<PAGE> 1
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 February 28, 1997
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 March 31, 1997, there were 12,399,668 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 FEBRUARY 28, 1997
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
February 28, 1997 and November 30, 1996 3
Condensed Consolidated Statements of Income for
the three months ended February 28, 1997 and
February 29, 1996 4
Condensed Consolidated Statements of Cash Flows
for the three months ended February 28, 1997 and
February 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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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>
February 28, 1997 November 30, 1996
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ......................................... $ 35,217 $ 30,872
Short-term investments ....................................... 66,223 66,451
Accounts receivable (less allowance for doubtful accounts
of $4,979 in 1997 and $5,112 in 1996) ........................ 29,835 34,452
Inventories .................................................. 1,436 1,257
Other current assets ......................................... 6,200 4,367
Deferred income taxes ........................................ 3,579 3,552
--------- ---------
Total current assets ................................. 142,490 140,951
--------- ---------
Property and equipment-net ..................................... 24,195 24,230
Capitalized software costs-net ................................. 5,529 5,428
Other assets ................................................... 2,294 2,579
--------- ---------
Total ................................................ $ 174,508 $ 173,188
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................ $ 30 $ 37
Accounts payable ............................................. 7,655 7,989
Accrued compensation and related taxes ....................... 10,331 12,385
Income taxes payable ......................................... 3,274 3,004
Other current liabilities .................................... 7,741 5,964
Deferred revenue ............................................. 30,921 27,365
--------- ---------
Total current liabilities ............................ 59,952 56,744
--------- ---------
Deferred income taxes .......................................... 2,382 2,345
Long-term debt ................................................. 79 85
Minority interest in subsidiary ................................ 710 221
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,12,397,249 shares in 1997 and 12,632,630 shares in 1996 124 126
Additional paid-in capital ................................... 37,148 41,309
Retained earnings ............................................ 74,258 72,280
Unrealized gain on short-term investments .................... 330 241
Cumulative translation adjustments ........................... (475) (163)
--------- ---------
Total shareholders' equity ........................... 111,385 113,793
--------- ---------
Total ................................................ $ 174,508 $ 173,188
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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PROGRESS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Software licenses ...................... $ 24,641 $ 28,993
Maintenance and support services ....... 20,703 19,389
-------- --------
Total revenue .................. 45,344 48,382
-------- --------
Costs and expenses:
Cost of software licenses .............. 2,349 2,350
Cost of maintenance and support services 6,958 7,002
Sales and marketing .................... 21,558 21,924
Product development .................... 6,405 6,025
General and administrative ............. 5,878 5,226
-------- --------
Total costs and expenses ....... 43,148 42,527
-------- --------
Income from operations ................... 2,196 5,855
-------- --------
Other income (expense):
Interest income ........................ 875 949
Interest expense ....................... (4) (5)
Foreign currency loss .................. (188) (299)
Minority interest ...................... 114 169
Other income ........................... 3 26
-------- --------
Total other income ............. 800 840
-------- --------
Income before provision for income taxes . 2,996 6,695
Provision for income taxes ............... 1,018 2,276
-------- --------
Net income ............................... $ 1,978 $ 4,419
======== ========
Income per common share .................. $ 0.15 $ 0.32
======== ========
Weighted average number of common and
common equivalent shares outstanding ... 12,890 13,768
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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PROGRESS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 1,978 $ 4,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and equipment ... 2,745 2,167
Amortization of capitalized software costs ................ 523 388
Amortization of intangible assets ......................... 74 88
Deferred income taxes ..................................... (24) 145
Minority interest in subsidiary ........................... (114) (169)
Noncash compensation ...................................... -- 1
Changes in operating assets and liabilities:
Accounts receivable ...................................... 3,264 4,833
Inventories .............................................. (182) (94)
Other current assets ..................................... (2,010) (877)
Accounts payable and accrued expenses .................... 129 (5,712)
Income taxes payable ..................................... 435 2,186
