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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number: 0-20059
ARDENT SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 04-2818132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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50 WASHINGTON STREET
WESTBORO, MASSACHUSETTS 01581-1021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (508) 366-3888
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
Common Stock, $.01 par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 22, 1999, there were outstanding 15,897,905 shares of the
registrant's common stock, $.01 par value. As of that date, the aggregate market
value of voting stock held by non-affiliates of the registrant was approximately
$227,181,525.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders are incorporated by reference into Part III.
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This Form 10-K, future filings of the registrant, press releases of the
registrant, and oral statements made with the approval of an authorized
executive officer of the Registrant may contain forward looking statements. In
connection therewith, please see the cautionary statements and risk factors
contained in Item 1, "Business -- Cautionary Statement" and "Business -- Risk
Factors", which identify important factors which could cause actual results to
differ materially from those in any such forward-looking statements.
PART I
ITEM 1. GENERAL
Ardent Software, Inc. and its subsidiaries ("Ardent" or the "Company") is a data
management software company. Ardent designs, develops and markets easy-to-use
and highly compatible products that enable businesses to get the most out of
their data. Ardent's products help businesses store, sort, retrieve, manipulate
and analyze their ever increasing stores of information. Ardent's principal
products include DataStage, a software product that simplifies the creation of
large storage units of data known as data marts and data warehouses, and two
extended relational database management systems known as UniVerse and UniData.
Ardent markets and sells its products worldwide and provides technical support,
consulting and education services to its customers.
BUSINESS STRATEGY
Ardent was founded in the mid-1980s to develop and market extended relational
database management systems. Initially, these database systems were licensed to
users to enable business applications developed on a particular operating system
to be easily converted to run on the UNIX operating system. Beginning in the
early 1990s, the database systems were also licensed to users as an embedded
part of business applications. In 1996, Ardent began to develop and market data
warehouse products. In February 1998, Ardent merged with Unidata, Inc., a
relational database, object database, and software tools developer and marketer.
The purpose of this merger was to combine the strengths of two leaders in the
extended relational database marketplace.
Ardent currently has two business units which are based on two general product
areas: data warehouses and databases. Ardent maintains 68 sales/distribution
offices in 52 countries around the world. In addition to direct sales, Ardent
has established relationships with more than 1,000 value added resellers. These
value added resellers market Ardent's products in connection with other products
and services which, as a combined package, provide business solutions for all
phases of a company's operations.
Ardent's strives to support and expand its existing customer and reseller base
while expanding its presence in the data warehouse and database markets.
Key features of Ardent's strategy are:
- Improved Developer and User Productivity
Ardent promotes increased productivity of both software application
developers and software users by offering products and services that make
it easier to manage today's most complex business applications.
- Cost Containment and Compatibility
Ardent's products are designed to operate uniformly across a broad range of
computer systems, including PCs, workstations and servers. This ensures
that customers do not bear unnecessary costs for application re-deployment
or user retraining.
- Client/Server Technologies
Ardent's products provide a safe and efficient means for sharing database
information in a multi-user environment.
- Worldwide Distribution
In addition to its value added reseller relationships, Ardent also
distributes its products through strategic original equipment manufacturer
agreements and system integrating technicians who utilize Ardent's products
and services when building solutions for their customers. Ardent has a
worldwide direct sales force of distributors in key markets around the
world.
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- - International Presence
Ardent maintains engineering and sales subsidiaries in three strategic
regions outside the United States: the United Kingdom, France, and Asia
Pacific. Additionally, Ardent has established subsidiary and distributor
operations in emerging markets, including New Zealand, South America,
Germany, Japan, and Canada.
- Recurring Revenue
Ardent's distribution and pricing strategies are intended to generate
recurring revenue. The sale of a development license generally leads to
follow-on sales as applications are deployed and expanded. Ardent also
receives maintenance fees and revenues from consulting assignments and
training courses.
- Worldwide Customer Service
Ardent offers installation assistance, telephone and on-line support,
consulting services, and training both at worldwide Ardent locations and at
value added reseller and customer locations.
PRODUCTS
Ardent's many products enable it to serve the current and changing needs of its
growing customer base.
Ardent's Data Warehouse Products
- --------------------------------
As businesses rapidly accumulate data, they need better ways to manage,
manipulate and analyze that data. To meet this need, Ardent has created products
called data warehouses, which store and integrate data to be used in various
applications, and data marts, which contain a subset of information from a data
warehouse. The primary product in Ardent's Data Warehouse business unit is
DataStage.
- - DataStage
DataStage addresses what has historically been the most difficult and
time-consuming portion of a data mart or data warehouse implementation:
extracting and organizing data from different database management systems.
Through an easy to use point and click interface, DataStage allows
developers to quickly create easy to use and maintain data marts and data
warehouses. This gives businesses ready access to the data they need to
make faster, smarter business decisions. Its compatibility with popular
databases such as Oracle, Microsoft SQL Server, UniVerse, Sybase, Informix,
legacy databases and others, makes it a cost-effective and flexible
solution for businesses.
Ardent's Database Products
- --------------------------
The traditional portion of Ardent's business is represented by its database
business unit. This collection of relational database technology and tools has
long enabled customers to manage the most complex business data.
Products sold through the database business unit include:
- - UniVerse and UniData extended relational database management systems
With these products developers can build, enhance and run high performance
business applications using the popular UNIX and Windows NT operating
systems. UniVerse and UniData are leading technologies for processing a
large volume of data involving complex data structures and relationships.
- - RedBack
RedBack is a product that simplifies the integration of Web-based systems
with existing data and applications both on the Internet and corporate
intranets.
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- - wIntegrate
wIntegrate is a product that helps to transform applications that are based
on alphabetical or numerical characters into graphical applications based
on a Windows style, point-and-click, drag-and-drop format.
- - System Builder
A powerful application developer, System Builder allows developers to
transform existing applications to graphical user interfaces and multi-tier
deployment architectures, while maintaining the original functions of the
application.
- - O2 Object Database System
The O2 database system enables object developers to build high performance
database applications. O2 makes object development simpler because it is
compatible with both the popular Java and C++ data models. The O2 System
incorporates a complete set of application development tools tailored to
the evolving needs of today's application developers. O2 also provides
interfaces to other databases, the Web and the Common Object Request Broker
Architecture, a system which enables communication between diverse and
remote applications.
In addition to these products, the database business unit offers a variety of
middleware products which interconnect existing programs that run separately, a
COBOL migration solution, and a set of data analysis and reporting tools.
SERVICES
In addition to its product-focused business units, Ardent provides customers
worldwide with a full spectrum of services. These services include technical
support for customers who purchase maintenance contracts, education and
consulting services.
SALES AND MARKETING
Ardent sells its products and services throughout the world to a broad range of
customers through direct sales, value added resellers, and systems integrators.
In the United States, Ardent's sales and support staff are located at its
Westboro, Massachusetts headquarters and the following field offices:
Arlington, Texas; Bellevue, Washington; Bridgewater, New Jersey; Cary,
North Carolina; Denver, Colorado; Irvine, California; Palo Alto,
California; Princeton, New Jersey; Reston, Virginia; Rosemont, Illinois;
Tampa, Florida
Internationally, Ardent has seven wholly-owned international subsidiaries
located in the United Kingdom, France, Canada, Germany, South Africa, Australia
and Japan. Ardent also has exclusive distributors in Argentina, Brazil, Ecuador
and Spain. Revenue derived from outside the United States was approximately 36%,
38%, and 35%, of total revenue for the years ended December 31, 1998, 1997, and
1996, respectively. Ardent intends to continue making investments in
international activities. See page 18 for a description of various risks
involved in international transactions.
Ardent implements a variety of marketing programs to assist in the sale of its
products and services, including advertising and public relations campaigns,
regional seminars, reseller and end-user group meetings, and cooperative
programs. In addition, Ardent participates in various trade shows, and provides
catalogs, visual aids, newsletters, and product sales literature, both in
printed form and on the Web.
