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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the Quarterly Period Ended May 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Commission File Number: 0-19417
PROGRESS SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2746201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Oak Park
Bedford, Massachusetts 01730
(Address of principal executive offices)
Telephone Number: (617) 280-4000
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and, (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No [ ]
As of May 31, 1996, there were 12,835,895 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
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PROGRESS SOFTWARE CORPORATION
FORM 10-Q
FOR THE THREE MONTHS ENDED MAY 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
May 31, 1996 and November 30, 1995 3
Condensed Consolidated Statements of Income for
the three and six months ended May 31, 1996 and
May 31, 1995 4
Condensed Consolidated Statements of Cash Flows
for the six months ended May 31, 1996 and
May 31, 1995 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 14
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
May 31, 1996 November 30, 1995
------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 32,030 $ 33,465
Short-term investments 64,218 58,873
Accounts receivable (less allowance
for doubtful accounts of $4,850 in
1996 and $4,611 in 1995) 34,179 41,652
Inventories 1,867 2,090
Other current assets 5,044 4,804
Deferred income taxes 3,458 3,227
-------- --------
Total current assets 140,796 144,111
-------- --------
Property and equipment-net 25,194 24,318
Capitalized software costs-net 5,080 4,668
Other assets 2,845 2,639
-------- --------
Total $173,915 $175,736
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 57 $ 89
Accounts payable 8,039 9,536
Accrued compensation and related taxes 8,941 14,829
Income taxes payable 2,767 2,231
Other accrued liabilities 4,879 4,350
Advanced payments from customers 1,365 812
Deferred revenue 28,746 26,993
-------- --------
Total current liabilities 54,794 58,840
-------- --------
Deferred income taxes 3,016 2,706
Long-term debt 70 73
Minority interest in subsidiary 380 636
Commitments and contingency
Shareholders' equity:
Preferred stock, $.01 par value; authorized,
1,000,000 shares; issued, none
Common stock, $.01 par value; authorized,
20,000,000 shares; issued and outstanding,
12,835,895 shares in 1996 and 12,905,998
shares in 1995 128 129
Additional paid-in capital 44,321 46,467
Retained earnings 71,357 66,783
Unrealized gain (loss) on short-term investments (45) 133
Cumulative translation adjustments (106) (31)
-------- --------
Total shareholders' equity 115,655 113,481
-------- --------
Total $173,915 $175,736
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended May 31, Six Months Ended May 31,
-------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software licenses $ 20,730 $ 26,787 $ 49,723 $ 51,345
Maintenance and support services 20,932 15,971 40,321 30,831
--------- --------- --------- ---------
Total revenue 41,662 42,758 90,044 82,176
--------- --------- --------- ---------
Costs and expenses:
Cost of software licenses 2,231 1,616 4,581 2,820
Cost of maintenance and support services 7,008 5,521 14,010 10,678
Sales and marketing 22,083 19,562 44,007 36,921
Product development 5,866 5,666 11,891 11,487
Purchase of in-process software development - - - 2,373
General and administrative 5,263 4,429 10,489 8,727
--------- --------- --------- ---------
Total costs and expenses 42,451 36,794 84,978 73,006
--------- --------- --------- ---------
Income (loss) from operations (789) 5,964 5,066 9,170
--------- --------- --------- ---------
Other income (expense):
Interest income 992 885 1,941 1,619
Interest expense (1) (3) (6) (6)
Foreign currency loss (4) (106) (303) (441)
Minority interest 87 176 256 196
Other income (expense) (49) 1 (23) 11
--------- --------- --------- ---------
Total other income 1,025 953 1,865 1,379
--------- --------- --------- ---------
Income before provision for income taxes 236 6,917 6,931 10,549
Provision for income taxes 81 2,352 2,357 4,394
--------- --------- --------- ---------
Net income $ 155 $ 4,565 $ 4,574 $ 6,155
========= ========= ========= =========
Income per common share $0.01 $0.34 $0.34 $0.46
===== ===== ===== =====
Weighted average number of common and
common equivalent shares outstanding 13,121 13,434 13,445 13,378
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
4
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PROGRESS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended May 31,
----------------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,574 $ 6,155
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 4,590 2,556
Charge for purchase of in-process software development - 2,373
Amortization of capitalized software costs 805 450
Amortization of intangible assets 176 134