Deferred revenue ......................................... 4,810 2,653
-------- --------
Total adjustments ...................................... 9,650 5,609
-------- --------
Net cash provided by operating activities .............. 11,628 10,028
-------- --------
Cash flows from investing activities:
Purchases of investments available for sale ................. (8,022) (29,017)
Maturities of investments available for sale ................ 7,295 8,939
Sales of investments available for sale ..................... 1,045 13,510
Purchase of property and equipment .......................... (3,124) (2,498)
Capitalized software costs .................................. (624) (609)
Decrease (increase) in other noncurrent assets .............. 146 (764)
-------- --------
Net cash used for investing activities ................. (3,284) (10,439)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock ...................... 1,714 1,067
Repurchase of common stock .................................. (5,972) (1,862)
Contribution from minority interest ......................... 603 --
Payment of obligations under capital leases ................. (7) (22)
-------- --------
Net cash used for financing activities ................. (3,662) (817)
-------- --------
Effect of exchange rate changes on cash ....................... (337) 52
-------- --------
Net increase (decrease) in cash and equivalents ............... 4,345 (1,176)
Cash and equivalents, beginning of period ..................... 30,872 33,465
-------- --------
Cash and equivalents, end of period ........................... $35,217 $ 32,289
======== ========
Supplemental disclosure of noncash financing activities:
Income tax benefit from employees' exercise of stock options $ 94 $ 168
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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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, 1996.
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 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).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers or
employees may contain "forward-looking" information which involve risks and
uncertainties. Actual future results may differ materially. Statements
indicating that the Company "expects," "estimates," "believes," "is planning" or
"plans to" are forward-looking, as are other statements concerning future
financial results, product offerings or other events that have not yet occurred.
There are several important factors which could cause actual results or events
to differ materially from those anticipated by the forward-looking statements.
Such factors, some of which are described in great detail below under the
heading "Factors That May Affect Future Results," include, but are not limited
to, the receipt and shipment of new orders, the timely release of enhancements
to the Company's products, which could be subject to software release delays,
the growth rates of certain market segments, the positioning of the Company's
products in those market segments, variations in the demand for customer service
and technical support, pricing pressures and the competitive environment in the
software industry, consumer use of the Internet, and the Company's ability to
penetrate international markets and manage its international operations.
Although The Company has sought to identify the most significant risks to its
business, the Company cannot predict whether, or to what extent, any of such
risks may be realized nor can there be any assurance that the Company has
identified all possible issues which the Company might face.
RESULTS OF OPERATIONS
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, for
the three months ended February 28, 1997 and February 29, 1996.
<TABLE>
<CAPTION>
Percentage of Total Revenue Period-to-Period Change
--------------------------- -----------------------
Three Months Ended
--------------------------- Three Months
February 28, February 29, 1997 Compared
1997 1996 to 1996
------------ ------------ -----------------------
<S> <C> <C> <C>
Revenue:
Software licenses ...................... 54% 60% (15)%
Maintenance and support services ....... 46 40 7
--- ---
Total revenue ........................ 100 100 (6)
--- ---
Cost and expenses:
Cost of software licenses .............. 5 5 0
Cost of maintenance and support services 15 15 (1)
Sales and marketing .................... 48 45 (2)
Product development .................... 14 12 6
General and administrative ............. 13 11 12
--- ---
Total costs and expenses ............. 95 88 1
--- ---
Income from operations ................... 5 12 (62)
--- ---
Total other income ....................... 2 2 (5)
--- ---
Income before provision for income taxes . 7 14 (55)
Provision for income taxes ............... 3 5 (55)
--- ---
Net income ............................... 4% 9% (55)%
=== ===
</TABLE>
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The Company's total revenue decreased 6% from $48,382,000 in the first quarter
of fiscal 1996 to $45,344,000 in the first quarter of fiscal 1997. The reduction
in total revenue was due to a decrease in software license revenue partially
offset by an increase in maintenance and support services revenue. Software
license revenue decreased 15% from $28,993,000 in the first quarter of fiscal
1996 to $24,641,000 in the first quarter of fiscal 1997. The software license
revenue decrease was attributable to increased competition and the continued
transition some of the Company's Application Partners faced in the marketplace
as they moved their applications to PROGRESS Versions 7 and 8 and WebSpeed.
