<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one):
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
- ---
Act of 1934
FOR THE QUARTER ENDED DECEMBER 31, 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 0-18674
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MARCAM CORPORATION
------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2711580
- ----------------------------------------------------- --------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.
95 Wells Avenue, Newton, Massachusetts 02159
- ----------------------------------------------------- --------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 965-0220
--------------
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
--- ---
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of January 23, 1997, was 11,448,092 shares.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements
MARCAM CORPORATION
Consolidated Balance Sheets
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1996
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,095 $ 21,817
Accounts receivable, net of allowances of $2,673 at
December 31, 1996 and $2,472 at September 30, 1996 46,817 50,602
Prepaid expenses and other current assets 6,735 6,132
-------- --------
Total current assets 71,647 78,551
-------- --------
Property and equipment, net 10,778 10,954
Computer software costs, net 30,732 31,292
MAPICS intangible costs, net 5,196 5,325
Other assets 4,852 6,080
-------- --------
Total assets $123,205 $132,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,786 $ 13,496
Accrued expenses and other current liabilities 36,127 41,272
Deferred revenue 38,038 39,235
-------- --------
Total current liabilities 86,951 94,003
-------- --------
Long-term debt 25,745 25,764
Deferred income taxes 832 761
-------- --------
Total liabilities 113,528 120,528
-------- --------
Commitments and contingencies (Note 2)
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000 shares authorized
Series D Convertible Preferred Stock, 225 shares issued and
outstanding (liquidation preference of $22,500) 225 225
Series E Convertible Preferred Stock, 100 shares issued and
outstanding (liquidation preference of $10,000) 100 100
Common stock, $.01 par value; 30,000 shares authorized;
11,439 and 11,431 shares issued and outstanding at
December 31, 1996 and September 30, 1996 114 114
Additional paid-in capital 76,668 76,602
Accumulated deficit (65,890) (62,795)
Unamortized deferred compensation (529) (585)
Cumulative translation adjustment (1,011) (1,987)
-------- --------
Total stockholders' equity 9,677 11,674
-------- --------
Total liabilities and stockholders' equity $123,205 $132,202
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
MARCAM CORPORATION
Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Licenses $20,269 $23,257
Services 25,478 26,746
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Total revenues 45,747 50,003
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Operating expenses:
Cost of licenses revenues 4,677 4,605
Cost of services revenues 14,585 17,097
Selling and marketing 18,362 20,868
Product development 7,564 6,673
General and administrative 1,953 2,193
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Total operating expenses 47,141 51,436
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Operating loss (1,394) (1,433)
Interest and other income 322 380
Interest and other expense (1,022) (968)
------- -------
Loss before income tax expense (2,094) (2,021)
Income tax expense 1,001 828
------- -------
Net loss $(3,095) $(2,849)
======= =======
Net loss per share $(0.27) $(0.25)
======= =======
Weighted average number of shares outstanding 11,435 11,311
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
MARCAM CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,095) $(2,849)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,668 3,850
Provision for bad debts 687 510
Deferred income taxes 71 (275)
Changes in operating assets and liabilities:
Accounts receivable 3,387 (656)
Prepaid expenses and other assets 445 (1,480)
Accounts payable (778) (1,168)
Accrued expenses and other current liabilities (4,797) (2,219)
Deferred revenue (1,030) 9,995
------- -------
Net cash provided by (used for) operating activities (442) 5,708
------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,041) (1,293)
Additions to computer software costs (2,553) (3,490)
Purchases of short-term investments - (3,939)
------- -------
Net cash used for investing activities (3,594) (8,722)
------- -------
Cash flows from financing activities:
Principal payments on debt and capital lease obligations (35) (149)
Proceeds from stock option exercises 66 491
------- -------
Net cash provided by financing activities 31 342
------- -------
Effect of exchange rate changes on cash and cash equivalents 283 (5)
------- -------
Net decrease in cash and cash equivalents (3,722) (2,677)
Cash and cash equivalents at beginning of the period 21,817 27,312
------- -------
Cash and cash equivalents at end of the period $18,095 $24,635
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
MARCAM CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. As permitted by the rules of the Securities and
Exchange Commission applicable to quarterly reports on Form 10-Q, these notes
are condensed and do not contain all disclosures required by generally accepted
accounting principles. In the opinion of management, these financial statements
contain all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the Company's financial position, results of
operations and cash flows as of the dates and for the periods indicated. While
the Company believes that the disclosures presented are adequate to make these
financial statements not misleading, these financial statements should be read
in conjunction with the Company's audited financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
The results of operations for the three months ended December 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
Certain amounts have been reclassified to conform with current period
presentation.
