<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19872
WALKER INTERACTIVE SYSTEMS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2862954
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
303 SECOND STREET, SAN FRANCISCO, CA 94107
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(Address of principal executive offices including zip code)
(415) 495-8811
--------------
(Registrant's telephone number including area code)
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 report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 13,180,854 Shares of $.001 Par Value Common Stock outstanding as of
November 7, 1996.
1
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WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995.............. 3
Condensed Consolidated Statements of Operations for
the three months and nine months ended September
30, 1996 and 1995..................................... 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1996 and 1995..... 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
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WALKER INTERACTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 1996 31, 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,675 $ 25,412
Short-term investments 15,220 10,976
Accounts receivable, net 13,573 10,412
Prepaid expenses 1,857 1,241
-------- --------
Total current assets 44,325 48,041
Long-term investments 7,761 5,930
Property, net 4,018 5,039
Capitalized software, net 11,379 9,635
Deferred tax assets, net 13,188 13,181
Other assets 658 672
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TOTAL ASSETS $ 81,329 $ 82,498
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 13,241 $ 12,206
Deferred revenue 13,716 14,060
Current portion of long-term debt 11 236
-------- --------
Total current liabilities 26,968 26,502
Deferred revenue 2,603 2,709
Accrued rent 1,074 1,282
Other long-term obligations 4,136 3,271
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Total liabilities 34,781 33,764
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Stockholders' equity:
Common stock, $.001 par value: 50,000,000 shares
authorized; issued 13,439,254 shares - September
30, 1996; 13,120,105 shares - December 31, 1995 13 13
Additional paid-in capital 69,602 67,532
Currency translation adjustments 144 123
Unrealized gain (loss) on investments (40) 43
Accumulated deficit (19,837) (18,594)
Treasury stock at cost (311,276 shares - September 30,
1996; 55,143 shares - December 31, 1995) (3,334) (383)
-------- --------
Total stockholders' equity 46,548 48,734
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 81,329 $ 82,498
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
WALKER INTERACTIVE SYSTEMS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
License fees $ 1,823 $ 204 $ 5,659 $ 4,402
Maintenance 6,817 6,968 20,257 21,367
Consulting and other services 7,329 6,064 19,761 18,242
------- ------- ------- --------
Total revenues 15,969 13,236 45,677 44,011
OPERATING EXPENSES:
Costs of revenues:
Costs of maintenance, consulting, and
other services 6,145 6,411 17,532 18,941
Amortization of capitalized software 900 1,049 2,617 3,025
Sales and marketing 3,807 3,013 9,931 10,062
Product development 2,630 3,337 8,502 9,918
General and administrative 2,026 7,646 6,886 13,730
Write-off of purchased in-process
research and development - - 2,784 -
------- ------- ------- --------
Total operating expenses 15,508 21,456 48,252 55,676
Operating income (loss) 461 (8,220) (2,575) (11,665)
Interest income, net 502 480 1,484 1,376
------- ------- ------- --------
Income (loss) before income taxes 963 (7,740) (1,091) (10,289)
Income tax expense (benefit) 49 - 152 (841)
------- ------- ------- --------
NET INCOME (LOSS) $ 914 $(7,740) $(1,243) $ (9,448)
======= ======= ======= ========
NET INCOME (LOSS) PER SHARE $ 0.07 $ (0.59) $ (0.09) $ (0.73)
======= ======= ======= ========
Shares used in computing net income (loss) per share 14,046 13,056 13,238 12,964
======= ======= ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,243) $ (9,448)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 5,023 6,300
Tax benefit of nonqualified stock options 368 -
Write-off of purchased in-process research and development 2,784 -
Loss on property retirements and fixed asset write-downs (5) 1,315
Changes in operating assets and liabilities:
Accounts receivable, net (3,044) 2,265
Prepaid expenses (643) (58)
Accrued liabilities 87 4,319
Deferred tax assets (7) (917)
Deferred revenue (510) (1,695)
Other 17 313
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Net cash provided by operations 2,827 2,394
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan
issuances and stock options exercised 2,092 538
Capital lease and loan payments (231) (379)
Treasury stock acquired (3,341) -
-------- --------
Net cash provided (used) by financing activities (1,480) 159
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short- and long-term investments (24,976) (34,526)
Acquisition of Hunt Systems Group, Inc. (2,034) -
Maturities of short-term investments 4,900 29,005
Sales of short-term investments 13,917 12,200
Purchases of property (1,227) (1,521)
Additions to capitalized software (3,676) (3,127)
Other 12 -
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Net cash provided (used) by investing activities (13,084) 2,031
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,737) 4,584
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 25,412 14,357
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,675 $ 18,941
======== ========
Supplemental Disclosure:
Short- and long-term obligations incurred related to business acquired $ 1,594 -
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial statements and include all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary
for a fair presentation of the financial position, operating results and
cash flows for those periods. Results for the interim periods are not
necessarily indicative of the results for the entire year. These condensed
consolidated financial statements, and notes thereto, should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1995 included in the Walker Interactive Systems, Inc.
