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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 March 31, 1997
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
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
303 SECOND STREET, SAN FRANCISCO, CA 94107
(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 13,188,554 Shares of $.001 Par Value Common Stock outstanding
as of May 6, 1997.
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WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<S> <C> <C>
Consolidated Balance Sheets as of March 31, 1997 and December
31, 1996...............................................................................3
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996................................................................4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996................................................................5
Notes to 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........................................................13
SIGNATURES ........................................................................................14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
MARCH DECEMBER
ASSETS 31, 1997 31, 1996
-------- --------
Current assets:
<S> <C> <C>
Cash and cash equivalents ........................... $ 6,504 $ 13,475
Short-term investments .............................. 19,096 17,615
Accounts receivable, net ............................ 14,452 12,245
Prepaid expenses .................................... 1,131 1,010
-------- --------
Total current assets ............................. 41,183 44,345
Long-term investments .................................... 7,643 7,080
Property and equipment, net .............................. 4,124 4,332
Capitalized software, net ................................ 12,609 11,858
Deferred tax assets, net ................................. 14,014 14,060
Other assets ............................................. 560 644
-------- --------
TOTAL ASSETS ............................................. $ 80,133 $ 82,319
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............ $ 12,281 $ 13,152
Deferred revenue .................................... 13,360 14,855
-------- --------
Total current liabilities ........................ 25,641 28,007
Deferred revenue ......................................... 2,543 2,441
Accrued rent ............................................. 844 960
Other long-term obligations .............................. 3,878 4,139
-------- --------
Total liabilities ................................ 32,906 35,547
-------- --------
Stockholders' equity:
Common stock, $.001 par value: 50,000,000 shares
authorized; issued 13,604,220 shares - March 31,
1997; 13,494,487 shares - December 31, 1996 ...... 14 13
Additional paid-in capital .......................... 70,310 70,008
Currency translation adjustments .................... 116 253
Unrealized loss on investments ...................... (98) (39)
Accumulated deficit ................................. (18,034) (18,710)
Treasury stock at cost (422,194 shares - March 31,
1997; 397,194 shares - December 31, 1996) ........ (5,081) (4,753)
-------- --------
Total stockholders' equity ....................... 47,227 46,772
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 80,133 $ 82,319
======== ========
</TABLE>
See notes to consolidated financial statements
3
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WALKER INTERACTIVE SYSTEMS
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
-------- --------
REVENUES:
<S> <C> <C>
License ........................................ $ 3,740 $ 1,563
Maintenance .................................... 6,921 6,753
Consulting ..................................... 6,412 6,016
-------- --------
Total revenues .............................. 17,073 14,332
OPERATING EXPENSES:
Costs of revenues:
Costs of licenses, maintenance and consulting 6,676 5,640
Amortization of capitalized software ........ 1,088 761
Sales and marketing ............................ 3,856 2,843
Product development ............................ 2,533 2,919
General and administrative ..................... 2,386 2,464
-------- --------
Total operating expenses .................... 16,539 14,627
Operating income (loss) ............................. 534 (295)
Interest income, net ........................ 504 483
-------- --------
Income before income taxes .......................... 1,038 188
Income tax expense .......................... 362 53
-------- --------
NET INCOME .......................................... $ 676 $ 135
======== ========
NET INCOME PER SHARE ................................ $ 0.05 $ 0.01
======== ========
Shares used in computing net income per share ....... 14,145 13,961
======== ========
</TABLE>
See notes to consolidated financial statements
4
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WALKER INTERACTIVE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ............................................ $ 676 $ 135
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ...................... 1,784 1,622
Tax benefit of nonqualified stock options .......... 15 286
Changes in operating assets and liabilities:
Accounts receivable, net ........................... (2,207) (177)
Prepaid expenses ................................... (121) (388)
Accrued liabilities ................................ (1,264) (1,422)
Deferred tax assets ................................ 46 13
Deferred revenue ................................... (1,393) 172
Other .............................................. 49 (6)
-------- --------
Net cash provided (used) by operations ......... (2,415) 235
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan
issuances and stock options exercised .............. 288 1,060
Treasury stock acquired ............................... (328) (495)
Other ................................................. 16 (122)
-------- --------
Net cash provided (used) by financing activities (24) 443
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short- and long-term investments ......... (10,515) (11,115)
Maturities of short-term investments .................. 4,000 4,900
Sales of short-term investments ....................... 4,391 1,000
Purchases of property ................................. (621) (319)
Additions to capitalized software ..................... (1,839) (1,028)
Other ................................................. 52 61
-------- --------
Net cash used by investing activities .......... (4,532) (6,501)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................. (6,971) (5,823)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD ............ 13,475 25,412
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD .................. $ 6,504 $ 19,589
======== ========
</TABLE>
See notes to consolidated financial statements
5
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WALKER INTERACTIVE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION
The accompanying unaudited 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 consolidated financial statements, and any notes
thereto, should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1996 included in
the Walker Interactive Systems, Inc. Annual Report on Form 10-K.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Standards ("SFAS") No. 128, "Earnings per
Share." The Company is required to adopt SFAS No. 128 during its
quarter ending December 31, 1997. At the time of adoption all
prior-period earnings per share data will be restated to conform with
the provisions of SFAS No. 128. Earlier adoption of SFAS No. 128 is not
permitted.