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CUSTOMERS
Ardent's products are used by over two million end-users in a broad range of
industries. Its end-users include:
Aetna
Anheuser-Busch
Bankers Trust
Cabletron
Chase Manhattan
Corporation
Eurotunnel
France Telecom
Fujitsu Lab
GE Aerospace
Hyatt International
Hewlett Packard
IBM
John Deere
Kaiser Permanente
Lucent Technologies
Motorola
New York City
Library
Sears, Roebuck &
Company
Sony Corporation
Stanford University
Travelers Insurance
U.S. Sprint
Wells Fargo
Xerox
PRODUCT DEVELOPMENT
Ardent believes that its future success depends, in part, on its ability to
maintain and improve its current technologies, enhance its existing products and
develop new products that meet an expanding range of customer requirements.
Ardent intends to expand its existing product offerings and introduce new
products to maintain its competitive position.
In 1998, Ardent began shipping commercially UniVerse version 9.5.1; UniData
version 5.0; UniData version 5.0/NT; RedBack version 2.3; wIntegrate version
4.01; System Builder 4.4; DataStage version 3.1/UNIX; and DataStage version
3.5/NT.
Throughout 1998, Ardent invested in the further development of these existing
products and established new technology sharing relationships to begin work on
new products. Ardent's development efforts are focused on enhancing the features
of and adding new functionality to all of its products.
In the years ending December 31, 1998, 1997, and 1996, Ardent's expenses
relating to product development were $17,526,000, $16,924,000 and $16,649,000,
respectively. Ardent has experienced little turnover in its product development
personnel and believes that the experience, stability, and depth of its product
development staff are important factors in Ardent's success.
The market for database and data warehouse software products changes rapidly due
to improvements in computer hardware and software. Ardent's success will depend
upon its ability to develop and market competitive technologies, enhance its
current products and bring forth new products in a timely and cost- effective
manner. Ardent may not be able to develop and market product enhancements or new
products that respond to changing market conditions or that will be accepted by
customers. Ardent previously experienced delays in the development and
introduction of new products and product enhancements. The length of these
delays has varied depending upon the size and scope of the project and the
nature of the problems encountered. If Ardent fails to anticipate or to respond
adequately to changing market conditions, or encounters significant delays in
product development and introduction, its customers could delay or decide
against purchases of Ardent's products. Any of these circumstances could
substantially harm Ardent's business, operating results and financial condition.
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COMPETITION
The computer software and service industry is intensely and increasingly
competitive. Because of the breadth of its overall product offering, Ardent
competes with many companies offering alternative solutions. Many of these firms
have greater financial, marketing and technical resources than Ardent. They may
be able to adapt more quickly to new or emerging technologies and standards or
changes in customer requirements, or they may be able to devote greater
resources to the promotion and sale of their products than can Ardent.
Ardent believes that the principal competitive factors affecting the database
and data warehouse markets include technical performance and product attributes
such as functionality, portability, reliability, ease of use, adaptability and
scaleability, product reputation, quality, customer service and support, price,
ability to integrate with products produced by other vendors, the effectiveness
of sales and marketing efforts and company reputation. There can be no assurance
that Ardent will be successful in competing in the future with respect to these
or other factors.
EMPLOYEES
As of December 31, 1998, Ardent had a total of 623 employees worldwide,
consisting of 363 in sales, support and marketing, 181 in engineering, and 79 in
finance and administration. Ardent's success is highly dependent on its ability
to attract and retain qualified employees. Competition for employees is intense
in the software industry, and an inability to attract and retain qualified
development and sales personnel, in particular, could postpone product release
schedules and adversely affect Ardent's ability to generate revenue.
None of Ardent's employees is represented by a labor union or is the subject of
a collective bargaining agreement with respect to his or her employment with
Ardent. Ardent has never experienced a work stoppage and believes its relations
with its employees are good.
PROPRIETARY RIGHTS AND LICENSES
Ardent depends upon a combination of copyrights and restrictions on access to
its trade secrets to protect its proprietary rights. Ardent distributes its
products under software license agreements which grant customers a perpetual,
non-exclusive license to Ardent's products and contain terms and conditions
prohibiting the unauthorized reproduction or transfer of Ardent's products.
Generally, Ardent's products are furnished to customers only in object code
form. In the limited cases where Ardent makes its source codes available to
third parties, it does so only under an obligation of confidentiality. In
addition, Ardent generally enters into confidentiality agreements with
management and programming staff and limits access to and distribution of its
proprietary information.
While Ardent has not registered any of its copyrights, it generally includes
copyright notices in its software. Despite these precautions, it may be possible
for unauthorized third parties to copy aspects of Ardent's products or to obtain
information that Ardent regards as proprietary. Unregistered copyrights are
still protected under both federal and state law, although a copyright holder
must first register a copyright to sue another person for infringement of that
copyright under federal law. This may be done immediately prior to bringing a
suit. Obtaining registered copyrights on software often requires disclosure of
the underlying software code. In addition, software code changes so frequently
that constant updates would be required to keep a useful copyright current.
Therefore, Ardent has elected not to register its copyrights at this time,
although it is free to do so at any time.
Ardent believes that, due to the rapid pace of innovation within the software
industry, factors such as the technological and creative skills of its personnel
and ongoing reliable product maintenance and support are more important in
establishing and maintaining a leadership position within the industry than are
the various legal protections of its technology.
All trademarks and registered trademarks used herein are the property of their
respective owners.
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward looking statements. When used anywhere in the Form
10-K and in future filings by the Company with the Securities and Exchange
Commission, in the Company's press releases and in oral statements made with the
approval of an authorized executive officer of the Company, the words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimated", "project", or "outlook" or similar expressions (including
confirmations by an authorized executive officer of the Company or any such
expressions made by a third party with respect to the Company) are intended to
identify "forward-looking statements," which speak only as of the date made.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements. The Company wishes to
advise readers that the various risk factors described below in this Form 10-K
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements. The Company specifically declines any obligation to publicly
release the result of any revisions
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which may be made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
RISK FACTORS
Information with respect to risk factors is located in Item 7, "Management's
Discussion of Financial Condition and Results of Operations" under the caption
"Factors Affecting Future Results".
ITEM 2. PROPERTIES
Ardent's principal administrative, marketing, product development and support
facilities are located in Westboro, Massachusetts, where Ardent occupies
approximately 90,000 square feet of office space under a lease that expires in
2008. Ardent also leases office space for its twenty-three US and foreign sales
and support offices and three foreign product development offices. The terms of
these leases generally range from one to five years. Ardent believes the current
space is adequate for its current needs and that additional space will be
available as needed.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
Ardent is a defendant in two actions filed against Unidata prior to its
merger into Ardent, one in May 1996 in the U.S. District Court for the Western
District of Washington and one in September 1996 in the U.S. District Court for
the District of Colorado. The plaintiff, a company controlled by a former
stockholder of Unidata and a distributor of its products in certain parts of
Asia, alleges in both actions the improper distribution of certain Unidata
products in the plaintiff's exclusive territory and asserts damages of
approximately $30,000,000 under claims for fraud, breach of contract, unfair
competition, racketeering and corruption, and trademark and copyright
infringement, among other relief. Unidata denied the allegations against it in
its answers to the complaints. In the Colorado action, Unidata moved that the
matter be resolved by arbitration in accordance with its distribution agreement
with the plaintiff. The motion regarding arbitration has been under the Court's
consideration for approximately two years. No discovery or other activity in
either action has occurred pending the Court's decision on the motion for
arbitration. While the outcome cannot be predicted with certainty, management of
Ardent believes that the actions against Ardent are without merit and plans to
continue to oppose them vigorously.
Ardent is a defendant in an action filed in July 1998 in the U.S. District
Court for the Southern District of Ohio. The plaintiff, with which
Ardent entered into a joint venture in 1996 to develop the Object Studio
product, alleges in its complaint that Ardent is obligated to support the joint
venture in amounts up to $1,400,000 per year for an aggregate present value
liability of up to $8,000,000. While the outcome cannot be predicted with
certainty, Ardent believes the allegations are without merit and has denied its
alleged liability and filed certain counterclaims against the plaintiff seeking
an amount in excess of $9,000,000 for misrepresentation and breach of fiduciary
duty.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the year ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common stock of Ardent Software, Inc. is traded on the NASDAQ Stock Market under
the symbol "ARDT". The table below presents the high and low prices for Ardent
Software, Inc. common stock for the periods indicated. The prices reflect
interdealer prices, without retail mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions.