(2) Commitments and Contingencies
-----------------------------
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's future
financial position or results of operations.
5
<PAGE>
PART I.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
fluctuations in quarterly results, particularly resulting from lengthy sales
cycles, the variable size of the Company's transactions with customers and
relatively fixed expenses in the short term; successful development and
enhancement of the Company's products; market acceptance of the Company's
products; availability of funds for the continued financing of the Company's
operations and development activities; and the highly competitive nature of the
Company's markets. Further information on potential factors that could affect
the Company's financial results are included in filings made by the Company from
time to time with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996 (0-18674).
Marcam is a worldwide provider of enterprise applications and services for
manufacturing companies. The Company's products offer comprehensive business
planning and control solutions to customers' production, logistics, asset
management and financial requirements.
The Company's revenues are derived from licensing its Protean, PRISM, Avantis
and MAPICS XA products. For the first three quarters of fiscal 1996, the
Company also derived revenues from its subsidiary, Foresight Software, Inc.
(FSI) and its MXP product line, which was divested effective as of June 30,
1996. Each of these product lines support different customers' technology
strategies. The Protean products, which utilize advanced object technology,
tools and databases, are platform independent. PRISM and MAPICS XA products
provide customer solutions implemented on the IBM AS/400. The Avantis products
provide customer solutions implemented on both the IBM AS/400 and open systems,
utilizing object technology.
Marcam also derives revenues from the sale of product support and related
services. Product support is offered to licensed customers generally based on
agreements that are renewed annually. Related services include assisting with
customer implementation of licensed software, providing custom programming and
system integration services, and providing educational material and instruction
in the use of licensed software.
For the quarter ended December 31, 1996, the Company recorded a net loss of
$3,095,000. The net loss included an operating loss of $1,394,000. The
Company's revenues for the quarter ended December 31, 1996 were less than
management expected. The expenditures during the quarter, particularly
significant continued investment in the development of Protean, had been based
on expected revenues. The revenue shortfall, combined with the relatively fixed
nature of the expenses over the short term, resulted in the loss. While the
Company's AS/400 based businesses were profitable overall, these profits were
insufficient to cover investments made in the Protean business. The results for
the quarter ended December 31, 1996 also reflect savings resulting from expense
control and the restructuring efforts implemented during the second half of
fiscal 1996.
6
<PAGE>
In fiscal years 1995 and 1996, the Company recorded restructuring
charges of $28,756,000 and $10,600,000, respectively. The 1995 restructuring
charges primarily pertained to the cessation of development of the PRISM
Client/Server product line and the consolidation of certain facilities. The
1996 restructuring charges primarily related to a restructuring of the Company's
global operations and the divestiture of FSI. At December 31, 1996, a balance
of $2,340,000 associated with these charges remained in accrued expenses.
Management believes that this remaining balance is adequate to cover future
expenditures associated with the restructuring actions and that all related
restructuring activities will be completed by the end of fiscal 1997.
Results of Operations
- ---------------------
Total revenues decreased 8.5% to $45,747,000 from $50,003,000 for the three-
month period ended December 31, 1996, as compared to the three-month period
ended December 31, 1995. Total revenues excluding revenues from the MXP product
line, which was divested effective as of June 30, 1996, decreased 3.5% from
$47,396,000 for the three-month period ended December 31, 1995. License fee
revenues decreased 12.8% to $20,269,000 for the three-month period ended
December 31, 1996, as compared to $23,257,000 for the three-month period ended
December 31, 1995. License fee revenues excluding revenues from the MXP product
line decreased 6.7% from $21,735,000 for the three-month period ended December
31, 1995. The decrease in license fee revenues for the three-month period ended
December 31, 1996 as compared to the same period in fiscal 1996 was primarily
due to the decline in license fee revenues for the PRISM products which more
than offset continued growth for the MAPICS products during this period. MAPICS
sales were particularly strong in North America and Europe, while PRISM sales
declined in both North America and Europe.