Deferred income taxes 78 34
Minority interest in subsidiary (256) (196)
Noncash compensation 1 1
Changes in operating assets and liabilities:
Accounts receivable 7,128 (108)
Inventories 226 (173)
Other current assets (303) (926)
Accounts payable and accrued expenses (5,934) (2,577)
Income taxes payable 713 2,016
Deferred revenue 2,064 4,307
------- -------
Total adjustments 9,288 7,891
------- -------
Net cash provided by operating activities 13,862 14,046
------- -------
Cash flows from investing activities:
Purchases of investments available for sale (38,731) (45,849)
Maturities of investments available for sale 13,313 23,982
Sales of investments available or sale 19,895 7,656
Purchase of property and equipment (5,616) (5,949)
Capitalized software costs (1,217) (980)
Acquisition of CSI, net of cash acquired - (1,894)
Increase in other noncurrent assets (412) (850)
------- -------
Net cash used for investing activities (12,768) (23,884)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,462 2,969
Repurchase of common stock (3,778) -
Contributions from minority interest - 495
Payment of obligations under capital leases (39) (41)
------- -------
Net cash provided by (used for) financing activities (2,355) 3,423
------- -------
Effect of exchange rate changes on cash (174) 589
------- -------
Net decrease in cash and equivalents (1,435) (5,826)
Cash and equivalents, beginning of period 33,465 24,533
------- -------
Cash and equivalents, end of period $32,030 $18,707
======= =======
</TABLE>
See notes to condensed consolidated financial statements
5
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PROGRESS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared by Progress Software Corporation (the Company)
pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited
financial statements included in the Company's Annual Report and Form
10-K for the fiscal year ended November 30, 1995.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis
as the audited financial statements, and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of the interim periods presented. The
operating results for the interim periods presented are not
necessarily indicative of the results expected for the full fiscal
year.
2. Income Per Common Share
Income per common share is computed on a fully-diluted basis using the
weighted average number of common and common equivalent shares
outstanding during each period presented.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and are comprised of product media, documentation, and
packaging.
4. Income Taxes
The Company provides for income taxes at the end of each interim
period based on the estimated effective tax rate for the full fiscal
year. Cumulative adjustments to the tax provision are recorded in the
interim period in which a change in the estimated annual effective
rate is determined.
5. Contingency
The Company's 401(k) Plan has approximately $900,000 in Guaranteed
Investment Contracts (GICs) issued by Mutual Benefit Life Insurance
Company (MBLI). On July 16, 1991, the Insurance Commissioner of the
State of New Jersey took possession and control of MBLI's assets. In
April 1994, a rehabilitation plan was approved by the Superior Court
of New Jersey. Pursuant to the plan, the GICs are supported by a
group of life insurance companies and are paid
6
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out from the assets of MBL Life Assurance Corporation, the successor to
MBLI. The company is not presently able to determine whether the
401(k) Plan or its participants will incur any losses as a result of
this action or whether, if such losses are incurred, the Company might
be subject to any liability (either directly as a Plan fiduciary or as
an indemnitor of officers and directors of the Company who serve as
trustees of the Plan).
6. Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). The Company will adopt SFAS
123 in fiscal 1997. As permitted by SFAS 123, the Company intends to
continue to apply Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" and will make the proforma
disclosures required by SFAS 123. Adoption will not have a material
effect on the Company's financial position or results of operations.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's total revenue and net income for the second quarter of
fiscal 1996 decreased 3% and 97%, respectively, from the total revenue and net
income for the second quarter of fiscal 1995. The Company's total revenue for
the first six months of 1996 increased 10% from the first six months of 1995.
The Company's net income for the first six months of 1995 decreased 46% from
the first six months of 1995 before the non-recurring charge. In the first
quarter of fiscal 1995, the Company recorded a non-recurring charge of
$2,373,000 for purchase of in-process software development costs related to
the acquisition of Crescent Software, Inc. (CSI). The acquisition was
accounted for as a purchase.