Annual Report on Form 10-K.
Reclassifications
Certain previously reported amounts have been reclassified to conform with
the current presentation format.
2. ACQUISITION OF HUNT SYSTEMS GROUP, INC.
On May 17, 1996, the Company acquired the business and net assets of Hunt
Systems Group, Inc. ("Hunt") for a total cash acquisition price of
$3,759,000 comprised of $2,109,000 payable at closing, $1,550,000 payable
based on achievement of certain performance targets during the four year
period following closing and $100,000 in transaction costs. Additional
amounts will be paid if further performance targets are reached during the
same four year period. Of the purchase price, $190,000 was allocated to
identifiable net tangible assets, $785,000 was allocated to purchased
software and $2,784,000 was allocated to in-process research and
development. The amount of the purchase price allocated to in-process
research and development was charged to the Company's operations in the
second quarter of 1996, because technical feasibility had not been
established and no alternative future uses existed at the acquisition date.
The acquisition was accounted for as a purchase transaction. The
intangible assets are being amortized ratably, starting from the date of
acquisition, over a period not to exceed three years. The results of
operations of Hunt, from the date of acquisition, are included in the
Condensed Consolidated Statement of Operations and were not material to the
results of operations of the Company.
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve risks
and uncertainties which may cause actual results to differ materially from those
discussed. A wide range of factors could contribute to those differences,
including those discussed below and in the Company's 1995 Annual Report on Form
10-K and Annual Report for the year ended December 31, 1995.
OVERVIEW
- --------
The Company develops and markets software products for the mainframe and
client/server platforms. Of these products, the Tamaris product line represents
the Company's core suite of business and financial solutions utilizing the power
of the mainframe server while the Aptos suite of financial applications provide
a three-tier client/server architecture that runs on UNIX and Windows NT
servers. Along with the Tamaris and Aptos product lines, the Company develops
and markets best-of-breed financial solutions which focus on the high-end
corporate market with the ability to serve mid-sized stand-alone organizations
and/or the divisions of large corporations.
The Company derives its revenues primarily from software license fees, software
maintenance fees, and professional consulting service fees. The Company's
Tamaris software line is licensed primarily to Fortune 1000 companies and
similarly-sized business and governmental organizations worldwide. The
Company's Aptos products are marketed only in the United Kingdom and are
licensed to mid-sized organizations. Professional consulting services are
provided in conjunction with software products. The Company's products and
services are marketed through its sales forces located in the United States, the
United Kingdom, and the Pacific Rim.