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1998 HIGH LOW
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First Quarter......................................... $15.125 $ 7.00
Second Quarter........................................ 15.875 10.25
Third Quarter......................................... 15.375 10.00
Fourth Quarter........................................ 23.875 9.50
1997 HIGH LOW
---- ---- ---
First Quarter......................................... $ 7.875 $ 5.75
Second Quarter........................................ 8.625 5.875
Third Quarter......................................... 10.875 7.75
Fourth Quarter........................................ 11.75 6.625
</TABLE>
The Company has not paid cash dividends on its common stock and does not intend
to do so in the foreseeable future. The Company presently intends to retain its
earnings to finance future growth of its business. Cash dividends are subject to
restriction under the Company's line of credit agreement. As of December 31,
1998, there were approximately 341 shareholders of record and approximately
3,000 beneficial owners of the Company's common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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(IN THOUSANDS, EXCEPT PER SHARE DATA) YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996(1) 1995 1994
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software.................................................. $ 70,200 $ 58,812 $ 61,805 $54,218 $52,520
Services and other........................................ 49,060 43,916 48,694 38,503 29,368
-------- -------- -------- ------- -------
Total revenue............................................. 119,260 102,728 110,499 92,721 81,888
-------- -------- -------- ------- -------
Costs and expenses:
Cost of software.......................................... 7,953 9,211 8,864 6,449 5,899
Cost of services and other................................ 22,511 24,825 26,807 21,403 13,987
Selling and marketing..................................... 41,761 40,786 40,116 34,957 30,941
Product development....................................... 17,576 16,924 16,649 14,376 13,538
General and administrative................................ 9,986 13,128 12,920 11,174 9,436
Merger, exit and restructuring costs...................... 14,895 -- 7,858 6,882 1,700
Purchased technology...................................... -- 3,040 4,900 -- 3,212
Loss on disposal of subsidiary............................ -- 602 -- -- --
Litigation................................................ -- -- -- 499 650
------- -------- -------- ------- -------
Total costs and expenses.................................. 114,682 108,516 118,114 95,740 79,363
-------- -------- -------- ------- -------
Income (loss) from operations............................. 4,578 (5,788) (7,615) (3,019) 2,525
-------- -------- -------- ------- -------
Other income (expense):
Other income -- net....................................... 579 981 461 751 644
Interest expense.......................................... (389) (2,965) (2,100) (1,354) (333)
Loss on investment in joint venture....................... -- -- (176) -- --
-------- -------- -------- ------- -------
Total other income (expense).............................. 190 (1,984) (1,815) (603) 311
-------- -------- -------- ------- -------
Income (loss) before provision for (benefit from) income
taxes and extraordinary item.............................. 4,768 (7,772) (9,430) (3,622) 2,836
Provision for (benefit from) income taxes................. 3,131 1,149 (1,819) (996) 2,984
-------- -------- -------- ------- -------
Income (loss) before extraordinary item................... 1,637 (8,921) (7,611) (2,626) (148)
Extraordinary loss - loss from disposal of assets
acquired in a pooling of interests........................ -- -- (2,382) -- --
-- -- -- --
Net income (loss)......................................... $ 1,637 $ (8,921) $ (9,993) $(2,626) $ (148)
======== ========= ======== ======= =======
Basic income (loss) per common share:
Before extraordinary item................................. $ 0.11 $ (0.65) $ (0.58) $ (0.21) $ (0.01)
Net income (loss)......................................... $ 0.11 $ (0.65) $ (0.76) $ (0.21) $ (0.01)
======== ========= ======== ======= =======
Diluted income (loss) per common share:
Before extraordinary item................................. $ 0.10 $ (0.65) $ (0.58) $ (0.21) $ (0.01)
Net income (loss)......................................... $ 0.10 $ (0.65) $ (0.76) $ (0.21) $ (0.01)
======== ========= ======== ======= =======
Shares for basic computation.............................. 14,790 13,751 13,071 12,623 12,474
======== ========= ======== ======= =======
Shares for diluted computation............................ 16,724 13,751 13,071 12,623 12,474
======== ========= ======== ======= =======
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents...................................... $ 24,167 $ 24,155 $ 15,545 $12,654 $16,293
Working capital........................................... 13,087 12,548 18,314 18,873 24,800
Total assets.............................................. 82,804 93,984 94,516 79,833 78,779
Long-term liabilities, less current portion............... -- 21,190 21,704 12,085 12,091
Stockholders' equity...................................... 43,790 32,082 35,851 41,134 41,983
</TABLE>
(1) As restated. See Note 13 of notes to the consolidated financial statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Subsequent to the issuance of the Company's financial statements for the year
ended December 31, 1997, the Company's management determined that certain
elements of the extraordinary item recorded for the year ended December 31,
1996, as a result of the disposition of certain product lines present at the
date of a pooling-of-interests transaction with Easel Corporation in 1995,
should have been recorded as elements of continuing operations. Costs previously
included in the extraordinary item, related to the disposition of these product
lines, included severance costs associated with employees terminated who were
employed in these lines of business, costs associated with closure of facilities
associated with these lines of business, and committed costs related to a joint
venture associated with these lines of business. As a result, the Company has
restated its previously issued statement of operations for the year ended
December 31, 1996 to reflect these costs as Merger, exit and restructuring
costs. Only the costs associated with asset writedowns in connection with
exiting these product lines have been included in the extraordinary item. This
restatement had no effect on net income in 1996, did not affect the results of
operations or cash flows for any other period, nor did it have any effect upon
financial position as of December 31, 1996 or any other date. The effects of the
restatement have been reflected herein. See Note 13 to the Consolidated
Financial Statements.
On February 10, 1998, Ardent (formerly known as VMARK Software, Inc.) merged
with Unidata, Inc. in a transaction accounted for as a pooling-of-interests. The
accompanying consolidated financial statements include the accounts of Unidata,
Inc. with those of Ardent for all periods prior to the merger.
The discussion which follows analyzes the results of operations for the year
ended December 31, 1998 compared to the year ended December 31, 1997, and for
the year ended December 31, 1997 compared to the year ended December 31, 1996.
The following table sets forth selected items from Ardent's Consolidated
Statement of Operations as a percentage of total revenue and the percentage
change in dollar amounts of such items.
<TABLE>
<CAPTION> PERIOD- PERIOD-
TO-PERIOD TO-PERIOD
YEAR ENDED DECEMBER 31 CHANGE CHANGE
------------------------- 1998 VS. 1997 VS.
1998 1997 1996 1997 1996
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Revenue:
Software........................................... 58.9% 57.3% 55.9% 19.4% (4.8)%
Services and other................................. 41.1 42.7 44.1 11.7 (9.8)
----- ----- ----- ----- -----
Total revenue..................................... 100.0 100.0 100.0 16.1 (7.0)
----- ----- ----- ----- -----
Costs and expenses:
Costs of software................................... 6.7 9.0 8.0 (13.7) 3.9
Costs of services and other........................ 18.9 24.2 24.3 (9.3) (7.4)
Selling and marketing.............................. 35.0 39.7 36.3 2.4 1.7
Product development................................ 14.7 16.4 15.1 3.9 1.7
General and administrative.......................... 8.4 12.8 11.7 (23.9) 1.6
Merger, exit, and restructuring costs.............. 12.5 -- 7.1 * *
Purchased technology................................ -- 3.0 4.4 * *
Loss on disposal of subsidiary...................... -- .5 -- * *
----- ----- ----- ----- -----
Total costs and expenses........................... 96.2 105.6 106.9 5.7 .5
----- ----- ----- ----- -----
Income (loss) from operations....................... 3.8% (5.6)% (6.9)% *% *%
===== ===== ===== ===== =====
</TABLE>
* Not meaningful.
Ardent's revenue is derived from the licensing of software and the delivery of
related services. These services include consulting, training and product
maintenance. Ardent generally licenses its software for use on individual
computers. Customers may elect to contract with Ardent for product maintenance,
which includes product and documentation enhancements, as well as telephone
support for product problem resolution, by paying annual or quarterly fees or
paying fees based upon usage of such maintenance services.