The following table sets forth certain income and expense items as a
percentage of total revenue, and the percentage change in dollar amounts of
such items compared with the corresponding period in the previous fiscal year.
<TABLE>
<CAPTION>
Percentage of Total Revenue Period-to-Period Change
--------------------------------------------------- ----------------------------------
Three Months Ended May 31, Six Months Ended May 31, Three Months Six Months
------------------------- ------------------------ 1996 Compared 1996 Compared
1996 1995 1996 1995 to 1995 to 1995
---- ---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses 50% 63% 55% 62% (23)% (3)%
Maintenance and support services 50 37 45 38 31 31
--- --- --- ---
Total revenue 100 100 100 100 (3) 10
--- --- --- ---
Cost and expenses:
Cost of software licenses 5 4 5 3 38 62
Cost of maintenance and
support services 17 13 15 13 27 31
Sales and marketing 53 46 49 45 13 19
Product development 14 13 13 14 4 4
Purchase of in-process software
development - - - 3 - (100)
General and administrative 13 10 12 11 19 20
--- --- --- ---
Total costs and expenses 102 86 94 89 15 16
--- --- --- ---
Income from operations (2) 14 6 11 (113) (45)
----- --- -- ---
Other income 2 2 2 2 8 35
--- --- --- ---
Income before provision for
income taxes 0 16 8 13 (97) (34)
Provision for income taxes 0 5 3 6 (97) (46)
---- ---- ---- ----
Net income 0% 11% 5% 7% (97)% (26)%
=== ==== ===== ====
</TABLE>
- - ---------------
The Company's total revenue decreased 3% from $42,758,000 in the
second quarter of fiscal 1995 to $41,662,000 in the second quarter of fiscal
1996. The Company's total revenue increased 10% from $82,176,000 in the first
six months of fiscal 1995 to $90,044,000 in the first six months of fiscal
1996. Software license revenue decreased 23% from $26,787,000 in the second
quarter of fiscal 1995 to $20,730,000 in the second quarter of fiscal 1996.
Software license revenue decreased 3% from $51,345,000 in the first six months
of fiscal 1995 to $49,723,000 in the first six months of fiscal 1996. The
software license revenue decrease is attributable to increased competition, a
slowdown in the rate
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of growth for application development tools, the transition some of the
Company's Application Partners face in the marketplace as they move their
applications to PROGRESS Version 8 and the new user-based pricing model
implemented in the fourth quarter of fiscal 1995. The new pricing model appears
to have resulted in smaller initial purchases since customers have reduced the
number of user counts purchased. During the first six months of fiscal 1996,
the Company entered into approximately 151 new Application Partner agreements
worldwide (60 in North America and 91 outside North America). Total revenue
generated in markets outside North America increased from $46,067,000 in the
first six months of fiscal 1995 to $52,333,000 in the first six months of fiscal
1996 and increased from 56% to 58% of total revenue in each period. Total
revenue generated outside North America would not have been significantly
different in the first six months of fiscal 1996 if exchange rates had been
constant as compared to the first six months of fiscal 1995. Maintenance and
support services revenue increased 31% from $15,971,000 in the second quarter of
fiscal 1995 to $20,932,000 in the second quarter of fiscal 1996. Maintenance and
support services revenue increased 31% from $30,831,000 in the first six months
of fiscal 1995 to $40,321,000 in the first six months of fiscal 1996. The
maintenance and support services revenue increase is primarily a result of
growth in the Company's installed customer base, renewal of maintenance
contracts and greater demand for consulting services.
Cost of software licenses consists primarily of cost of product media,
documentation, duplication, packaging, royalties, and amortization of
capitalized software costs. Cost of software licenses increased 38% from
$1,616,000 in the second quarter of fiscal 1995 to $2,231,000 in the second
quarter of fiscal 1996 and increased as a percentage of software license
revenue from 6% to 11%. Cost of software licenses increased 62% from
$2,820,000 in the first six months of fiscal 1995 to $4,581,000 in the first
six months of fiscal 1996 and increased as a percentage of software license
revenue from 6% to 9%. The percentage and dollar increase is due to an
increase in amortization of capitalized software costs, higher documentation
costs associated with PROGRESS Version 7 and Version 8 as compared to Version 6
and an increase in the number of software license update shipments. Cost of
software licenses as a percentage of software license revenue can vary
depending upon the relative product mix in the related period.