The Company licenses software products directly to customers and occasionally to
distributors for resale. Software license fees are recognized when revenue
recognition criteria have been met which varies with the terms of specific
license agreements. The portion of revenues from new license agreements which
relate to the Company's obligation to provide customer support are deferred and
recognized ratably over the contract support period, which is generally one
year. Software maintenance contracts are generally renewable on an annual
basis, although the Company also negotiates longer-term maintenance contracts
from time to time. Revenues from maintenance contract renewals are deferred and
recognized ratably over the term of the agreement. Revenues from professional
service fees are recognized as the related services are provided.
The Company's revenues and operating results are subject to quarterly and other
fluctuations resulting from a variety of factors, including the effect of
budgeting and purchasing practices of its customers, the length of the customer
evaluation process for the Company's products, the timing of customer system
conversions, general economic conditions, seasonality, and other factors.
Operating results will continue to be heavily influenced by the level of license
sales. During 1995 and the three months and nine months ended September 30,
1996, the Company
<PAGE>
experienced license revenue levels significantly below pre-1995 levels. The
Company's professional services revenues tend to fluctuate due to completion or
commencement of significant projects (which may continue over multiple
quarters), the number of working days in a quarter, the utilization rate of
consulting services personnel and the activity level of new license
implementations which provide new consulting opportunities. The Company believes
that quarter to quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
ACQUISITION
- -----------
On May 17, 1996, the Company acquired the business and net assets of Hunt
Systems Group, Inc. ("Hunt") for a total cash acquisition price of $3,759,000
comprised of $2,109,000 payable at closing, $1,550,000 payable based on
achievement of certain performance targets during the four year period following
closing and $100,000 in transaction costs. Additional amounts will be paid if
further performance targets are reached during the same four year period. Of
the purchase price, $190,000 was allocated to identifiable net tangible assets,
$785,000 was allocated to purchased software and $2,784,000 was allocated to in-
process research and development. The amount of the purchase price allocated to
in-process research and development was charged to the Company's operations in
the second quarter of 1996, because technical feasibility had not been
established and no alternative future uses existed at the acquisition date.
The acquisition was accounted for as a purchase transaction. The intangible
assets are being amortized ratably, starting from the date of acquisition, over
a period not to exceed three years. The results of operations of Hunt, from the
date of acquisition, are included in the Condensed Consolidated Statement of
Operations and were not material to the results of operations of the Company.
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
The following table shows the percentage of items included in the condensed
consolidated statements of operations as they relate to total revenue for the
three and nine months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES:
License fees 11% 2% 12% 10%
Maintenance 43% 52% 45% 49%
Consulting and other services 46% 46% 43% 41%
---- ---- ---- ----
Total revenues 100% 100% 100% 100%
OPERATING EXPENSES:
Cost of revenues:
Cost of maintenance,
consulting, and other
services 38% 49% 38% 43%
Amortization of capitalized
software 6% 7% 6% 7%
Sales and marketing 24% 23% 22% 23%
Product development 16% 25% 19% 23%
General and administrative 13% 58% 15% 31%
Write-off of purchased in-process
research and development - - 6% -
---- ---- ---- ----
Total operating expenses 97% 162% 106% 127%
Operating income (loss) 3% (62%) (6%) (27%)
Interest income, net 3% 4% 3% 3%
---- ---- ---- ----
Income (loss) before income taxes 6% (58%) (3%) (24%)
Income tax income (benefit) - - - (2%)
---- ---- ---- ----
NET INCOME (LOSS) 6% (58%) (3%) (22%)
==== ==== ==== ====
</TABLE>
Revenues
The Company's third quarter revenues of $15,969,000 increased 21 percent over
the third quarter revenues of the prior year. The increase reflects revenue
growth of 23 percent in North America and 19 percent in the United Kingdom,
partially offset by a two percent reduction in revenues in the Pacific Rim
region. The Company's revenues for the first nine months of 1996 increased four
percent compared to the same period in 1995.