REVENUE
Ardent's total revenue increased 16% to $119,260,000 for the year ended December
31, 1998, from $102,728,000 for the year ended December 31, 1997. This increase
in revenue is primarily due to the increase in sales of Ardent's data warehouse
and embedded database licenses. Data warehouse revenue represented 14% of total
revenue in 1998, as compared to 5% in 1997. Total embedded database revenue grew
approximately 21%, or $18,000,000. These increases were offset by the decline in
revenues associated with the conversion of applications from other operating
systems to client server UNIX and NT environments, which decreased from
approximately 15% of total revenue in 1997 to 2% in 1998.
Ardent's total revenue decreased 7% to $102,728,000 in fiscal year 1997, from
$110,499,000 in fiscal year 1996. The decline in total revenue is primarily due
to Ardent having exited certain non-strategic and unprofitable businesses in the
fourth quarter of 1996, including the Object Studio product line and related
services, and due to an increase in the Unidata allowance for returns in fiscal
year 1997 as a result of the fact that several customers had denied full payment
of their outstanding balances because of technical or invoicing issues. Prior to
the merger, Unidata occasionally experienced technical issues at key value-added
resellers and end-user sites for which Unidata accepted product returns or would
grant partial credit, even though there was no contractual obligation to provide
such credit. These decreases were partially offset by the increase in revenue
associated with Ardent's data warehouse product, DataStage, and the System
Builder products. DataStage revenue represented 5% of total revenue in 1997.
DataStage was released in late January 1997 and, therefore, was not included in
the results of operations in 1996. System Builder products' revenue represented
approximately 9% of revenue in 1997, as compared to 6% in 1996. System Builder
was acquired in fiscal year 1996.
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SOFTWARE REVENUE
Software revenue increased 19% to $70,200,000 in 1998, as compared to
$58,812,000 in 1997. This increase is due principally to the increase in
DataStage revenue which represented approximately 19% of license revenue for the
year ended December 31, 1998, as compared to 7% for the year ended December 31,
1997. Revenue from Ardent's relational database products and the object database
product, O2 System, also contributed to the increase in software revenue. The
object database product was acquired through the acquisition of O2 Technology on
December 31, 1997, and, therefore, was not included in the 1997 results of
operations. O2 Systems license revenue represented approximately 4% of Ardent's
total software revenue. Software revenue increased to 59% of total revenue for
1998, as compared to 57% for the same fiscal period in 1997.
Software revenue decreased 5% to $58,812,000 in fiscal year 1997, from
$61,805,000 in 1996. This decrease is due to the elimination of sales of the
Object Studio product line offset by the impact of revenue associated with
Ardent's data warehouse product, DataStage, and application development tool
product, SB+. DataStage was released in late January 1997 and represented
approximately 7% of revenue for the year ended December 31, 1997. SB+ was
acquired through the System Builder acquisition in fiscal year 1996 and
contributed a full year of revenue to fiscal year 1997, as compared to eight
months of revenue in 1996. Software revenue increased to approximately 57% of
total revenue in fiscal year 1997, from 56% in 1996.
SERVICES AND OTHER REVENUE
Services and other revenue, consisting of consulting, training, and software
maintenance increased 12% to $49,060,000 for the year ended December 31, 1998,
as compared to the same period in 1997. This increase is due primarily to the
services revenue associated with the DataStage and O2 System products. The
combined service revenue attributable to these two products represented 11% of
total services revenue for the year ended December 31, 1998, as compared to 2%
for the comparable period in the prior year. Services and other revenue
decreased to 41% of total revenue in 1998, as compared to 43% for the same
fiscal period in 1997.
Services and other revenue declined 10% to $43,916,000 in 1997, from $48,694,000
in 1996. This decrease is due to the elimination of Object Studio related
consulting and maintenance services, which represented approximately 15% of
services and other revenue in fiscal year 1996. Ardent also disposed of its
third-party education business in 1996 which had represented approximately 45%
of Ardent's training revenue. This decline was partially offset by the revenue
associated with DataStage consulting projects and System Builder maintenance
revenue, as well as the increase in maintenance revenue consistent with the
growth of Ardent's existing, installed license base.
COST OF SOFTWARE
Costs of software, which consist of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs, decreased 14% to $7,953,000 for the year ended December
31, 1998, from $9,211,000 for same period in 1997. This decrease in cost of
software is due to the expiration of certain royalty agreements in 1997,
therefore resulting in a reduction of approximately $1,540,000 in royalty
expense in 1998, and the reduction of approximately $600,000 in amortization
costs related to software and other capitalized costs that have been fully
amortized. This decrease is also due to Unidata having recorded a $382,000
change in estimate on the useful life of internally developed software, reducing
the life from five to three years, increasing costs of software in 1997 over
1998. These decreases were offset by $1,300,000 of amortization expense
associated with the intangibles acquired in connection with the acquisition of
O2 Technologies in December 1997. Cost of software as a percentage of software
revenue decreased in 1998 to 11%, from 16% for the same periods in 1997.
Costs of software increased 4% to $9,211,000 in 1997, from $8,864,000 in 1996.
As a percentage of license revenue, costs of software increased slightly to 16%
in 1997, from 14% in 1996. The increase in costs of software for 1997 compared
to 1996 is a due to an increase in the amortization of software development
costs. This increase resulted from the inclusion of a full twelve months of
amortization in 1997 associated with the intangibles acquired in connection with
the acquisition of the System Builder group of companies, while the results of
operations of 1996 included only seven months of such amortization. The increase
was also due to the reduction from five to three years for the estimated useful
lives of capitalized software that had been internally developed by Unidata.
This change in estimate was made pursuant to management's belief that the
three-year life more appropriately matches the development costs with the
related revenue streams.
COST OF SERVICES
Costs of services and other, which consist of consulting, training, and other
customer support service costs, decreased 9% to $22,511,000 for the year ended
December 31, 1998, as compared to $24,825,000 for the same period in the prior
year. The profit margin associated with services and other revenue increased to
54% as compared to 43% for 1997. The decrease in costs, and the resulting
increase to profit margins, is due to a higher percentage of customer
maintenance support revenue in 1998 which typically
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has a higher profit margin than training and consulting services revenue.
Maintenance represented approximately 67% of services and other revenue in 1998,
compared to 64% in 1997. The improvement in margins of services and other
revenue in 1998 over 1997 is also due to improved utilization of internal
consultants, as compared to the utilization of more expensive third party
contractors used to deliver consulting services during 1997.
Costs of services and other decreased 7% to $24,825,000 in 1997, from
$26,807,000 in 1996 due to the elimination of Object Studio related consulting
and maintenance costs. This decline was offset by the expansion of the
consulting and education staff needed to provide an increased level of
consulting services, as the product lines have broadened. As a percentage of
service and other revenue, the costs of these services increased to 57% in 1997,
from 55% in 1996. This slight decline in margins in 1997 was due to losses
incurred on certain fixed price consulting projects, as well as a lag between
the hiring and training of professional service personnel and the future
revenues generated by those individuals.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses, which consist primarily of sales operating costs
and marketing programs, represented 35% of total revenue or $41,761,000 in the
year ended December 31, 1998, as compared to 40% of total revenue or $40,786,000
in the comparable period of the prior year. The increase in absolute dollar
spending year over year is due to the increase in the investment in the
DataStage product offset by the decrease in selling and marketing programs for
the relational database technology and tools products. The selling and marketing
resources have been reallocated to the data warehouse technology, which
represented 54% of spending for selling and marketing in 1998, as compared to 8%
in 1997.
Selling and marketing expenses increased 2% to $40,786,000 in 1997, from
$40,116,000 in 1996. As a percentage of total revenue, sales and marketing costs
increased to 40% of revenue in 1997, from 36% of revenue in 1996. The increase
in the levels of spending in sales and marketing costs as a percentage of
revenue is a result of the increase in DataStage and RedBack marketing and
program activities throughout 1997 and the increase in the data warehouse sales
force. This increase was also due to the foreign subsidiaries investing more
dollars in their sales and marketing efforts throughout 1997. These increases
were offset by savings associated with the elimination of Object Studio
marketing activities and planned attrition of overlapping sales personnel
acquired in the System Builder acquisition.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses, which consist primarily of salaries and related
benefits of development personnel and facility costs, increased 4% to
$17,576,000 in the twelve months ended December 31, 1998, as compared to the
same fiscal period of the prior year. Product development expenses as a
percentage of revenue slightly decreased to 15% from 16% in the comparable
period from the prior year. The increase in spending in absolute dollar terms is
due primarily to a shift in the concentration of development efforts dedicated
to the DataStage and O2 System products. Ardent allocated 57% of its research
and development funds into these new technologies in 1998, as compared to 7% in
1997. Relational database technology and tools development represented 43% of
research and development costs in 1998, as compared to 93% in 1997.