Services revenues decreased 4.7% to $25,478,000 for the three-month period
ended December 31, 1996, as compared to $26,746,000 for the same period in
fiscal 1996. Services revenues excluding revenues from the MXP product line
decreased 0.7% from $25,661,000 for the three- month period ended December 31,
1995. The decrease in services revenues was primarily from decreased
implementation consulting and customization revenues for the PRISM products
which were partially offset by increased customer support revenues.
Cost of licenses revenues represented 23.1% and 19.8% of license revenues for
the three-month periods ended December 31, 1996 and 1995, respectively. The
increase in cost of licenses revenues as a percentage of license fee revenues
for the three-month period ended December 31, 1996 as compared to the same
period in the prior year, was due to increased amortization of capitalized
software translation costs for translating and localizing products for non-U.S.
markets, as well as increased amortization of capitalized software development
costs related to the MAPICS and Protean products.
Cost of services revenues represented 57.2% and 63.9% of services revenues for
the three-month periods ended December 31, 1996 and 1995, respectively. The
improvement in cost of services revenues as a percentage of services revenues
for the three-month period ended December 31, 1996 as compared to the same
period in the prior year was due primarily to improved personnel utilization.
Selling and marketing expense decreased $2,506,000, or 12%, for the
three-month period ended December 31, 1996 as compared to the same period in
fiscal 1996. This decrease was primarily
7
<PAGE>
related to declines in payroll and commission related expenses, resulting from
headcount reductions and decreased revenues.
Gross research and product development expenditures for the three-month period
ended December 31, 1996 were $10,117,000, as compared to $10,163,000 for the
same period in fiscal 1996. The expenditures for the three-month period ended
December 31, 1996 as compared to the same period in fiscal 1996 reflect
decreased expenditures related to the discontinuance of investments in the MXP
product line, divested effective as of June 30, 1996, partially offset by
greater investment in the development of current products.
Computer software costs capitalized were $2,553,000 for the three-month period
ended December 31, 1996 representing 25.2% of gross research and development
expenditures. Computer software costs capitalized during the three-month period
ended December 31, 1995 were $3,490,000, representing 34.3% of gross research
and development expenditures.
Therefore, product development expenses were $7,564,000 for the three-month
period ended December 31, 1996, representing 16.5% of total revenues. Product
development expenses were $6,673,000 for the three-month period ended December
31, 1995, representing 13.3% of total revenues. The increase for the three-month
period ended December 31, 1996 as compared to the same period in fiscal 1996 was
primarily related to the continuing investment in all product lines,
particularly the Protean products, and lower amounts of computer software
costs being capitalized.
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $240,000 for the
three-month period ended December 31, 1996, as compared to the same period in
fiscal 1996. The decrease for the three-month period ended December 31, 1996 as
compared to the same period in fiscal 1996 was primarily due to decreased legal
costs.
The income tax expense for the three-month periods ended December 31, 1996 and
December 31, 1995 was $1,001,000 and $828,000, respectively. The expense in
each three-month period was primarily due to foreign withholding taxes and
income taxes on income generated in foreign jurisdictions, for which U.S. tax
credit utilization is currently uncertain. There was no tax benefit recorded for
losses generated in the U.S. during these periods due to the uncertainty of
realizing such benefits.
Liquidity and Capital Resources
- -------------------------------
The Company has funded its activities primarily from cash generated from
operations, from borrowings and from equity financings.
Current assets decreased $6,904,000 at December 31, 1996 to $71,647,000 from
$78,551,000 at September 30, 1996. This decrease was primarily due to lower
cash and accounts receivable balances. The decrease in cash is attributable to
cash used for restructuring related payments and investments in software
development and fixed assets. The decrease in accounts receivable is primarily
due to decreased revenues for the three-month period ended December 31, 1996 as
compared to the three-month period ended September 30, 1996.
8
<PAGE>
Current liabilities decreased $7,052,000 at December 31, 1996 to $86,951,000
from $94,003,000 at September 30, 1996. The decrease was primarily due to the
decrease in accrued expenses and other current liabilities, which reflect
reductions in restructuring reserves and affiliate commissions payable. As a
result, the working capital deficit decreased by $148,000 from a working capital
deficit of $15,452,000 at September 30, 1996 to a working capital deficit of
$15,304,000 at December 31, 1996.
At December 31, 1996, the Company had outstanding $25,000,000 in aggregate
principal amount of 9.82% unsecured subordinated notes due April 30, 2001. The
terms of the subordinated debt contain financial covenants which, among other
things, require the maintenance of certain financial ratios, limit the Company's
ability to incur additional debt, and preclude the payment of dividends. The
Company currently is in compliance with these covenants, as amended.