During the first quarter of fiscal 1997, the Company entered into 53 new
Application Partner agreements worldwide (18 in North America and 35 outside
North America). Maintenance and support services revenue increased 7% from
$19,389,000 in the first quarter of fiscal 1996 to $20,703,000 in the first
quarter of fiscal 1997. The maintenance and support services revenue increase
was primarily a result of growth in the Company's installed customer base and
renewal of maintenance contracts. Total revenue generated in markets outside
North America decreased from $27,105,000 in the first quarter of fiscal 1996 to
$26,169,000 in the first quarter of fiscal 1997, but increased as a percentage
of total revenue from 56% in the first quarter of fiscal 1996 to 58% in the
first quarter of fiscal 1997. Total revenue generated in markets outside North
America would have represented 59% of total revenue in the first quarter of
fiscal 1997 if exchange rates had been constant as compared to the first quarter
of fiscal 1996.
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 remained relatively constant,
decreasing slightly from $2,350,000 in the first quarter of fiscal 1996 to
$2,349,000 in the first quarter of fiscal 1997, but increased as a percentage of
software license revenue from 8% to 10%. The percentage increase was due to an
increase in amortization of capitalized software costs and higher royalty
expense. Cost of software licenses as a percentage of software license revenue
can vary depending upon the relative product mix in a given 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 decreased 1% from $7,002,000 in the first
quarter of fiscal 1996 to $6,958,000 in the first quarter of fiscal 1997 and
decreased as a percentage of maintenance and support services revenue from 36%
to 34%. The dollar and percentage decreases were due primarily to improved
consulting margins in the North America consulting business and, to a lesser
extent, a slight reduction in the technical support, consulting and education
staff in the first quarter of fiscal 1997 as compared to the first quarter of
fiscal 1996. The Company decreased its technical support, education, and
consulting staff from 212 to 209 (120 in North America and 92 outside North
America at February 29, 1996 to 112 in North America and 97 outside North
America at February 28, 1997).
Sales and marketing expenses decreased 2% from $21,924,000 in the first quarter
of fiscal 1996 to $21,558,000 in the first quarter of fiscal 1997 but increased
as a percentage of total revenue from 45% to 48%. The dollar decrease in sales
and marketing expenses was primarily due to a reduction of the sales, sales
support and marketing staff and, to a lesser extent, a slight reduction in the
level of discretionary marketing spending. The amount of discretionary marketing
expenses can vary from period to period depending on the timing of significant
trade shows, advertising campaigns and direct mail solicitations. The Company
decreased its sales, sales support and marketing staff from 500 to 480 (281 in
North America and 219 outside North America at February 29, 1996 to 247 in North
America and 233 outside North America at February 28, 1997). The Company expects
the level of the sales, sales support and marketing staff for the remainder of
fiscal 1997 to be within the range which has prevailed over the past several
quarters.
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Product development expenses increased 6% from $6,025,000 in the first quarter
of fiscal 1996 to $6,405,000 in the first quarter of fiscal 1997, and increased
as a percentage of total revenue from 12% to 14%. The dollar and percentage
increases were due primarily to higher average personnel costs and other related
costs to support continued new product development efforts. The major product
development efforts in the first quarter of fiscal 1997 related to the
development of the next versions of the WebSpeed and PROGRESS product lines. The
product development staff decreased from 229 at February 29, 1996 to 206 at
February 28, 1997.