Product development expenses remained relatively constant at $16,924,000 in 1997
and $16,649,000 in 1996. As a percentage of total revenue, product development
expenses slightly increased to 16% of revenue in 1997, from 15% in 1996. The
relatively flat level of spending, as a percentage of revenue and year over
year, is due to the cost savings associated with the elimination of development
efforts previously dedicated to the Object Studio product offset by an increase
in spending on data warehouse product development and the inclusion of a full
year's expense related to engineering staff retained in connection with the
System Builder acquisition.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include the costs of finance, human
resources, legal, information systems, and administrative departments of Ardent.
General and administrative expenses decreased 24% to $9,986,000 in the year
ended December 31, 1998, from $13,128,000 for the same period in 1997. This
decrease is due to the elimination of duplicate positions in human resources and
finance, as well as the elimination of duplicate facilities, both in conjunction
with the merger of Ardent and Unidata consummated in February 1998.
General and administrative expenses increased 2% to $13,128,000 in 1997 from
$12,920,000 in 1996. As a percentage of total revenue, general and
administrative costs increased to 13% in 1997, from 12% in 1996. This increase
in expense is primarily due to an increase in legal and accounting costs
associated with potential acquisitions and financing activities, an increase in
legal costs associated with litigation, and an increase in administrative staff
in the Denver and Asia Pacific offices. These increases were offset by the
elimination of the administrative costs associated with Ardent's German
subsidiary, which is currently inactive as it had previously sold Object Studio
products and services.
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ACQUISITION COSTS AND NON-RECURRING CHARGES
Ardent recorded a one time charge of $14,895,000 associated with the merger with
Unidata in the quarter ended March 31, 1998. This amount included $3,910,000 for
financial advisor, legal, and accounting fees related to the merger and
$10,985,000 for costs associated with combining the operations of the two
companies including expenditures of $6,209,000 for severance, benefits and
other, $2,170,000 for closure of facilities and $2,606,000 for the write-off of
redundant assets. The severance costs related to the termination of 139 Unidata
and Ardent employees who held overlapping positions and terminated employment
principally within a period of one month prior and one month following the close
of the merger. Costs associated with integration activities preceding and
following the merger were charged to expense as incurred. The facilities closure
costs related to the accrual of future rental obligations for duplicate sales
offices which were identified at the time of the merger in California, Georgia,
New Jersey, Colorado, Texas, Australia, France, and the United Kingdom. The
offices were closed within a period of one month prior and two months following
the merger and were either sublet or remained idle until the end of the lease
term. Rent costs following the merger until closures were finalized and
employees were moved were charged to expense as incurred. The redundant assets
which were written off in connection with the merger included the net book value
of abandoned leasehold improvements, scrapped computer equipment, scrapped
documentation and product inventory with predecessor company names and prepaid
license inventory related to a version of the Unidata database product which was
no longer sold following the merger. All assets were scrapped or disposed of
within two months following the merger. Benefits related to reduced salaries,
rent and depreciation began to be realized immediately following the merger. The
annual cost reductions resulting from these actions totals approximately $14.7
million, $700,000 of which has no cash flow impact. As of December 31, 1998,
$1,312,000 of accrued merger costs remain unpaid comprised principally of future
rental obligations on idle facilities and severance associated with longer term
arrangements with senior executives.
In 1996, Ardent recorded non-recurring charges of $4,322,000. These charges
related to two separate restructurings undertaken by Ardent in May and December
1996. In May, Ardent recorded a $2,125,000 restructuring charge associated with
the downsizing of the ObjectStudio product line and associated development
efforts. The charge included approximately $1,900,000 in employee severance and
benefits related to the immediate termination of 50 employees, $153,000 for the
write-off of capitalized software and $72,000 for facility abandonment. In
December, Ardent recorded a $2,197,000 restructuring charge associated with
further staff reductions throughout all areas of Ardent, as well as the
write-off of certain intangible assets associated with discontinued product
lines. The charge included approximately $1,591,000 in employee severance and
benefits related to the immediate termination of 34 employees and $606,000 for
the write off of the remaining net book value of technology purchased in 1992,
the development of which ceased with the first version of UniVerse Release 9. At
December 31, 1998, all amounts provided for in connection with these
restructurings had been paid.
In December 1996, as part of Ardent's ongoing efforts to direct the business
towards growth areas, management, at the direction of the board of directors,
undertook a review of all existing businesses, including those acquired through
a merger with Easel Corporation, which had been accounted for as a
pooling-of-interests. Following this review, in December 1996, management
recommended, and the board of directors approved, a comprehensive plan to exit
businesses which did not fit with Ardent's strategic plan. In general, these
businesses represented portions of the business with minimal profitability and
lower future growth prospects. Among the product lines and businesses to be
discontinued or abandoned were certain product lines of business present at the
date of the merger with Easel Corporation. Because these dispositions were not
contemplated at the date of the merger, and are therefore outside of the normal
course of business, they have been presented as an extraordinary item in
accordance with Accounting Principles Board Opinion No. 16. The extraordinary
item aggregated $2,382,000 and had no associated tax benefit. See Note 9 to the
Ardent consolidated financial statements for further discussion. In addition to
the asset impairments recorded, a charge of approximately $3,536,000 (pre-tax)
was recorded to merger, exit and restructuring costs representing severance for
employees of the affected lines of business ($417,000), closure of facilities
used for those lines of business ($1,419,000), and cash commitments made to fund
a joint venture related to the affected lines of business ($1,700,000). As of
December 31, 1998, $800,000 remains unpaid comprised of facility costs.
PURCHASE OF IN-PROCESS SOFTWARE DEVELOPMENT
The 1997 results of operations include a charge of $3,040,000 for purchased
in-process technology associated with the acquisition of O2 Technologies. O2 was
a database software company, which developed, marketed, sold, and supported an
object database management system. Object databases are databases which allow
programmers to change aspects of the database without impacting other segments
of the entire software system, thus reducing overall product development time.
In connection with the acquisition, Ardent issued 248,549 shares of common
stock. Some of these products were only partially complete and others were under
development. The classification of the technology as complete or under
development was made in accordance with the guidelines established by Statement
of Financial Accounting Standards No. 86 ("SFAS 86"), Statement of Financial
Accounting Standards No. 2 ("SFAS 2") and Financial Accounting Standards Board
Interpretation No. 4 ("FIN 4"). At the time of acquisition, O2 had two new
software products under development, O2 Database version 5.0 and O2 Database
version 5.1. Development of version 5.0 began in early 1997. At the time of the
close of the transaction, approximately 65% of version 5.0 was complete, based
on a cost-based percentage of completion valuation method. O2 version 5.0
differs from previous version 4.6 in that it offers improved performance for
larger databases by providing significant additional ease of integration and
adaptability to change in larger environments. This version was also made
available on new software platforms. As of the acquisition date, a working model
had not been completed for the product. The working model was subsequently
completed and the completeness was confirmed through product testing and quality
assurance processes. Based on an estimate revenue stream through 2000 with
anticipated growth ranging from 45% to (53)%, estimated margins ranging from 25%
to 29%, and a 30% discount rate, the acquired in-process development was valued
at $1,642,000. Ardent invested an additional $1,300,000 in this product and the
product was released in June 1998. Development of version 5.1 also began in
early 1997. At the time of the close of the transaction, approximately 15% of
this product was complete, based upon a cost-based percentage of completion
methodology. O2 version 5.1 differs from 5.0 due to the additional features
which increase speed, increase the performance of large data sources and include
additional interface features which conform to industry standards. As of the
acquisition date, a working model had not been completed for the product. It is
expected that a working model will be completed by the end of March 1999. Based
on an estimated revenue stream through 2001, anticipated growth ranging from
200% to (23%), estimated margins ranging from 26% to 41%, and a 30% discount
rate, the acquired in-process research and development associated with this
product was valued at $1,398,000. The discount rate was based on the assumption
that a reasonable expectation of return on the incomplete technology would be
higher than that of completed technology due to the risk inherent in the
constant development of new software for future product releases. Ardent has
invested approximately $1,000,000 in this product since the acquisition and
expects to invest an additional $1,650,000 in this product before its scheduled
release date in March 1999. Both in-process projects
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continue to progress, in all material respects, consistently with the
assumptions that Ardent used for estimating the fair value. The estimates did
not consider any synergies expected to be achieved as a result of the
acquisition. The inability of Ardent to complete the technology within the
expected timeframe could materially impact future revenues and earnings, which
could have a material adverse effect on Ardent's business, financial condition
and results of operations.