In addition, the Company has a revolving credit line of $12,000,000, with
borrowing availability equal to 80% of qualifying accounts receivable.
Borrowings under this facility bear interest at a designated prime rate plus 1%
per annum. This credit facility expires August 31, 1997. The Company's
obligations under this credit facility are secured by liens on substantially all
of the Company's assets. Additionally, this credit facility contains covenants
which, among other things, impose certain limitations or prohibitions on the
Company with respect to additional indebtedness, liens and capital leases; the
payment of dividends on, and the redemption or repurchase of, capital stock of
the Company; investments and acquisitions; the merger or consolidation of the
Company with any person or entity; and the disposition of any of the Company's
property or assets. At December 31, 1996, the Company had no borrowings
outstanding under this credit facility.
In fiscal years 1995 and 1996, the Company recorded restructuring charges of
$28,756,000 and $10,600,000, respectively. At December 31, 1996 a balance of
$2,340,000 associated with these charges remained in accrued expenses and is
expected to result in cash expenditures.
The Company has used cash during fiscal years 1997, 1996 and 1995 to fund
strategic investments, in particular substantial expenditures for new product
development, and operating losses. For the first quarter of fiscal 1997 and for
fiscal years 1996 and 1995, the Company's product development expenditures were
approximately $10,117,000, $39,913,000, and $41,140,000, respectively. During
the remainder of fiscal year 1997, the Company currently intends to continue to
make investments in product development. The Company's objective is to fund
these investments primarily with cash from improved operations. The Company's
timely ability to generate cash from operations depends upon, among other
things, revenue growth, completion and market acceptance of new products,
success in enhancing and selling its current AS/400-based families of products,
improvements in operating productivity, and payment terms and collection of
accounts receivable.
There can be no assurances that the Company's operations will generate
sufficient cash to finance these activities. Until operations improve to meet
its cash requirements, the Company will need to rely on existing cash resources
and borrowings under its credit facility. The Company currently anticipates
that its available cash and borrowing capacity will be sufficient to fund
operations in 1997. If, however, such sources prove insufficient in 1997, or
over the longer term, the Company will be required to make changes in operations
or seek additional debt or equity financing. There can be no assurances that
additional debt or equity financing will be available or available with terms
acceptable to the Company.
9
<PAGE>
PART II.
ITEM 1. Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's future
financial position or results of operations.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCAM CORPORATION
February 10, 1997 /s/ George A. Chamberlain, 3d
- ----------------- --------------------------------
Date George A. Chamberlain, 3d
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
- -------------
Exhibit
Number Description
- ------- -----------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
Exhibit 11
- ----------
MARCAM CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
------- --------
<S> <C> <C>
NET LOSS $(3,095) $ (2,849)
======= ========
PRIMARY EARNINGS PER SHARE
- --------------------------
Common Stock:
Shares outstanding from
beginning of period 11,431 11,271
Pro rata shares:
Exercise of stock options 4 40
------- --------
11,435 11,311
======= ========
Net loss per share $ (0.27) $ (0.25)
======= ========
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
Common Stock:
Shares outstanding from
beginning of period 11,431 11,271
Pro rata shares:
Exercise of stock options 4 40
------- -------
11,435 11,311
======= =======
Net loss per share $ (0.27) $ (0.25)
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,095
<SECURITIES> 0
<RECEIVABLES> 49,490
<ALLOWANCES> 2,673
<INVENTORY> 0
<CURRENT-ASSETS> 71,647
<PP&E> 29,910
<DEPRECIATION> 19,132
<TOTAL-ASSETS> 123,205
<CURRENT-LIABILITIES> 86,951
<BONDS> 25,745
0
325
<COMMON> 114
<OTHER-SE> 9,238
<TOTAL-LIABILITY-AND-EQUITY> 123,205
<SALES> 20,269
<TOTAL-REVENUES> 45,747
<CGS> 4,677
<TOTAL-COSTS> 19,262
<OTHER-EXPENSES> 7,564
<LOSS-PROVISION> 687
<INTEREST-EXPENSE> 1,022
<INCOME-PRETAX> (2,094)
<INCOME-TAX> 1,001
<INCOME-CONTINUING> (3,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,095)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
