Plan"), which is designed to deter coercive takeover tactics and
to prevent an acquirer from gaining control of the Company
without offering a fair price to all of the Company's
shareholders. Under the Rights Plan, each common stockholder
receives one right (a "Right") for each share of common stock
which entitles its holder to buy one one-hundredth of a share of
Series A Junior Participating Preferred Stock ("Series A") at a
purchase price of $40.00. The Rights will not be exercisable or
separable from the common stock until a specified period after a
person or group has acquired or has the right to acquire 20% of
the Company's common stock or has commenced a tender offer
resulting in the ownership of 30% or more of the Company's common
stock.
If the Company is acquired in a merger or other business
combination transaction, each Right will entitle the holder to
receive, upon exercise, common stock of either the Company or the
acquiring company having a market value equal to twice the
exercise price of the Right. Each Right is nonvoting and expires
on August 31, 1999. The Company may generally redeem the Rights
at the Company's option prior to such Right becoming exercisable
at a redemption price of $.01 per Right.
Warrants
The Company has issued warrants to purchase 140,000 shares
of the Company's common stock at an exercise price of $10.375.
As of April 30, 1996, 46,668 shares were exercisable, with the
balance becoming exercisable in increments of 31,112 shares on an
annual basis through February 1999. The warrants expire in 2006.
(9) EMPLOYEE BENEFIT PLAN
401(k) Plan
The Company has a savings and investment plan (the "Plan")
which covers employees of the Company and that qualifies under
section 401(k) of the Internal Revenue Code. All full-time
employees who are at least 21 years old and have worked a minimum
of three months at the Company are eligible to participate.
Contributions up to 10% of eligible employees' salaries, as
defined, may be made by employees and the Company can make
matching contributions. The Company contributed $303,000 and
$178,000 in fiscal 1996 and 1995, respectively.
(10) INCOME TAXES
The U.S. and foreign components of income (loss) before
provision for income taxes were as follows (in thousands):
Years Ended April 30,
1996 1995 1994
United States $2,951 $15,466 ($33,054)
Foreign (3,334) 617 4,316
($ 383) $16,083 ($28,738)
The provision for income taxes consist of the following:
Years Ended April 30,
1996 1995 1994
Current provision:
U.S. federal $ --- $2,456 $1,345
Foreign --- 184 123
State 593 289 247
593 2,929 1,715
Deferred provision (benefit)
U.S. federal 2,735 2,180 (1,408)
Foreign --- --- ---
State --- --- ---
2,735 2,180 (1,408)
$3,328 $5,109 $ 307
The provision for income taxes result in effective tax
rates which differ from the U.S. Federal statutory income tax rate
as follows:
1996 1995 1994
Statutory U.S. Federal income tax rate (35.0%) 35.0% (34.0%)
State income taxes, net of federal benefit 77.7 1.2 0.1
Foreign taxes impact (143.2) (.4) ---
Net operating loss benefit deferred 909.1 --- 15.8
Nondeductible research and development costs --- --- 18.9
Alternative minimum tax --- 1.6 ---
Nondeductible permanent expenses 60.3 --- ---
Other --- (5.6) 0.3
868.9% 31.8% 1.1%
The tax effects of the components of the deferred tax assets
and liabilities are as follows:
April 30 April 30,
1996 1995
(in $000)
Net operating loss carryforwards $6,973 $4,010
Research and experimental tax credits 997 1,800
Property and equipment 131 347
Allowance for doubtful accounts 1,178 343
Other accruals 2,088 930
Valuation allowance (8,691) (2,264)
Total deferred tax assets 2,676 5,166
Deferred tax liabilities:
Capitalized software, net (7,782) (7,537)
Total deferred tax liabilities (7,782) (7,537)
Net deferred tax liabilities ($5,106) ($2,371)
Net operating loss carryforwards for U.S. and foreign tax
purposes are $17.13 million and $8.8 million, respectively, which
expire through 2010. Research and experimental tax credit
carryforwards totaling $0.6 million are also available and expire
through 2001.
(11) INVESTMENT AND OTHER INCOME
Investment and other income includes interest income of
$1,083,000, $917,000 and $386,000 in fiscal 1996, 1995 and 1994,
respectively, and interest expense of $615,000, $460,000 and
$286,000 in fiscal 1996, 1995 and 1994, respectively.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarters First Second Third Fourth
(amounts in 000's, except per share data)
1996
Revenues $32,664 $33,714 $38,894 $40,041
Costs and Expenses 34,244 44,089 32,532 35,871
Net Income (loss) (1,569) (9,906) 4,651 3,113
Primary net income (loss) per share ($0.08) ($0.52) $0.23 $0.15
Fully diluted net income (loss) per share($0.08) ($0.52) $0.22 $0.15
Stock Price:
High $26.25 $25.37 $17.25 $16.37
Low $14.00 $14.50 $9.25 $9.62
1995
Revenues $27,054 $31,914 $35,266 $40,283
Costs and expenses 25,378 28,271 30,390 34,658
Net income 1,227 2,584 3,295 3,868
Primary net income per share $0.07 $0.13 $0.17 $0.20
Fully diluted net income per share $0.07 $0.13 $0.16 $0.19
Stock Price:
High $12.50 $18.00 $18.25 $16.50
Low $8.62 $11.12 $13.25 $13.37
The first and second quarter of fiscal 1996 include non-
recurring charges of $2 million and $11.6 million, respectively,
related to the acquisitions of PC Strategies & Solutions, Inc.