SFAS No. 128 replaces current earnings per share ("EPS") reporting
requirements by replacing the presentation of primary EPS with a
presentation of basic EPS. A dual presentation of basic and diluted EPS
on the face of the income statements will be required. Basic EPS
excludes dilution and is computed by dividing income by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of equity.
If SFAS No. 128 had been in effect for the current and prior years, EPS
presentation would not be significantly different from EPS currently
reported in the Company's statements of operations.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform
with the current presentation format.
6
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WALKER INTERACTIVE SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The report on this Form 10-Q contains forward-looking statements, including
statements related to industry trends and demand for mainframe products, working
capital requirements and possible expansion in international markets.
Discussions containing such forward-looking statements may be found in the
material set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations", generally, and specifically therein under
the captions "Liquidity and Capital Resources" and "Future Performance and
Additional Risk Factors" as well as elsewhere in this Quarterly Report on Form
10-Q, the Company's 1996 Annual Report on Form 10-K and the Company's Annual
Report for the year ended December 31, 1996. Actual events or results may differ
materially from those discussed herein. The risk factors on pages 10 through 12,
among others, should be considered in evaluating the Company's prospects and
future financial performance.
Walker Interactive Systems, Inc. and its subsidiaries (collectively, the
"Company") designs, develops and markets software products for the mainframe and
client/server platforms. Of these products, the Tamaris C/S 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 provides a multi-tier client/server architecture that runs on UNIX
and Windows NT servers. Along with the Tamaris C/S and Aptos product lines, the
Company develops and markets financial solutions which focus on the high-end
corporate market with the ability to serve mid-sized stand-alone organizations
and divisions of large corporations. The Company's Tamaris C/S financial suite
include productivity tools that allow the Company's applications to be
extensively customized to fit the customer's particular requirements. The
Company complements its software products by providing consulting and training
services to assist in customization and implementation.
The Company derives its revenues primarily from software licenses, software
maintenance and professional consulting services. The Company's Tamaris C/S
product line is licensed primarily to Fortune 1000 companies and similarly-sized
business and governmental organizations worldwide. The Company's Aptos products
are marketed primarily in the United Kingdom to mid-sized organizations. The
Company's products and services are marketed primarily through its sales forces
located in the United States, United Kingdom and Asia Pacific. The Company
licenses software products directly to customers and occasionally to
distributors for resale.
Software license revenues are recognized when software revenue recognition
criteria have been met. The portion of revenues from new license agreements
which relate to the Company's obligations to provide customer support are
deferred and recognized ratably over the contract support period, which is
generally three to twelve months. Software maintenance contracts are usually
renewable on an annual basis, although the Company may negotiate long-term
contracts. Revenues from maintenance contract renewals are deferred and
recognized ratably over the terms of the agreements. Revenues from consulting
and other services are recognized as the related services are provided or as the
milestones are completed.
ACQUISITION
- -----------
On May 17, 1996, the Company acquired the business and net assets of Hunt
Systems Group, Inc. ("Hunt") for a total acquisition price of $3.8 million
comprised of a $2.1 million cash payment, $1.6 million payable based on
achievement of certain performance targets during the four year period following
closing and $0.1 million in transaction costs. Additional amounts will be paid
if further performance targets are reached during the same four year period. The
acquisition was accounted for as a purchase transaction. Of the purchase price,
$0.2 million was allocated to identifiable net tangible assets, $0.8 million was
allocated to capitalized software and $2.8 million 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 technological feasibility had not been
established and no alternative future uses existed at the acquisition date. The
results of operations of Hunt, which are included in the Company's Consolidated
Statement of Operations for the quarter ended March 31, 1997, were not material
to the results of operations of the Company.
7
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RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards ("SFAS") No. 128, "Earnings per Share." The Company is
required to adopt SFAS No. 128 during its quarter ending December 31, 1997. At
the time of adoption all prior-period earnings per share data will be restated
to conform with the provisions of SFAS No. 128. Earlier adoption of SFAS No. 128
is not permitted.