Cost of maintenance and support services consists primarily of costs
of providing customer technical support, education and consulting. Cost of
maintenance and support services increased 27% from $5,521,000 in the second
quarter of fiscal 1995 to $7,008,000 in the second quarter of fiscal 1996 but
decreased as a percentage of maintenance and support services revenue from 35%
to 34%. Cost of maintenance and support services increased 31% from
$10,678,000 in the first six months of fiscal 1995 to $14,010,000 in the first
six months of fiscal 1996, but remained approximately 35% of maintenance and
support services revenue in each period. The dollar increase was due primarily
to the growth in the Company's technical support, education, and consulting
staff and related costs required to support the growth in the Company's
installed customer base. The Company increased its technical support,
education, and consulting staff from 101 in North America and 96 outside North
America at May 31, 1995 to 126 in North America and 98 outside North America at
May 31, 1996.
Sales and marketing expenses increased 13% from $19,562,000 in the
second quarter of fiscal 1995 to $22,083,000 in the second quarter of fiscal
1996 and increased as a percentage of total revenue from 46% to 53%. Sales and
marketing expenses increased 19% from $36,921,000 in the first six months of
fiscal 1995 to $44,007,000 in the first six months of fiscal 1996, and
increased as a percentage of total revenue from 45% to 49%. The percentage and
dollar increase in sales and marketing expenses was primarily due to expansion
of the sales, sales support and marketing staff, the establishment of a
subsidiary in Argentina and expansion of marketing activities associated with
PROGRESS Version 8 and
9
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the Crescent Division product line. The Company increased its sales, sales
support and marketing staff from 256 in North America and 195 outside North
America at May 31, 1995 to 281 in North America and 221 outside North America at
May 31, 1996.
Product development expenses increased 4% from $5,666,000 in the
second quarter of fiscal 1995 to $5,866,000 in the second quarter of fiscal
1996, and increased as a percentage of total revenue from 13% to 14%. Product
development expenses increased 4% from $11,487,000 in the first six months of
fiscal 1995 to $11,891,000 in the first six months of fiscal 1996, but
decreased as a percentage of total revenue from 14% to 13%. The dollar
increase was due primarily to higher personnel costs and other related costs to
support continued new product development efforts for the PROGRESS Versions 7
and 8 product set in the Enterprise Division and Visual Basic add-on tools and
components within the Crescent Division. The product development staff
decreased from 232 at May 31, 1995 to 220 at May 31, 1996.
The Company capitalized $553,000 of software development costs in the
second quarter of fiscal 1995 and $608,000 in the second quarter of fiscal
1996, which represented 9% of total product development expenses in each
period. The Company capitalized $980,000 in the first six months of fiscal
1995 and $1,217,000 in the first six months of fiscal 1996, which represented
8% and 9%, respectively, of total product development expenses in each period.
A substantial portion of the amount capitalized related to work on the next
release of PROGRESS Version 8. Capitalized software costs are amortized over
the estimated life of the product (two to four years) and amounts amortized are
included in cost of software licenses for the period.
General and administrative expenses include the costs of the finance,
human resources, legal, information systems, and administrative departments of
the Company. General and administrative expenses increased 19% from $4,429,000
in the second quarter of fiscal 1995 to $5,263,000 in the second quarter of
fiscal 1996, and increased as a percentage of total revenue from 10% to 13%.
General and administrative expenses increased 20% from $8,727,000 in the first
six months of fiscal 1995 to $10,489,000 in the first six months of fiscal
1996, and increased as a percentage of total revenue from 11% to 12%. The
dollar increase resulted primarily from the addition of personnel and related
costs to support the growth of the Company's operations. The Company increased
its administrative staff from 93 in North America and 78 outside North America
at May 31, 1995 to 105 in North America and 82 outside North America at May 31,
1996.