and TechGnosis International, Inc., as discussed in Notes 2 and
3.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as set forth below in this Item 10, the information
required by this Item 10 is incorporated herein by reference to
the Company's definitive proxy statement to be filed within 120
days after the end of the Company's fiscal year ended April 30,
1996.
EXECUTIVE OFFICERS
The following table indicates the names, ages and positions
of the Company's executive officers. There is no family
relationship between any of the officers or directors.
Name Age Position
Kevin J. Burns 47 Chairman of the Board
and Chief Executive Officer
Gary G. Greenfield 41 President and Chief Operating Officer
Kenneth A. Sexton 42 Senior Vice President, Finance &
Administration and Chief Financial
Officer
Panos Anastassiadis 46 Senior Vice President, Worldwide
Distribution
Mr. Burns was elected Chief Executive Officer of the Company
in 1986 and Chairman of the Board in 1990. From 1986 to 1995,
Mr. Burns also served as President of the Company. From 1984 to
1986, he was Executive Vice President and Chief Operating Officer,
and from 1982 to 1984, Executive Vice President of the Company.
He has also been a Director of the Company since 1986.
Mr. Greenfield was elected President and Chief Operating
Officer in 1995. From 1992 to 1995, he was Executive Vice
President, Chief Operating Officer. From 1989 to 1992, he was
Executive Vice President, Product Operations. From April 1991 to
October 1991 he was also the Chief Financial Officer of the
Company. He served as Senior Vice President, Product Services and
Operations from 1988 to 1989. He served as Vice President,
Marketing from 1987 to 1988.
Mr. Sexton was elected Vice President, Finance &
Administration and Chief Financial Officer of the Company in
1991. From 1984 to 1991, he was Controller and Chief Accounting
Officer of Life Technologies, Inc., a biotechnology company.
Mr. Anastassiadis was appointed Senior Vice President,
Worldwide Distribution in 1996. From 1993 to 1996, he was Senior
Vice President, International Operations. From 1991 to 1993, he
was country manager of the Company's Southern European operations
and prior to that he held senior sales positions with Legent
Corporation.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed within 120 days after the end of the
Company's fiscal year ended April 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item 12 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed within 120 days after the end of the
Company's fiscal year ended April 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby
incorporated by reference to the Company's definitive proxy
statement to be filed within 120 days after the end of the
Company's fiscal year ended April 30, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of this Form 10-K:
1. Financial Statements. The following
consolidated financial statements of INTERSOLV, Inc.
and Subsidiaries and Report of Independent Accountants
relating thereto are filed as Item 8 of this report.
Description
Report of Independent Accountants
Consolidated Balance Sheets as of April 30, 1996 and
1995
Consolidated Statements of Operations for the fiscal
years ended April 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the fiscal
years ended April 30, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders'
Equity for the fiscal years ended April 30, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
The following consolidated financial statement schedule
of INTERSOLV, Inc. and Subsidiaries are filed as a
schedule to this Report:
Schedule II - Valuation and Qualifying Accounts and
Reserves
Report of Independent Accountants on this schedule is
included in the Report of Independent Accountants
covering the consolidated financial statements, which
is included herein.
Schedules omitted are not present because (i) such
schedules are not applicable or required or, (ii) the
information required has been presented in the
financial statements or notes thereto.
3. Exhibits. The following Exhibits (listed
according to the number assigned in the table in Item
601 of Regulation S-K) are filed with this Report or
incorporated by reference as set forth below:
Exhibit
Number Exhibit Description
Articles of Incorporation and By-laws
3.1 Second Restated Certificate of
Incorporation, as amended, of the Company
(incorporated herein by reference to Exhibit
3(a) to the Company's Registration Statement
on Form S-4 (Registration No. 33-38937)).
3.2 By-Laws, as amended
(incorporated herein by reference
to Exhibit 3.2 to the Company's Annual Report on
Form 10-K
for the fiscal year ended 1991).
Instruments Defining the Rights of Security
Holders, Including Indentures
4.0 Specimen Common Stock Certificate
(incorporated herein by reference to Exhibit
4.0 to the Company's Annual Report on Form 10-
K for the fiscal year ended 1992.)