The 1996 results of operations include a charge of $4,900,000 for purchased
in-process technology associated with the acquisition of System Builder. System
Builder was a software tools development company. In connection with the
acquisition, Ardent issued 572,097 shares of common stock. Some of the products
were only partially complete and others were under development. The
classification of the technology as complete or under development was made in
accordance with the guidelines established by SFAS 86, SFAS 2 and FIN 4. At the
date of the acquisition, System Builder had three new software products under
development. The first was SB+3.3.2 which is a tool which assists programmers in
the development of applications. The second was SBClient 2.2.5 which is a
product which provides a consistent visual front end interface between a client
personal computer and a server, regardless of the platform on which the server
is running. Both of these products were approximately 65% complete at the
acquisition date. The third in-process product was SQLator which is a product
which assists in the migration of an application to an Oracle database. This
product was approximately 40% complete at the acquisition date. Working models
were not completed for any of the three products at the acquisition date. The
working models were subsequently completed and the completeness was confirmed
through product testing and quality assurance procedures. Estimates of fair
value considered three traditional approaches to valuation; the cost approach,
the market approach, and the income approach. The income approach was used to
value the in-process technology and assumed a revenue stream through 2000 with
revenue growth ranging from 260% to (55%), and operating margins ranging from
(7%) to 54%. It is the nature of the business to be constantly developing new
software for future product releases. A reasonable expectation of return on the
incomplete technology would be higher than that of completed technology due to
these inherent risks. As a result, the earnings associated with the incomplete
technology were discounted at a rate of 26%. The estimates did not consider any
synergies expected to be achieved as a result of the acquisition. SB+ and
SBClient were released in December 1996 and approximately $1,760,000 was
incurred to complete the two products. SQLator was released in February 1997 and
$1,280,000 was incurred to complete the product. The progression of the projects
to completion was substantially consistent with the expectations at the time of
the acquisition.
LOSS ON DISPOSAL OF FOREIGN SUBSIDIARY
In 1997, Ardent sold the stock of its subsidiary in Spain and wrote off its
investment in its joint venture in India, and recorded non-recurring charges of
$602,000 related to the transactions. Since these charges are of a capital loss
nature, for income tax purposes they are deductible only to the extent that they
can be offset against capital gains. Because capital transactions of this type
occur very infrequently, no tax benefit was recorded for this loss.
OTHER INCOME AND EXPENSE
Other income was $190,000 for the year ended December 31, 1998, as compared to
expense of $1,984,000 for the year ended December 31, 1997. This fluctuation is
due to a decrease in debt of approximately $19,000,000 year over year reducing
interest expense by approximately $1,200,000. This fluctuation is also due to
the change in the treatment of the lease on Ardent's principal operating
facility from a capital to an operating lease, the elimination of the associated
interest expense of approximately $500,000, and the gain of approximately
$600,000 recorded because of the change in classification.
Other expense increased slightly to $1,984,000 during 1997, as compared to
$1,815,000 in 1996. The increase was due to an increase in the balance of the
line of credit during 1997 in order to finance a portion of the acquisition of
O2 Technologies.
COMMITMENTS
In the quarter ended March 1998, Ardent renegotiated the lease of its principal
operating facility. The lease had been classified as a capital lease. As a
result of this renegotiation, the term of the lease was modified and reduced
from 20 years to 14 years. As a result of this modification, the lease no longer
qualifies as a capital lease and has been reclassified as operating. In
connection with this reclassification, Ardent removed the asset and liability
from the balance sheet and recorded a net gain of approximately $600,000 as a
component of other income (expense).
INCOME TAXES
Ardent recorded a provision for income taxes of $3,131,000 for the year ended
December 31, 1998. This represents an annual effective income tax rate of 36%,
excluding the impact of non-deductible merger charges, which caused a 65%
effective income tax rate seen in the financial statements. For the year ended
December 31, 1997, Ardent recorded a provision for income taxes of $1,149,000,
or a 15% annual effective income tax rate. The 1996 effective tax rate of 19%
differed from the statutory rate of 35% principally due to the generation of
foreign losses for which no tax benefit was recorded.
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Ardent recorded a $1,149,000 tax provision in 1997 on a loss before tax of
$7,772,000. The provision included a non-deductible charge for in-process
research and development. The 1997 tax provision was a result of the above
mentioned non-deductible charges and losses generated in foreign jurisdictions
for which future benefit was uncertain. Future effective tax rates will be
dependent on a number of factors including, but not limited to, the geographical
mix of earnings. Total deferred tax assets, net of liabilities, amount to
$12,374,000 against which Ardent has provided a valuation allowance of
$5,652,000 at December 31, 1997. Realization of Ardent's net deferred tax assets
is dependent upon Ardent generating sufficient taxable income in future years in
appropriate tax jurisdictions to obtain benefit from the reversal of temporary
differences and from net operating loss carryforwards.
FOREIGN CURRENCY TRANSLATION
Ardent hedges its exposure to foreign currency fluctuations through foreign
exchange forward contracts. As of December 31, 1998, Ardent had foreign exchange
forward contracts outstanding used to hedge foreign exchange exposure on
billings to its principal international subsidiaries. These contracts are
composed of contracts to sell foreign currency aggregating $9,302,000 of
notional amount, principally British pounds and French francs. These contracts
are short-term in duration, typically 90 days. These contracts have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. Ardent deals only with reputable financial institutions in entering
into these contracts and therefore believes that credit risk is insignificant.
Currency forward contracts are used only to hedge identified foreign currency
commitments and are never held for speculative purposes. The gains and losses
associated with currency rate changes on these contracts, net of the
corresponding gains and losses on the hedged intercompany accounts, are recorded
as a component of other income/expense in the period the change occurs. Foreign
exchange gains or losses were not material in any period presented.
INFLATION
Certain of Ardent's expenses increase with general inflation in the economy.
However, Ardent does not believe that its results of operations have been, or
will be, adversely affected by inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Ardent invests cash balances in excess of operating requirements in short-term
securities, generally with maturities of 90 days or less. In addition, Ardent's
working capital line of credit agreement provides for borrowings which bear
interest at a variable rate based on a prime rate. As of December 31, 1998
Ardent had no borrowings outstanding pursuant to the credit agreement. Ardent
believes that the effect, if any, of reasonably possible near-term changes in
interest rates on Ardent's financial position, results of operations and cash
flows should not be material.
Ardent is exposed to changes in foreign currency exchange primarily in its cash
and foreign currency transactions. Ardent holds foreign exchange forward
contracts. Derivative instruments used by Ardent in its hedging activities are
viewed as risk management tools and are not used for trading or speculative
purposes. Analytic techniques are used to manage and monitor foreign exchange
risk and include market valuation. Ardent believes that it is managing the
foreign exchange exposure through its cash management and hedging policies. This
exposure is not considered material to Ardent's financial position, results of
operations and cash flows.
LIQUIDITY AND CAPITAL RESOURCES
Ardent has funded its operations to date primarily through sales of equity
securities and positive cash flow from operations, including sales of
receivables to certain finance companies. At December 31, 1998, Ardent had
$24,167,000 in cash and equivalents and $13,087,000 in working capital
($27,123,000 excluding deferred revenue, the satisfaction of which will have no
significant cash
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impact). As of December 31, 1997, Ardent had $24,155,000 in cash and equivalents
and $12,548,000 in working capital ($25,779,000 excluding deferred revenue, the
satisfaction of which will have no significant cash impact).