Other income increased approximately $72,000 from $953,000 in the
second quarter of fiscal 1995 to $1,025,000 in the second quarter of fiscal
1996 due primarily to higher interest income. Other income increased
approximately $486,000 from $1,379,000 in the first six months of fiscal 1995
to $1,865,000 in the first six months of fiscal 1996 due primarily to higher
interest income, lower foreign currency losses and the minority interest in the
Company's joint venture in Japan. All revenue, costs and expenses attributable
to the Company's joint venture are included in the Company's revenue, costs and
expenses. To account for the fact that the Company owns only a 51% interest in
the joint venture, other income (expense) reflects that portion of the joint
venture's income or loss which is attributable to the 49% minority interest in
the joint venture. The joint venture generated a net loss in each period
presented and the Company recorded as "other income - minority interest" an
amount equal to 49% of the joint venture's net loss. The increase in interest
income was due to higher average cash balances. Foreign currency losses relate
primarily to the translation and settlement of short-term intercompany
receivables.
The Company's effective tax rate was 34.0% in the second quarter of
fiscal 1996 and in the first six months of fiscal 1996 as compared to 34.0% in
the second quarter of fiscal 1995 and 41.7% in the first six months of fiscal
1995. The decrease in the first six months of 1996 from the first six months
of fiscal
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1995 was due to nondeductible expenses related to the acquisition of CSI in
January 1995 included in fiscal 1995. Excluding these nondeductible expenses,
the Company's effective tax rate for fiscal 1995 was 34.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $96,248,000 in cash and short-term investments at May
31, 1996. The increase of $3,910,000 from $92,338,000 at November 30, 1995 was
due primarily to cash generated from operations.
The Company purchased $5,949,000 of property and equipment in the
first six months of fiscal 1995 and $5,616,000 in the first six months of
fiscal 1996, which consisted of computer equipment and software, furniture and
fixtures, and leasehold improvements. The level of property and equipment
purchases resulted from continued growth in the business. The Company financed
these purchases from cash generated from operations.
The Company purchased 215,000 shares of its common stock for
$3,778,000 in the first six months of fiscal 1996. In September 1995, the
Board of Directors reauthorized through September 30, 1996 the purchase of up
to 3,000,000 shares of the Company's common stock at such times when the
Company deems such purchases to be an effective use of cash. The Company
financed these purchases from cash generated from operations.
Total current liabilities decreased approximately $4,046,000 from
November 30, 1995. This was primarily due to a decrease in accrued
compensation and related taxes of $5,888,000 related to the payment of fiscal
1995 bonuses and profit sharing.
The Company's 401(k) Plan has approximately $900,000 in Guaranteed
Investment Contracts (GICs) issued by Mutual Benefit Life Insurance Company
(MBLI). On July 16, 1991, the Insurance Commissioner of the State of New
Jersey took possession and control of MBLI's assets. In April 1994, a
rehabilitation plan was approved by the Superior Court of New Jersey. Pursuant
to the plan, the GICs are supported by a group of life insurance companies and
are paid out from the assets of MBL Life Assurance Corporation, the successor
to MBLI. The Company is not presently able to determine whether the 401(k)
Plan or its participants will incur any losses as a result of this action or
whether, if such losses are incurred, the Company might be subject to any
liability (either directly as a Plan fiduciary or as an indemnitor of officers
and directors of the Company who serve as trustees of the Plan).
The Company believes that existing cash balances together with its
funds generated from operations will be sufficient to finance the Company's
operations and meet its foreseeable cash requirements (including planned
capital expenditures, lease commitments, and other long-term obligations) at
least through the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves
certain risks and uncertainties, some of which are beyond the Company's
control. The following discussion highlights some of these risks.
The Company's future operating results may vary from
quarter-to-quarter, and, as such, one quarter's results should not be relied
upon as an indication of future performance. Revenue forecasting is
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<PAGE> 12
uncertain, in large part, because the Company generally ships its products upon
receipt of orders. This uncertainty is compounded because each quarter's
revenue is derived disproportionately from orders booked and shipped during the
third month, and disproportionately in the latter half of that month. In
contrast, most of the company's expenses are relatively fixed, including costs
of personnel and facilities, and are not easily reduced rapidly. Thus, an
unexpected reduction in the Company's revenue, or in the rate of growth of such
revenue, would have a material adverse effect on the profitability of the
Company.