SFAS No. 128 replaces current earnings per share ("EPS") reporting requirements
by replacing the presentation of primary EPS with a presentation of basic EPS. A
dual presentation of basic and diluted EPS on the face of the income statements
will be required. Basic EPS excludes dilution and is computed by dividing income
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of equity.
If SFAS No. 128 had been in effect for the current and prior years, EPS
presentation would not be significantly different from EPS currently reported in
the Company's statements of operations.
RESULTS OF OPERATIONS
- ---------------------
REVENUES. The Company's 1997 first quarter revenues of $17.1 million increased
$2.7 million over first quarter revenues of the prior year. The increase in
revenues for the first quarter of 1997 is primarily attributable to an increase
in license revenues which were $3.7 million for the three months ended March 31,
1997 compared to $1.6 million for the same period in 1996. Included in 1997
license revenues were product revenues from the Company's Information Access
Products line and Business Framework Series from which revenues were not
generated in the comparable 1996 period. Excluding these sales, license revenues
attributable to the Company's Tamaris C/S and Aptos lines increased $1.2 million
from the prior year.
The Company believes that the increase in Tamaris C/S revenues are attributable
to continued and increasing use of mainframe systems as the solution to high
volume transaction requirements. There can be no assurances that such usage will
continue in the future. The Company believes that the increase in Aptos revenues
in the United Kingdom is a result of product feature and functionality
enhancements. The Company believes that increased marketing promotions and
growth in the Company's sales and marketing infrastructure has increased
customer awareness of the Company's products and services.
Consulting revenues increased 7 percent to $6.4 million for the first three
months of 1997 over the comparable prior year period. The increase in revenues
is primarily attributable to revenues generated from implementation related
projects as increases in license sales generated additional consulting
opportunities. Although first quarter 1997 consulting revenues increased in
relation to the comparable prior year period, consulting revenues decreased in
comparison to the last three month period in 1996. This decrease is attributed
to the completion of several post-implementation projects which concluded during
the latter part of 1996 and the beginning of first quarter 1997.
COSTS OF LICENSES, MAINTENANCE, AND CONSULTING. The costs of licenses,
maintenance, and consulting as a percentage of revenues has remained flat at 39
percent for the first quarter ended March 31, 1997 compared to 1996. Third party
obligations resulting from the sale of internally developed software products
which utilize third party licensed technology increased in absolute dollars
during the first three months of 1997 compared to 1996. As a percentage of
license revenues, third party obligations increased from the first quarter of
1996, due to revenues associated with products from the Company's Information
Access Products line and its Business Framework Series which were not generated
in the comparable 1996 period. Expenses for the professional services
organization increased in absolute dollars and as a percentage of consulting
revenues for the first quarter of 1997 compared to the first quarter of 1996.
The increase is primarily due to resource investments in the professional
services organization during 1996 to support the growth in consulting projects
during 1996.
AMORTIZATION OF CAPITALIZED SOFTWARE. Expenses related to the amortization of
capitalized software increased 43 percent for the first quarter ended March 31,
1997 compared to the same period in 1996. The increase is due to additional
amortization related to recent software product releases.
8
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SALES AND MARKETING. Sales and marketing expenses for the first quarter of 1997
increased $1.0 million over 1996. The increase in absolute dollars is due to
higher commissions and other expenses associated with the increase in license
revenues. As a percentage of revenues, sales and marketing expense increased 3
percent to 23 percent in 1997. The change is due to an increase in marketing
promotions during 1997 and an increase in sales and marketing personnel compared
to 1996.
PRODUCT DEVELOPMENT. Product development expenses, excluding amortization of
capitalized software, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
------ ------
<S> <C> <C>
Product development costs including additions
to capitalized software (gross) ................ $4,372 $3,947
Less:
Additions to capitalized software .............. 1,839 1,028
------ ------
Product development expenses ..................... $2,533 $2,919
====== ======
</TABLE>
The increase in gross product development costs is primarily due to the
Company's efforts to broadened its existing product sets by further developing
acquired technologies, incorporating third party technologies in new products
and enhancing existing products. In absolute dollars and as a percentage of
gross product development costs, additions to capitalized software increased for
the three months ended March 31, 1997 compared to 1996. The change is due to
increased efforts by internal and external developers to develop enhanced
releases of existing products.