4.1 Rights Agreement, dated August 29,
1989 between the Company and Sovran Bank,
N.A. (incorporated herein by reference to
Exhibits 4.1 to the Company's Current Report
on Form 8-K dated September 21, 1989). First
National Bank of Boston is currently the
Company's transfer agent and has assumed
Sovran Bank's obligations under this
agreement.
Certain Management Contracts, Compensation Plans,
Contracts or Arrangements
10.1 The Company's 1982 Stock Option
Plan, as amended (incorporated herein by
reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal
year ended April 30, 1990).
10.2 The Company's 1992 Stock Option Plan
(incorporated herein by reference to Exhibit
4(a) to the Company's Registration Statement
on Form S-8 (Registration No. 33-56220)).
10.3 1984 Stock Option Plan of Index, as
amended (incorporated by reference herein to
Exhibit 10.2 to Index's Annual Report on Form
10-K for the year ended December 31, 1988).
10.4 Amendment to the Company's 1992
Stock Option Plan, dated June 16, 1994
(incorporated herein by reference to Exhibit
10.6 of the Company's Annual Report on Form
10-K for the fiscal year ended April 30,
1994).
10.5 The Company's 1986 Employee Stock
Purchase Plan (incorporated herein by
reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal
year ended April 30, 1988).
10.6 The Company's 1992 Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 4(a) to the Company's Registration
Statement of Form S-8 (Registration No. 33-
56166)).
10.7 Amendment to the Company's 1992
Employee Stock Purchase Plan, dated June 16,
1993 (incorporated herein by reference to
Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended April
30, 1993).
10.8 Amendment to the Company's 1992
Employee Stock Purchase Plan, dated July 1,
1996 (incorporated by reference to Exhibit
4(b) to the Company's Registration Statement
on Form S-8 (Registration No. 333-07351)).
Material Contracts in Ordinary of Business
10.9 Financing Agreement dated July 27,
1992 between the Company as the borrower and
Maryland National Bank and First National
Bank of Boston as lenders (incorporated by
reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal
year ended April 30, 1992).
10.10 Amendment to the Financing
Agreement dated July 19, 1993, between the
Company as borrower and Maryland National
Bank and First National Bank of Boston as
lenders (incorporated herein by reference to
Exhibit 10.27 to the Company's Annual Report
on Form 10-K for the fiscal year ended April
30, 1993).
10.11 Amendment to the Financing
Agreement dated August 11, 1994, between the
Company as borrower and Nations Bank
(successor to Maryland National Bank) and
First National Bank of Boston as lenders
(incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on From
10-K for the fiscal year ended April 30,
1994).
Other Contracts
10.12 Agreement of Merger among
INTERSOLV, Inc., Q+E Software, Inc., Solsub,
Inc. and the primary shareholders of Q+E
Software Inc. dated April 20, 1994
(incorporated herein by reference to the
Company's current Report on Form 8-K as filed
on May 5, 1995).
10.13 Registration Rights
agreement between INTERSOLV, Inc. and R.
Tyler Bennett, Phyllis Bennett, John DeLonga,
Richard Holcomb, Robert Humphrey, John Rappl,
Timothy Sampair, George Woltman and David
Whitehead dated April 20, 1994 (incorporated
herein by reference to the Company's current
report on Form 8-K filed on May 5, 1994).
10.14 Form of Indemnification
Agreement between the Company and its
directors, officers and certain employees
(incorporated herein by reference to Exhibit
10.13 to the Company's Annual Report on Form
10-K for the fiscal year ended April 30,
1994).
10.15 Stock Exchange Agreement by and
among INTERSOLV, Inc., PC Strategies &
Solutions, Inc. and Michael Goldman dated May
1, 1995 (incorporated herein by reference to
the Company's Current report on Form 8-K as
filed on May 11, 1995).
10.16 Registration Rights Agreement
between INTERSOLV, Inc. and Michael Goldman
dated May 1, 1995 (incorporated herein by
reference to the Company's current report on
Form 8-K as filed on May 11, 1995).
10.17 Agreement of Merger dated
October 22, 1995 by and among INTERSOLV,
TechGnosis International, Inc., INTERSOLV
Perkins Corporation and certain stockholders
of TechGnosis International, Inc.
(incorporated herein by reference to Exhibit
2 of the Company's Current Report on Form 8-K
as filed on November 7, 1995).
10.18 Registration Rights Agreement
between INTERSOLV, Inc. and certain
stockholders of TechGnosis International,
Inc. (incorporated herein by reference to
Exhibit 3 of the Company's Current Report on
Form 8-K as filed on November 7, 1995).
Other Exhibits
11.1 Computation of Earnings per Share
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (EDGAR
version only)
(b) Reports on Form 8-K:
None
(c) Exhibit
The list of exhibits required by Item 601 of
Regulation S-K is included in Item (a)3 above.