Approximately 52% of the Company's total revenue in fiscal year 1995
was attributable to international sales made through international
subsidiaries. Because a substantial portion of the Company's total revenue is
derived from such international operations which are conducted in foreign
currencies, changes in the value of these foreign currencies relative to the
United States dollar may affect the Company's results of operations and
financial position. The Company engages in certain currency-hedging
transactions intended to reduce the effect of fluctuations in foreign currency
exchange rates on the Company's results of operations. However, there can be
no assurance that such hedging transactions will materially reduce the effect
of fluctuation in foreign currency exchange rates on such results. If for any
reason exchange or price controls or other restrictions on the conversion of
foreign currencies were imposed, the Company's business could be adversely
affected. Other potential risks inherent in the Company's international
business generally include longer payment cycles, greater difficulties in
accounts receivable collection and the burdens of complying with a wide variety
of foreign laws and regulations.
The Company's operations are currently organized around the Enterprise
Division and the Crescent Division. The Enterprise Division develops and
markets the Company's core product line, the PROGRESS Application Development
Environment, the PROGRESS RDBMS, and the PROGRESS Dataserver Architecture
(collectively, "PROGRESS"). In November 1995, the Company began commercially
shipping the latest major enhancement to the PROGRESS product line, PROGRESS
Version 8. The Company's Crescent Division develops and markets a collection
of advanced tools and components to Microsoft Visual Basic development teams.
The Crescent Division began offering these products commercially in January
1995 and has since released major enhancements to its existing line of products
as well as many new products.
Although the Company believes that PROGRESS and the Crescent line of
products have features and functionality which enable the Company to compete
effectively with other vendors of application development products, ongoing
enhancements to PROGRESS and the Crescent line of products will be required to
enable the Company to maintain its competitive position. There can be no
assurance that the Company will be successful in developing and marketing
enhancements to its products on a timely basis, or that the enhancements will
adequately address the changing needs of the marketplace. Delays in the
release of enhancements may negatively affect results.
The Company has derived most of its revenue from PROGRESS and other
products which complement PROGRESS and are generally licensed only in
conjunction with PROGRESS. Accordingly, the Company's future results depend on
continued market acceptance of PROGRESS and any factor adversely affecting the
market for PROGRESS could have a material adverse effect on the Company's
business and its financial results. Future results may also depend upon the
Company's continued successful distribution of PROGRESS through its Application
Partner channel and may be impacted by downward pressure on pricing, which may
not be offset by increases in volume. Application Partners resell PROGRESS
along with their own applications and any adverse effect on their business
related to competition, pricing and other factors could have a material adverse
effect on the Company.
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The Company experiences significant competition from a variety of
sources with respect to the marketing and distribution of PROGRESS. Some of
these competitors have greater financial, marketing or technical resources than
the Company and may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements or to devote greater
resources to the promotion and sale of their products than can the Company.
The Company hopes that the Crescent Division and other new products
will contribute positively to the Company's future results. The market for the
Crescent product line is extremely competitive and may be affected by changes
in Microsoft's strategy with respect to Visual Basic and the add-on product
market for Visual Basic, and market acceptance of products competitive with
Visual Basic.
Overlaying the risks associated with the Company's existing products
and enhancements are ongoing technological developments and rapid changes in
customer requirements. The Company's future success will depend upon its
ability to develop and introduce in a timely manner new products that take
advantage of technological advances and respond to new customer requirements.
The Company's Enterprise and Crescent Divisions are currently developing new
products intended to help organizations meet the future needs of application
developers.
The development of new products is increasingly complex and uncertain,
which increases the risk of delays. There can be no assurance that the Company
will be successful in developing new products incorporating new technology on a
timely basis, or that its new products will adequately address the changing
needs of the marketplace. The marketplace for these new products is intensely
competitive and characterized by low barriers to entry. As a result, new
competitors possessing technological, marketing or other competitive advantages
may emerge and rapidly acquire market share.
The Company's future success will depend in large part upon its
ability to attract and retain highly skilled technical, managerial and
marketing personnel. Competition for such personnel in the software industry
is intense. Although the Company has been successful to date in this endeavor,
there can be no assurance that the Company will continue to be successful in
attracting and retaining the personnel it requires to successfully develop new
and enhanced products and to continue to grow and operate profitably.