The increase in revenues for the third quarter of 1996 is attributable to an
increase in license fee revenues which were $1,823,000 for the three months
ended September 30, 1996 compared to $204,000 for the same period in 1995. For
the first nine months of 1996, license fee revenues
<PAGE>
increased 29 percent from the comparable 1995 period. License fee growth for the
third quarter of 1996 is primarily a result of increased North American license
fee sales for its mainframe based products. The Company experienced increased
demand for products from its Aptos product line in the United Kingdom in the
nine month period ending September 30, 1996 compared to the same period in 1995.
During the first nine months of 1995, the Company's license fee revenues were
affected by decreased demand for mainframe based products as consumers continued
to evaluate alternative applications based on client/server technology. In
1996, license fee revenues increased as consumers increasingly recognized that a
mainframe based application in combination with best-of-breed client/server
applications can create a comprehensive, robust, customer-specific solution.
Additionally, the Company released new versions of its Aptos product line in the
United Kingdom to fulfill the needs of mid-sized organizations who wanted a
client/server solution. Demand for software applications remains unpredictable
and past performance is not an indication of current or future license fee
revenue trends.
Maintenance revenues of $6,817,000 for the quarter ended September 30, 1996
decreased two percent compared to the same period in 1995. The Company's
revenues from maintenance for the first nine months of 1996 decreased five
percent to $20,257,000 from $21,367,000 in 1995.
Revenues for consulting and other services of $7,329,000 for the third quarter
of 1996 increased 21 percent from the third quarter of 1995. For the nine
months ended September 30, 1996, consulting and other services revenue increased
eight percent from the comparable period in 1995. The increase in consulting
and other services is primarily attributable to an increase of services provided
to the existing customer base and to additional consulting opportunities as a
result of the increase in license fee sales during 1996. Consulting and other
services revenue is generally derived from users of the Company's products.
Expenses
Operating expenses decreased 28 percent to $15,508,000 for the three months
ended September 30, 1996, compared to $21,456,000 for the same period in 1995.
For the first nine months of 1996, operating expenses of $48,252,000 decreased
13 percent from $55,676,000 in 1995. During the first nine months of 1996, the
Company had a charge of $2,784,000 million related to the write-off of purchased
in-process research and development and $1,195,000 for bad debt and senior
management changes. During the first nine months of the prior year, the Company
had charges of $9,703,000 which primarily consisted of costs related to sales
tax accruals, office consolidation in the United Kingdom, additions to bad debt
reserves, costs associated with senior management changes and other reserves.
Excluding these charges, 1996 operating expenses decreased four percent from the
same nine month period in 1995. The decrease in operating expenses was
primarily a result of the Company's efforts to reduce expenses beginning in the
second half of 1995.
The costs of maintenance, consulting and other services for the quarter ended
September 30, 1996 of $6,145,000 decreased by four percent from $6,411,000 for
the same period in 1995. For the nine months ended September 30, 1996, costs of
maintenance, consulting and other services expenses of $17,532,000 decreased
seven percent from $18,941,000 from the same period 1995.
<PAGE>
The following table shows the percentage of total maintenance, consulting, and
other services costs for the three and nine months ended September 30, 1996 and
1995 as they relate to maintenance, consulting and other services revenues:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Maintenance, consulting and other
services costs 43% 49% 44% 48%
</TABLE>
Costs of maintenance, consulting and other services as a percentage of
maintenance, consulting and other services revenues decreased from the prior
year as a result of an increase in consulting and other services revenue, a
decrease in headcount and an increase in employee utilization.
Amortization of capitalized software costs for the third quarter of 1996 of
$900,000 decreased 14 percent from $1,049,000 for the same period in 1995. Such
amortization decreased 13 percent to $2,617,000 in the first nine months of 1996
from $3,025,000 in the comparable 1995 period. The decrease in amortization of
capitalized software costs is due to previously released products becoming fully
amortized at the end of the first quarter of 1996, partially offset by
additional amortization for recent software releases.