INCOME TAX EXPENSE. Income tax expense is recorded each quarter based on the
Company's estimated effective income tax rate for the year. The Company
estimates that the 1997 effective income tax rate will be 35 percent compared to
28 percent estimated for the first quarter of 1996. The increase in the
effective income tax rate resulted primarily from the proportion of state
research credits and other benefits to taxable income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of March 31, 1997, the Company had cash and cash equivalents and short- and
long-term investments totaling $33.2 million compared to $38.2 million at
December 31, 1996. The decrease is primarily attributable to changes in
operating assets and liabilities. The largest balance sheet changes comprised of
a $2.2 million increase in net accounts receivable and a $1.4 million decrease
in deferred software maintenance revenues. These changes were the result of the
timing of cash collections and the timing of maintenance contract renewals. The
Company's operations used $2.4 million in cash during the first quarter of 1997,
compared to $0.2 million provided by operations for 1996. Cash and cash
equivalents were utilized to fund operations as financing and investing
activities further utilized cash during the first quarter of 1997.
In 1995, the Board of Directors has authorized the repurchase of 800,000 shares,
not to exceed a total cost of $6.0 million. 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 March 31, 1997, the Company had acquired 517,000
shares of its common stock at a cost of $5.9 million for this purpose. As of
March 31, 1997, the Company had reissued approximately 100,000 of the
repurchased shares for use in the Company's employee stock purchase plan.
The Company has a line of credit with a financial institution in the amount of
$3.0 million, secured by marketable securities. The line of credit expires on
June 30, 1997. As of March 31, 1997, the Company had not borrowed against this
line of credit. The credit agreement provides that the Company shall maintain
certain financial ratios, and contains restrictions related to various matters,
including the Company's ability to effect mergers or acquisitions without the
bank's approval and the Company's ability to pay dividends while borrowings are
outstanding under the line of credit.
9
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As of March 31, 1997, the Company's principal source of liquidity included cash,
cash equivalents and short- and long-term investments aggregating $33.2 million.
The following sentence is a forward looking statement. 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.
FUTURE PERFORMANCE AND ADDITIONAL RISK FACTORS
- ----------------------------------------------
FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced and may in the
future experience significant quarterly and annual changes in revenues and
results of operations. The Company's revenues and results of operations
fluctuate as a result of a variety of factors which include the length of the
sales cycle for the Company's products, the amount of revenue generated from
products which require third party royalty payments, changes in product mix,
demand for the Company's products, competitive conditions in the industry and
general economic conditions. Furthermore, the revenue growth rates experienced
during 1996 did not continue into the first quarter of 1997 and may not continue
in the future. Shortfalls in revenues or earnings from levels expected by the
financial market could have an immediate and significant adverse effect on the
trading price of the Company's common stock.
Future operating results will continue to heavily depend on the level of license
sales. Due to the lengthy sales cycle associated with the Company's software
products, revenues are difficult to forecast and may fluctuate dramatically
between reporting periods. Future prices the Company will be able to obtain for
its software products may decrease from historical levels depending on
competitive factors. Maintenance revenues are derived from new and existing
customers. Lower than expected maintenance revenues may result if cancellations
or non-renewals of maintenance agreements are not replaced by new maintenance
agreements equal to or greater than those lost. Consulting revenues are derived
from new and existing customers for services related to training,
implementations, customizations, migrations, enhancements and other special
projects. In order to maintain or increase existing levels of consulting
revenues, the Company depends on consulting engagements from new license
customers. However, revenues from consulting engagements may be generated for an
extended period of time beyond the customers' software implementations. There
can be no assurances that the Company will continue the license revenue growth
trend experienced in recent quarters or that the Company will be able to sustain
current trends or levels of maintenance and consulting revenues.
The following sentence is a forward looking statement. The Company plans to
increase its presence in international markets. Risks associated with such
pursuits include, but are not limited to, the following: changing market
demands, economic and political conditions in foreign markets, foreign exchange
fluctuations, longer collections cycles and changes in international tax laws.
During 1996 and the first quarter of 1997, the Company experienced an increase
in revenues generated in the United Kingdom and a decrease in revenues generated
in the Asia Pacific region. There can be no assurances that the Company will
continue to experience increased revenues in the United Kingdom or that the
Company will be able to reverse the decreases in revenues generated in Asia
Pacific. Furthermore, there can be no assurances that the Company's sales and
marketing efforts in other international markets will result in future revenue.
The Company has entered into fixed price services agreements with some customers
and the Company expects to enter into additional fixed priced agreements. The
Company cannot ensure that such arrangements provide profit margins comparable
to non-fixed price agreements. Such fixed price arrangements may become a
greater proportion of the Company's revenues in the future.