The Company's success is heavily dependent upon its proprietary
software technology. The Company relies principally on a combination of
contract provisions and copyright, trademark and trade secret laws to protect
its proprietary technology. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of its technology or independent development by others of
similar technology. Although the Company believes that its products and
technology do not infringe on any existing proprietary rights of others, the
use of patents to protect software has increased, and there can be no assurance
that third parties will not assert infringement claims in the future.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the Company's stock price. The stock price may also be affected by
broader market trends unrelated to the Company's performance.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on May 14,
1996, the shareholders voted on the items described below:
o To fix the numbers of directors at seven:
Affirmative Negative Votes
Votes Cast Votes Cast Abstaining
----------- ---------- ----------
8,858,017 13,251 40,849
o To elect the following seven directors: Joseph W. Alsop, Larry R.
Harris, Robert J. Lepkowski, Michael L. Mark, Arthur J. Marks, Amram
Rasiel and James W. Storey
Nominee For Withhold Authority
------- --------- ------------------
Joseph W. Alsop 8,831,318 80,799
Larry R. Harris 8,831,718 80,399
Robert J. Lepkowski 8,831,718 80,399
Michael L. Mark 8,831,718 80,399
Arthur J. Marks 8,831,718 80,399
Amram Rasiel 8,831,686 80,431
James W. Storey 8,831,718 80,399
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
11.1 - Statement regarding computation of per share earnings
27 - Financial Data Schedule
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended May 31, 1996.
14
<PAGE> 15
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.
PROGRESS SOFTWARE CORPORATION
(Registrant)
Dated: July 3, 1996 /s/Joseph W. Alsop
--------------------------
Joseph W. Alsop
President and Treasurer
(Principal Executive Officer)
Dated: July 3, 1996 /s/Norman R. Robertson
--------------------------
Norman R. Robertson
Vice President, Finance
(Principal Financial Officer)
Dated: July 3, 1996 /s/Mary B. Miller
--------------------------
Mary B. Miller
Director,
Finance and Administration
(Principal Accounting Officer)
15
<PAGE> 16
PROGRESS SOFTWARE CORPORATION
Exhibit Index
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
11.1 - Statement regarding computation of per share earnings 17
27 - Financial Data Schedule 18
</TABLE>
16
<PAGE> 1
EXHIBIT 11.1
(In thousands, except per share data)
PRIMARY
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock 12,921 12,640 12,933 12,534
Common equivalent shares resulting from
stock options (treasury stock method) 200 676 512 724
------ ------ ------ ------
Total 13,121 13,316 13,445 13,258
====== ====== ====== ======
Net income $ 155 $4,565 $4,574 $6,155
====== ====== ====== ======
Net income per common share $ 0.01 $ 0.34 $ 0.34 $ 0.46
====== ====== ====== ======
</TABLE>
FULLY-DILUTED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
----------------------- -----------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock 12,921 12,640 12,933 12,534
Common equivalent shares resulting from
stock options (treasury stock method) 200 794 512 844
------ ------ ------ ------
Total 13,121 13,434 13,445 13,378
====== ====== ====== ======
Net income $ 155 $4,565 $4,574 $6,155
====== ====== ====== ======
Net income per common share $0.01 $0.34 $0.34 $0.46
====== ====== ====== ======
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-Q
FOR THE PERIOD ENDING MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 32,030
<SECURITIES> 64,218
<RECEIVABLES> 39,029
<ALLOWANCES> 4,850
<INVENTORY> 1,867
<CURRENT-ASSETS> 140,796
<PP&E> 50,594
<DEPRECIATION> 25,400
<TOTAL-ASSETS> 173,915
<CURRENT-LIABILITIES> 54,794
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 115,527
<TOTAL-LIABILITY-AND-EQUITY> 173,915
<SALES> 49,723
<TOTAL-REVENUES> 90,044
<CGS> 4,581
<TOTAL-COSTS> 84,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 6,931
<INCOME-TAX> 2,357
<INCOME-CONTINUING> 4,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,574
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