Sales and marketing expenses increased during the third quarter of 1996 by 26
percent to $3,807,000 from $3,013,000 for the comparable period in 1995. For
the nine months ended September 30, 1996, expenses for sales and marketing of
$9,931,000 remained relatively flat compared to $10,062,000 for the same period
in 1995. The increase for the three month period is attributable to increased
net costs incurred for the Company's annual users conference and higher
commissions and travel expenses associated with higher license revenue compared
to 1995. Nine month expenses remained relatively flat due to costs associated
with changes in senior management in 1995 offset by increased marketing and
promotional costs in 1996. Selling and marketing costs fluctuate as a result of
the timing of product releases, promotional activities and other factors. Sales
and marketing expenses are expected to increase as the Company continues to
promote its products. Furthermore, selling expenses will fluctuate as license
revenues vary.
Net product development expenses decreased 21 percent to $2,630,000 for the
third quarter of 1996 compared to $3,337,000 for the same period in 1995,
representing 16 percent and 25 percent of total revenue in such periods,
respectively. Expenses for product development for the first nine months of
1996 of $8,502,000 decreased 14 percent from $9,918,000 for the same period in
1995, representing 19 percent and 23 percent of total revenues in such periods,
respectively. The decrease is primarily due to an increase in capitalized
software development costs compared to prior years. The increase in capitalized
software development costs is due to increased software development on products
which had reached technological feasibility. In order to actively compete in
the market of financial applications, the Company plans to continue to invest in
the development of new and existing software products and technology.
General and administrative expenses decreased 74 percent during the third
quarter of 1996 to $2,026,000 from $7,646,000 for the third quarter of 1995.
For the nine months ended September 30, 1996, general and administrative
expenses decreased 50 percent from the comparable prior
<PAGE>
year period to $6,886,000 from $13,730,000. General and administrative expenses
for the nine months ended September 30, 1996 include $1,195,000 for bad debt
reserves and costs associated with senior management changes. Included in the
general and administrative expenses for the nine months ended September 30,
1995, was $8,444,000 of expense accruals for an office consolidation in the
United Kingdom, additions to bad debt reserves, costs associated with a senior
management change and sales tax accruals and other reserves. Excluding these
expense accruals, 1996 general and administration expenses have increased by
eight percent from the nine month period ended September 30, 1995. The increase
is primarily attributable to costs associated with the development of
infrastructure and business processes.
Income Taxes
Income tax expense/benefit is recorded based on the Company's estimated
effective income tax rate for the year. The Company currently estimates that
the 1996 effective income tax rate will be a provision of 14 percent. This rate
reflects the effect of the charge for purchased in-process research and
development. For the nine months ended September 30, 1995, the Company
estimated an eight percent income tax benefit. The Company's effective income
tax rates are significantly influenced by the proportion of tax-exempt income to
taxable income/loss and the generation and expiration of tax attributes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows vary from quarter to quarter due to negotiated terms on perpetual
license agreements and the timing of maintenance agreement anniversary dates.
Cash flows from operating activities are also affected by the payment of bonuses
and commissions which are tied to performance objectives, payments received on
perpetual license agreements, and timing of account receivable collections.
The Company's operating activities provided cash of $2,827,000 for the nine
months ended September 30, 1996 compared to $2,394,000 provided in the same
period of 1995.
Net cash used by financing activities was $1,480,000 during the nine months
ended September 30, 1996 compared to $159,000 provided during the same period of
1995. The decrease from the prior year is primarily attributable to the
purchase of shares of treasury stock offset by proceeds from the issuance of
stock for the Company's employee stock purchase plan and exercise of employee
stock options.
The Company intends to continue to utilize a portion of its cash to repurchase
shares of its common stock. The Board of Directors has authorized the
repurchase of 800,000 shares, not to exceed a total cost of $6,000,000. The
shares are being repurchased for use in connection with the Company's employee
stock purchase plan and one of its employee stock option plans. The volume of
shares repurchased will vary from quarter to quarter. As of September 30, 1996,
the Company had acquired 357,000 shares of its common stock at a cost of
$3,722,000 for this purpose. During the third quarter of 1996, the company
reissued 50,867 of the repurchased shares for use in the Company's employee
stock purchase plan.