The Company generates revenue from internally developed software products, some
of which utilize technology licensed from third parties. The Company expects to
continue utilizing third party technology and may enter into agreements with
additional business partners. If sales of software utilizing third party
technology increase disproportionately, operating income as a percent of revenue
may be below historical levels due to third party royalty obligations. There can
be no assurances that the third parties will renew existing agreements with the
Company or will not require financial conditions which are unfavorable to the
Company.
10
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The Company expects product development expenses to grow in future periods.
However, there can be no assurances that revenues will be sufficient to support
the future product development which is required for the Company to be
competitive. Although the Company may be able to release new products in
addition to enhancements to existing products, there can be no assurances 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.
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, the Company
believes that the impact of these activities, if any, on future license revenues
will not be immediate and there can be no assurances that increased sales and
marketing expenditures will result in increased revenues.
COMPETITION. The financial applications and business software market is
intensely competitive and rapidly changing. A number of competitors offer
products similar to the Company's products and target the same customers. The
Company believes that its ability to compete depends upon many factors within
and outside its control, including the timing and market acceptance of new
products and enhancements developed by the Company and its competitors, product
functionality, performance, price, reliability, customer service and support,
sales and marketing efforts and product distribution. The primary competition
for the Company's products is the financial applications software offered by
Geac Computer Corporation Limited (formerly Dun & Bradstreet Software Services,
Inc.), Oracle Software Corporation, PeopleSoft, Inc. and SAP AG. In addition,
the Company's products compete with the software offered by Coda Group plc,
Quality Software Products Holding plc, Lawson Software, Systems Union Group Ltd,
Agresso AS and SquareSum Ltd. The Company's products also compete with products
offered by other vendors, with systems integrators and with consulting companies
that offer custom software development services. In addition, the Company
competes with in-house management information services and programming resources
of its potential customers. Many of the Company's competitors have substantially
greater financial, technical marketing and sales resources than the Company.
Some of these competitors also offer business application products not offered
by the Company. There can be no assurances that the Company will be able to
compete successfully in the future.
RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid
technological change. The pace of change has accelerated due to advances in
mainframe and client/server technology and the growth in internet, intranet and
extranet utilization. The Company expects to evaluate potential opportunities
and may invest in those which are compatible with the Company's strategic
direction. However, there can be no assurances that any such investments will be
profitable. Furthermore, the Company's products are designed primarily for use
with certain mainframe and client/server systems. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete. Accordingly, the Company's future success
will depend in part upon its ability to continue to enhance its current products
and to develop and introduce new products that respond to evolving customer
requirements and keep pace with technological development and emerging industry
standards, such as new operating systems, hardware platforms, interfaces and
third party applications software. There can be no assurances that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change, changes in customer requirements
or emerging industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of such products and enhancements, or that any new
products or enhancements that it may introduce will achieve market acceptance.
PROPRIETARY RIGHTS. The Company regards its products as proprietary. Through its
license agreements with customers and its internal security systems,
confidentiality procedures and employee agreements, the Company has taken steps
to maintain the trade secrecy of its products. However, there can be no
assurances that misappropriation will not occur. In addition, the laws of some
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States.
The Company is not aware of any claims that its products infringe on the
proprietary rights of third parties, however, there can be no assurances that
third parties will not assert infringement claims against the Company in the
future with respect to current or future products or that any such assertions
may not require the Company to enter into royalty arrangements or result in
costly litigation.
11
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EMPLOYEES. The Company's success depends on a number of its key employees. The
loss of the services of the Company's key employees could have a material
adverse effect on the Company. The Company believes that its future success will
also depend in large part on its ability to attract and retain highly-skilled
technical and managerial personnel. Competition for such personnel in the
software industry is intense and the supply is limited. There can be no
assurances that the Company will be successful in attracting and retaining such
personnel.
12
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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
March 31, 1997.
13
<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: May 14, 1997 By: /s/ BARBARA M. HUBBARD
------------ ----------------------
Barbara M. Hubbard
Vice President and
Corporate Controller
(Chief Accounting Officer)
14
<PAGE>
WALKER INTERACTIVE SYSTEMS, INC.
FORM 10-Q
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule (electronic filing only)
1
<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
MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,504
<SECURITIES> 26,739
<RECEIVABLES> 16,207
<ALLOWANCES> 1,755
<INVENTORY> 0
<CURRENT-ASSETS> 41,183
<PP&E> 21,311
<DEPRECIATION> 17,187
<TOTAL-ASSETS> 80,133
<CURRENT-LIABILITIES> 25,641
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 47,213
<TOTAL-LIABILITY-AND-EQUITY> 80,133
<SALES> 17,073
<TOTAL-REVENUES> 17,073
<CGS> 7,764
<TOTAL-COSTS> 16,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,038
<INCOME-TAX> 362
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