(d) Financial Statement Schedules
See Item (a)2 above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: August 7, 1996 INTERSOLV, INC.
By /s/ Kenneth A. Sexton
Kenneth A. Sexton
Senior Vice President, Finance
& Administration and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on August 7, 1996.
Signature Title
/s/ Kevin J. Burns Chairman of the Board
Kevin J. Burns and Chief Executive Officer
(Principal Executive Officer)
/s/ Kenneth A. Sexton Senior Vice President, Finance &
Kenneth A. Sexton Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
/s/ Norman A. Bolz Director
Norman A. Bolz
/s/ Richard A. Carpenter Director
Richard A. Carpenter
/s/ Robert N. Goldman Director
Robert N. Goldman
/s/ Gary G. Greenfield Director
Gary G. Greenfield
/s/ Russell E. Planitzer Director
Russell E. Planitzer
/s/ Charles O. Rossotti Director
Charles O. Rossotti
/s/ Frank A. Sola Director
Frank A. Sola
INTERSOLV, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
1996
Allowance for
doubtful accounts ($1,960,000) ($2,515,000) $--- $1,339,000 ($3,136,000)
1995
Allowance for
doubtful accounts $(1,058,000) $2,102,000) $--- $1,200,000 ($1,960,000)
1994
Allowance for
doubtful accounts ($929,000) ($830,000) ($415,000) $1,116,000 ($1,058,000)
Note: Amounts for fiscal 1995 and 1994 have been restated to include the
financial results of TechGnosis International, Inc. and PC Strategies and
Solutions, Inc., which were acquired in fiscal 1996 in transactions accounted
for using the "pooling-of-interests" method.
Exhibit 11.1
INTERSOLV, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands)
For the years ended April 30
1996 1995 1994
PRIMARY
Net income (loss) ($3,711) $10,974 ($29,045)
Weighted average number of
shares outstanding 19,348 18,577 15,324
Additional shares under stock
option plans assumed outstanding
less shares assumed repurchased
under the treasury stock method --- 906 ---
Primary shares 19,348 19,483 15,324
Primary net income (loss) per share ($0.19) $ 0.56 ($1.90)
FULLY DILUTED
Net income (loss) ($3,711) $10,974 ($29,045)
Elimination of interest expense, net of tax,
related to subordinated convertible notes ---
112 ---
Adjusted net income (loss) (3,711) 11,086 ($29,045)
Weighted average number of
shares outstanding 19,348 18,577 15,324
Additional shares under
stock option plans assumed
outstanding less shares assumed
repurchased under the treasury
stock method --- 939 ---
Additional shares related to subordinated
convertible notes --- 656 0
Fully diluted shares 19,348 20,172 15,324
Fully diluted net income (loss)
per share ($0.19) $0.55 ($1.90)
Exhibit 21.1
INTERSOLV, INC. AND SUBSIDIARIES
SUBSIDIARIES
Name of Direct Name of Indirect Jurisdiction of
Subsidiary Subsidiary Incorporation
INTERSOLV Technology Holding Corporation --- Delaware
Index Technology Securities Corporation --- Massachusetts
Sage-California, Inc. --- California
INTERSOLV-Canada, Inc. --- Ontario, Canada
Software Edge, Inc. --- Colorado
INTERSOLV International Holdings Corporation --- Delaware
INTERSOLV PLC United Kingdom
INTERSOLV Pty Ltd. Australia
Salgin Pty Ltd. Australia
INTERSOLV Gmbh Germany
INTERSOLV France SA France
INTERSOLV Foreign
Sales Corporation Barbados
INTERSOLV RTP, Inc. North Carolina
Q+E Software Ltd. United Kingdom
Q+E Software
Deutscheland Germany
Q+E Software Benelux Netherlands
TechGnosis International,
Inc. Delaware
TechGnosis, Inc. Delaware
TechGnosis International
NV Belgium
TechGnosis Gmbh Germany
TechGnosis France SA France
Gnosis NV Belgium
TechGnosis Middleware
Ltd. United Kingdom
Gnosis Pacific Inc. Japan
INTERSOLV-Tohmatsu Co. Ltd. --- Japan
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Intersolv, Inc. on Form S-8, Registration Nos. 333-07351, 33-64643, 33-
86590, 56-166, 56-220, 12-795 and 12-797 and on Form S-3, Registration Nos.
333-01143, 33-61451 and 33-83796, of our report dated May 30, 1996, on our
audits of the consolidated financial statements and the financial statement
schedule of INTERSOLV, Inc. as of April 30, 1996 and 1995, and for the
years ended April 30, 1996, 1995 and 1994, which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Washington, D.C.
August 7, 1996
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 28,215
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<SALES> 145,313
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