The Company capitalized $609,000 of software development costs in the first
quarter of fiscal 1996 and $624,000 in the first quarter of fiscal 1997 in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." The amounts capitalized represented 9% of total product development
costs in each quarter of fiscal 1996 and fiscal 1997. 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 12% from $5,226,000 in
the first quarter of fiscal 1996 to $5,878,000 in the first quarter of fiscal
1997 and increased as a percentage of total revenue from 11% to 13%. The dollar
and percentage increases in general and administrative expenses were primarily
due to higher average personnel costs and other related costs. The Company
decreased its administrative staff from 184 to 179 (103 in North America and 81
outside North America at February 29, 1996 to 105 in North America and 74
outside North America at February 28, 1997).
Other income decreased $40,000 from $840,000 in the first quarter of fiscal 1996
to $800,000 in the first quarter of fiscal 1997 due primarily to lower interest
income offset by lower foreign currency losses. The decrease in interest income
was due to lower average investment rates in the first quarter of fiscal 1997 as
compared to the first quarter of fiscal 1996. 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. Foreign
currency losses relate primarily to the translation and settlement of short-term
intercompany receivables.
The Company's effective tax rate was 34% in each quarter of fiscal 1996 and 1997
and was based upon the estimated effective tax rate for the full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $101,440,000 in cash and short-term investments at February 28,
1997. The cash and short-term investments increase of $4,117,000 from
$97,323,000 at November 30, 1996 was primarily due to cash generated from
operations, offset by common stock repurchases and property and equipment
purchases.
The Company purchased $3,124,000 of property and equipment in the first quarter
of fiscal 1997 and $2,498,000 in the first quarter of fiscal 1996. The purchases
consisted primarily of computer equipment and software, furniture and fixtures,
and leasehold improvements. The level of property and equipment purchases
resulted primarily from replacement of older equipment. The Company financed
these purchases primarily from cash generated from operations.
The Company purchased 351,000 shares of its common stock for $5,972,000 in the
first quarter of fiscal 1997.
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In September 1996, the Board of Directors authorized, through September 30,
1997, 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,
for various purposes including the issuance of shares pursuant to the Company's
stock option plans. At February 28, 1997, there were 2,588,000 shares of common
stock authorized for repurchase.
The Company's 401(k) Plan has approximately $900,000 invested 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 to be 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 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 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) 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 may experience significant fluctuations in future quarterly
operating results that may be caused by many factors, including changes in
demand for the Company's products, introduction, enhancement or announcement of
products by the Company and its competitors, market acceptance of new products,
size and timing of significant orders, budgeting cycles of customers, mix of
distribution channels, mix of products and services sold, mix of international
and North American revenues, foreign currency movements relative to the United
States dollar, changes in the level of operating expenses, changes in the
Company's sales incentive plans, customer order deferrals in anticipation of new
products announced by the Company or its competitors and general economic
conditions. Revenue forecasting is 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. Thus, an unexpected reduction in the Company's revenue, or a
decrease in the rate of growth of such revenue, would have a material adverse
effect on the profitability of the Company.
The Company develops, markets and supports its core product line, the PROGRESS
Application Development Environment, the PROGRESS RDBMS and the PROGRESS
Dataserver Architecture (collectively, "PROGRESS"). In November 1996, the
Company began shipping the latest major enhancement to the PROGRESS product
line, PROGRESS Version 8.1. In October 1996, the Company began shipments of
WebSpeed, an open development and deployment environment that enables
organizations to build transaction processing applications on the Internet and
corporate intranets. The Company's Crescent Division develops and markets a
collection of advanced tools and components to Visual Basic and Visual J++
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.
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Although the Company believes that PROGRESS, WebSpeed 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, WebSpeed 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's
business, financial condition and operating results.
The Company experiences significant competition from a variety of sources with
respect to the marketing and distribution of its products. 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. Increased competition
could make it more difficult for the Company to maintain its market presence.