Ardent has a working capital line of credit with a bank under which Ardent may
borrow, on a secured basis, up to the lesser of $12,500,000 or 70% to 80% of
eligible domestic and foreign accounts receivable, conditioned upon meeting
financial covenants, including maintaining specified levels of quarterly
earnings, tangible net worth and liquidity. The line of credit also prohibits
Ardent from paying dividends. Interest on outstanding borrowings is at the
bank's prime rate plus 1.25% to 0.25%, depending on Ardent's tangible net worth.
At December 31, 1998, the applicable interest rate was 7.75% and there were no
borrowings outstanding under the line of credit facility. As of that date
$10,200,000 was available to Ardent under the arrangement.
As of December 31, 1998, Ardent's accounts receivable, net of the allowance for
doubtful accounts, were $21,238,000, compared to $21,161,000 at December 31,
1997. Ardent's allowance for doubtful accounts has decreased considerably from
$6,129,000 at the end of 1997, to $3,351,000 at the end of 1998. This decrease
was due to the utilization of reserves in 1998 for specifically identified
Unidata key value-added resellers and end-user sites that had denied full
payment in 1997 on their outstanding balances because of technical or invoicing
issues. Prior to the merger, Unidata occasionally experienced technical issues
at key value-added resellers and end-user sites for which Unidata accepted
product returns or would grant partial credit, even though there was no
contractual obligation to provide such credit. Ardent has experienced a 16%
increase in revenues and has been able to maintain its strong collection
efforts, reducing the outstanding accounts receivable balance from approximately
$27,290,000 at the end of 1997 to $24,589,000 at the end of 1998.
In 1998, Ardent generated approximately $8,900,000 through the sale of
securities and approximately $18,900,000 through operations. Ardent used
approximately $8,000,000 in the acquisition of fixed assets, software
development costs capitalized, and expenditures made on the cash surrender value
of officers' life insurance. Throughout 1998, Ardent paid down debt of
approximately $19,800,000, most of which was represented by Unidata's
outstanding line of credit, stockholder's notes, and subordinated note. Current
liabilities were $39,014,000 at December 31, 1998, comprised principally of
deferred revenue and accrued expenses.
Ardent believes that its available cash, anticipated cash generated from
operations based upon its operating plan, and amounts available under its credit
facility will be sufficient to finance Ardent's operations and meet its
foreseeable cash requirements at least for the next twelve months.
During the year ended December 31, 1998, Ardent transferred its rights to
certain accounts receivable to finance companies in exchange for cash payments.
Receivables sold under these arrangements aggregated $13,200,000 and $7,150,000
in the years ended December 31, 1998 and 1997, respectively.
Ardent, together with a third-party leasing company, offers a leasing program
available to current and potential customers. Under the program, customers are
able to purchase Ardent products through operating and capital leases with a
third-party lessor. All sales under this program are subject to Ardent's normal
revenue recognition policies and are made without recourse to Ardent. Sales
under the program in the years ended December 31, 1998 and December 31, 1997,
totaled approximately $1,632,000 and $1,536,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which Ardent will be required to adopt effective
January 1, 2000. Statement No. 133 establishes standards for reporting and
accounting for derivatives instruments, and conforms the requirements for
treatment of hedging activities across the different types of exposures hedged.
Ardent has not yet completed its evaluation of Statement No. 133, and is,
therefore, unable to disclose the impact adoption will have on its consolidated
financial position or results of operations.
In December 1998, the AICPA released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when the following conditions exist: (1) there is vendor-specific
objective evidence, or VSOE, of the fair values of all the undelivered elements
that are not accounted for by means of long-term contract accounting; (2) VSOE
of fair value does not exist for one or more of the delivered elements; and (3)
all revenue recognition criteria of SOP 97-2, other than the requirement for
VSOE of the fair value of each delivered element, are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs of SOP
97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP
98-9 will be effective for transactions that are entered into in fiscal years
beginning after March 15, 1999. Retroactive application is prohibited. Ardent
does not expect the adoption of SOP 98-9 to have a material effect on its
consolidated financial position or results of operations.
16
<PAGE> 17
EUROPEAN UNION CURRENCY CONVERSION
On January 1, 1999, eleven member nations of the European Economic and Monetary
Union began using a common currency, the Euro. For a three-year transition
period ending on June 30, 2002, both the Euro and each of the currencies for
those member nations will remain in circulation. After June 30, 2002, the Euro
will be the sole legal tender for those countries. The adoption of the Euro will
affect many financial systems and business applications as the commerce of those
countries will be transacted in both the Euro and the existing national currency
during the transition period. Of the eleven countries currently using the Euro
Ardent has subsidiary operations in two and distributor relationships in the
other nine.
Ardent has assessed the potential impact of the Euro conversion in a number of
areas, particularly including marketing and product development. For instance,
Ardent has considered whether the common currency will adversely affect its
pricing strategies for individual European countries. Although Ardent does not
currently expect that the conversion, either during or after the transition
period, will adversely affect its operations or financial condition, the
conversion has only recently been implemented and there can be no assurance that
it will not have some unexpected adverse impact.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
Ardent regards certain of its technologies as proprietary and relies on a
combination of patent, copyright, trademark and trade secret laws and
contractual provisions to establish and protect its proprietary rights. These
steps may not be sufficient to prevent or deter others from copying or stealing
such proprietary rights and do not prevent competitors from independently
developing technology that is equivalent or superior to Ardent's technology. In
addition, while Ardent does not believe that its products, trademarks, or other
proprietary rights infringe upon the proprietary rights of others, it is
possible that others will assert that they do. The cost of responding to such an
assertion may be significant, even if the assertion is false. The software
market has traditionally experienced widespread unauthorized reproduction of
products in violation of intellectual property rights. Such activity is
difficult to detect and legal proceedings to enforce intellectual property
rights are often burdensome and involve a high degree of uncertainty and costs.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of Readiness -- Ardent has made assessments of the Year 2000 readiness of
its internal information technology systems, system services provided by
third-party software and the software solutions that Ardent provides to its
customers. These assessments include:
- quality assurance testing of Ardent's internally developed proprietary
software;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to
Ardent's business;
- contacting third-party suppliers of material systems; and
- assessment and implementation of repair or replacement requirements.
Ardent has prepared and made available to its customers a Year 2000 readiness
statement addressing its products. Ardent has been informed by most of its
vendors of material hardware and software components that the products of these
vendors used by Ardent are currently Year 2000 compliant. Ardent has also
performed testing on its internally developed systems. Ardent expects to
complete all such testing and assessment by May 31, 1999.
Costs -- To date, Ardent has not incurred material incremental expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
the expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters. At this time, Ardent does not possess
the information necessary to estimate the potential costs of the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Based on testing to date, Ardent does not anticipate that such
expenses will be material. Such expenses, if higher than anticipated, could have
a material adverse effect on Ardent's business, results of operations and
financial condition.
17
<PAGE> 18
Risks -- Ardent is not aware of any Year 2000 compliance problems relating to
its proprietary products or systems that would, despite efforts to avoid or fix
such problems, have a material adverse effect on Ardent's business, results of
operations and financial condition. There can be no assurance that Ardent will
not discover Year 2000 compliance problems in its proprietary products that will
require substantial revisions. In addition, there can be no assurance that
third-party software, hardware or services incorporated into its material
systems will not need to be revised or replaced, all of which could be time
consuming and expensive. The failure of Ardent to fix its proprietary products,
if necessary, or to fix or replace third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions, any of which could have a
material adverse effect on Ardent's business, results of operations and
financial condition. Moreover, failure to adequately address Year 2000
compliance issues in its products and its systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
Contingency Plans -- Pending completion of its testing and assessment
procedures, Ardent has not developed any plans for likely scenarios involving
Year 2000 failures. If, when its testing and assessment is complete, it appears
reasonably likely that such a failure may occur, Ardent intends to develop
appropriate plans to deal with such contingencies.