As of September 30, 1996, the Company had cash and cash equivalents and short-
and long-term investments totaling $36,656,000 compared to $42,318,000 at
December 31, 1995. The decrease
<PAGE>
is primarily attributable to the Company's acquisition of Hunt Systems Group,
Inc. which resulted in a net reduction of cash by $2,034,000, the net use of
cash to repurchase and issue shares of common stock in the amount of $1,249,000,
and a net increase in accounts receivable of $3,044,000. The decrease in cash
and cash equivalents reflects funds being invested in short- and long-term
financial instruments. The increase in accounts receivable is attributable to an
increase in revenue and the timing of cash collections.
The Company has a line of credit with a financial institution in the amount of
$3,000,000, secured by marketable securities. The line of credit expires on
June 30, 1997. No borrowings were outstanding under the line as of September
30, 1996.
As of September 30, 1996, the Company's principal source of liquidity included
cash, cash equivalents and short-term investments aggregating $28,895,000. The
Company believes that such amounts, together with funds expected to be generated
from operations, will satisfy the Company's currently anticipated working
capital and capital expenditure requirements for at least the next twelve
months.
ADDITIONAL FACTORS AFFECTING OPERATING PERFORMANCE AND STOCK PRICE
- ------------------------------------------------------------------
The Company's future net income and stock price could be subject to significant
fluctuations, particularly on a quarterly basis. The Company's revenues and net
income are difficult to predict because of the timing of significant sales of
the Company's products.
The Company generates revenue from internally developed software products of
which certain products utilize technology licensed from third parties. If
revenue growth or mix changes increase disproportionately from the sales of
software utilizing third party technology, operating income as a percent of
revenue may be below historical levels due to third party royalty obligations.
The Company expects sales and marketing expenses to increase in the future as
the Company releases and promotes new products, increases promotions of existing
product lines, and continues to build its sales force. However, because of the
lengthy sales cycle associated with software applications, the Company believes
that the impact of these activities, if any, on future license fee revenues will
not be immediate and there can be no assurance that increased sales and
marketing expenditures will result in increased revenues.
The Company expects product development expenses to grow in future periods to
fund development efforts on new and existing products. Although the Company may
be able to release new products in addition to enhancements to existing
products, there can be no assurance that the Company's new or upgraded products
will be accepted, will not be delayed or canceled, or will not contain errors or
"bugs" that could affect the performance of the product or cause damage to
users' data.
As a result of the foregoing factors and other factors which may arise in the
future, the market price of the Company's common stock may be subject to
significant fluctuations within a short period of time. These fluctuations may
be due to factors specific to the Company, to changes in analysts' earnings
estimates or to other factors affecting the computer industry or the securities
markets in general.
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1996.
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WALKER INTERACTIVE SYSTEMS, INC.
--------------------------------
(REGISTRANT)
Date: November 11, 1996 By: /s/ BARBARA M. HUBBARD
----------------- ----------------------
Barbara M. Hubbard
Vice President and
Corporate Controller
(Chief Accounting Officer)
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
27 Financial Data Schedule (electronic filing only)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WALKER
INTERACTIVE SYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,675
<SECURITIES> 22,981
<RECEIVABLES> 15,177
<ALLOWANCES> 1,604
<INVENTORY> 0
<CURRENT-ASSETS> 44,325
<PP&E> 20,489
<DEPRECIATION> 16,471
<TOTAL-ASSETS> 81,329
<CURRENT-LIABILITIES> 26,968
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 46,535
<TOTAL-LIABILITY-AND-EQUITY> 81,329
<SALES> 45,677
<TOTAL-REVENUES> 45,677
<CGS> 20,149
<TOTAL-COSTS> 48,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,091)
<INCOME-TAX> 152
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,243)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