In addition, current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing their ability to deliver products which address the needs of
the Company's prospective customers. Current and potential competitors also may
be more successful than the Company in having their products or technologies
widely accepted. There can be no assurance that the Company will be able to
compete successfully against current and future competitors and its failure to
do so could have a material adverse affect upon the Company's business,
financial condition and operating results.
The Company hopes that the Crescent Division and other new products, such as
WebSpeed, will contribute positively to the Company's future results. The market
for products such as those in the Crescent Division is extremely competitive and
may be affected by changes in Microsoft's strategy with respect to Visual Basic
and Visual J++ and the add-on product market for such products, and market
acceptance of products competitive with Visual Basic and Visual J++. The market
for Internet transaction processing products, such as WebSpeed, is highly
competitive and will depend in large part on the commercial acceptance of the
Internet as a medium for all types of commerce. Because global commerce and
online exchange of information on the Internet and other similar open wide area
networks are new and evolving, it is difficult to predict with any assurance
that the infrastructure or complementary products necessary to make the Internet
a viable medium for all types of commerce will develop.
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 is
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
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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.
Approximately 50% of the Company's total revenue in the first quarter of fiscal
1997 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, unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, political instability, reduced protection for intellectual property
rights in some countries, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world, and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition, and operating results.
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. 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. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult.
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. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claim of infringement or invalidity. Although the Company
believes that its products and technology do not infringe on any existing
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims in the future. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and operating results.
The Company also utilizes certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that functionally similar technology will be available on
commercially reasonable terms in the future.
12
<PAGE> 13
The market price of the Company's common stock, like that of other technology
companies, is highly volatile and is subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, or other events or factors. The
Company's stock price may also be affected by broader market trends unrelated to
the Company's performance.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11.1 - Statement regarding computation of per share earnings
27.1 - Financial Data Schedule (EDGAR Version Only)
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February 28,
1997.
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: April 9, 1997 /s/Joseph W. Alsop
-----------------------------
Joseph W. Alsop
President and Treasurer
(Principal Executive Officer)
Dated: April 9, 1997 /s/Norman R. Robertson
-----------------------------
Norman R. Robertson
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Dated: April 9, 1997 /s/David H. Benton, Jr.
-----------------------------
David H. Benton, Jr.
Corporate Controller
(Principal Accounting Officer)
15
<PAGE> 1
EXHIBIT 11.1
(In thousands, except per share data)
PRIMARY
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Weighted average number of common and
common equivalent shares outstanding:
Common stock .......................... 12,633 12,945
Common equivalent shares resulting from
stock options (treasury stock method) . 257 823
------- -------
Total ................................... 12,890 13,768
======= =======
Net income .............................. $ 1,978 $ 4,419
======= =======
Net income per common share ............. $ 0.15 $ 0.32
======= =======
</TABLE>
FULLY-DILUTED
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Weighted average number of common and
common equivalent shares outstanding
Common stock .......................... 12,633 12,945
Common equivalent shares resulting from
stock options (treasury stock method) . 257 823
------- -------
Total ................................... 12,890 13,768
======= =======
Net income .............................. $ 1,978 $ 4,419
======= =======
Net income per common share ............. $ 0.15 $ 0.32
======= =======
</TABLE>
16
<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 FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 35,217
<SECURITIES> 66,223
<RECEIVABLES> 34,814
<ALLOWANCES> 4,979
<INVENTORY> 1,436
<CURRENT-ASSETS> 142,490
<PP&E> 54,645
<DEPRECIATION> 30,450
<TOTAL-ASSETS> 174,508
<CURRENT-LIABILITIES> 59,952
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 111,261
<TOTAL-LIABILITY-AND-EQUITY> 174,508
<SALES> 24,641
<TOTAL-REVENUES> 45,344
<CGS> 2,349
<TOTAL-COSTS> 43,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 2,996
<INCOME-TAX> 1,018
<INCOME-CONTINUING> 1,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,978
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