FACTORS AFFECTING FUTURE RESULTS
Ardent operates in a rapidly changing environment that involves a number of
risks, many of which are beyond Ardent's control. The following discussion
highlights some of these risks.
The Company's future operating results may vary substantially from period to
period. The timing and amount of the Company's license fee revenues are subject
to a number of factors that make estimation of revenues and operating results
prior to the end of the quarter extremely uncertain. Quarterly fluctuations may
be caused by several factors including but not limited to timing of customer
orders, adjustments of delivery schedules to accommodate customer or regulatory
requirements, timing and level of international sales, mix of products sold, and
timing of level of expenditures for sales, marketing and new product
development. The Company generally ships its products upon receipt of orders and
maintains no significant backlog. The Company has experienced a pattern of
recording 45% to 55% of its quarterly revenues in the third month of the
quarter, with a concentration of such revenues in the last two weeks of that
third month. The Company's operating expenses are based on projected annual and
quarterly revenue levels and a substantial portion of the Company's costs and
expenses, including costs of personnel and facilities, cannot be easily reduced.
As a result, if projected revenues are not achieved in the expected time frame,
the Company's results of operations for that quarter would be adversely
affected. Accordingly, the results of any one period may not be indicative of
the operating results for future periods.
The market price of the Company's common stock is highly volatile. Failure to
achieve revenue, earnings, and other operating and financial results as
forecasted or anticipated by analysts could result in an immediate adverse
effect on the market price of the Company's stock.
Technological developments, customer requirements and industry standards change
frequently in the computer software database market. As a result, the Company's
success will depend upon our ability to enhance current products and to develop
or acquire new products which meet customer needs and comply with industry
standards. The possibility exists that the Company's products will be rendered
obsolete by technological advances, or that the Company will not be able to
develop and market the products required to continue to be competitive. Certain
of the Company's planned products are in various stages of development. It is
possible that such products will prove not to be commercially viable or that we
will experience operational problems with such products after commercial
introduction that could delay or defeat the ability of such products to generate
revenue. The products that the Company intends to devote substantial resources
in the foreseeable future are object oriented database products and data
warehousing and datamart products. There is no assurance that products in either
of these two areas will be commercially successful. In particular, object
technology requires customers to make a substantial investment in retraining
application programmers. Several companies have failed in attempts to introduce
object technology and there is no assurance that such technology will gain
widespread customer acceptance. The Company has experienced product delays and
undetected errors or bugs in certain products in the past and may experience
such problems in the future. The Company's success will also depend on the
ability of its products to interoperate and perform well with existing and
future industry-standard leading application software products intended to be
used in connection with relational database management systems.
Approximately 36% of the Company's total revenue in fiscal 1998 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 those 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 of 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 fluctuations 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
18
<PAGE> 19
affected. Other potential risks inherent in the Company's international business
generally include longer payment cycles, greater difficulties in accounts
receivable collection and the burdens of complying with a wide variety of
foreign laws and regulations.
The market for application development software is intensely competitive. The
Company competes with many companies offering alternative solutions to the needs
addressed by the Company's products. Many of these competitors may have greater
financial, marketing, or technical resources than the Company and may be able to
adapt more quickly to new or emerging technologies and standards or changes in
customer requirements or to devote greater resources to the promotion and sale
of their products than the Company.
The Company's business is led by a number of key, highly skilled technical,
managerial and marketing personnel, the loss of which could adversely affect the
Company. Competition of such personnel in the software industry is intense. The
success of the Company depends in large part on the ability to hire and retain
such personnel.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and the related independent
auditor's report are presented in the following pages. The consolidated
financial statements filed in this Item 8 are as follows:
Independent Auditors' Reports................................................20
Consolidated Balance Sheets as of December 31, 1998 and 1997.................22
Consolidated Statements of Operations for each of the years
ended December 31, 1998, 1997 and 1996 (restated)............................23
Consolidated Statements of Stockholders' Equity for each of
the years ended December 31, 1998, 1997 and 1996.............................24
Consolidated Statements of Comprehensive Income (Loss) for
each of the years ended December 31, 1998, 1997 and 1996.....................25
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1998, 1997 and 1996.......................................26
Notes to Consolidated Financial Statements...................................27
Selected Quarterly Financial Data (unaudited)................................42
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ARDENT SOFTWARE, INC.:
We have audited the consolidated balance sheets of Ardent Software, Inc. and its
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, comprehensive income (loss), and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the index at
Item 14(a)(2). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits. The consolidated financial statements give retroactive effect to
the merger of the Company and Unidata, Inc., which has been accounted for as a
pooling-of-interests as described in Note 1 to the consolidated financial
statements. We did not audit the statement of operations, stockholders' equity
and cash flows of Unidata, Inc. for the year ended June 30, 1996, which
statements reflect total revenues of $41,233,000 for the year ended June 30,
1996. These statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Unidata, Inc. for 1996 as described above, is based solely on the report of
such auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 13 to the consolidated financial statements, the statement
of operations for the year ended December 31, 1996 has been restated.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 22, 1999 (March 30, 1999 as to Note 13).
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF UNIDATA, INC. AND SUBSIDIARIES:
In our opinion, the consolidated statements of operations, stockholders' equity
and cash flows for the year ended June 30, 1996 of Unidata, Inc. and
Subsidiaries (not included separately herein) present fairly, in all material
respects, the consolidated results of their operations and cash flows for the
year ended June 30, 1996, in conformity with generally accepted accounting
principles. These consolidated financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We conducted our audit of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
October 25, 1996
21
<PAGE> 22
ARDENT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ........................................................................... $ 24,167 $ 24,155
Accounts receivable (less allowances for doubtful
accounts, $3,351 in 1998 and $6,129 in 1997) ................................................... 21,238 21,161
Prepaid expenses and other current assets ...................................................... 5,062 6,101
Deferred income taxes .......................................................................... 1,634 1,843
-------- --------
Total current assets .............................................................. 52,101 53,260
-------- --------
Property and equipment:
Building under capital lease ................................................................... -- 9,689
Computer equipment ............................................................................. 14,502 13,378
Office furnishings and fixtures ................................................................ 4,807 6,621
Leasehold improvements ......................................................................... 2,011 1,584
-------- --------
Total ............................................................................. 21,320 31,272
Less accumulated depreciation and amortization ................................................. 14,733 15,356
-------- --------
Property and equipment -- net ..................................................... 6,587 15,916
-------- --------
Other long-term assets:
Goodwill -- net ................................................................................ 7,772 9,073
Purchased technology -- net .................................................................... 3,706 5,507
Other intangibles -- net ....................................................................... 3,155 2,665
Other long-term assets ......................................................................... 5,085 2,743
Deferred income taxes .......................................................................... 4,398 4,820
-------- --------
Total other long-term assets ...................................................... 24,116 24,808
-------- --------
Total .......................................................................................... $ 82,804 $ 93,984
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ................................................................................. $ -- $ 7,357
Current portion of capital lease obligation .................................................... -- 216
Accounts payable ............................................................................... 5,476 4,995
Accrued compensation ........................................................................... 4,289 2,364
Accrued expenses ............................................................................... 13,101 11,464
Accrued merger and restructuring costs ......................................................... 2,112 1,068
Deferred revenue ............................................................................... 14,036 13,248
-------- --------
Total current liabilities ......................................................... 39,014 40,712
-------- --------
Long-term liabilities:
Non-current debt and other long-term liabilities ............................................... -- 21,190
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized, 10,000,000 shares; issued, none
Common stock, $.01 par value, authorized, 40,000,000 shares; issued, and
outstanding, 15,745,275 in 1998 and 14,361,844 in 1997 ......................................... 157 143
Additional paid-in capital ..................................................................... 68,774 58,653
Accumulated deficit ............................................................................ (21,883) (23,520)
Cumulative translation adjustment .............................................................. (244) (152)
Treasury stock at cost, 280,082 shares ......................................................... (2,956) (2,956)
Unearned compensation .......................................................................... (58) (86)
-------- --------
Total stockholders' equity ........................................................ 43,790 32,082
-------- --------
Total .......................................................................................... $ 82,804 $ 93,984
======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
ARDENT SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
---- ---- ----
(Restated, see
Note 13)
<S> <C> <C> <C>
Revenue:
Software .................................................................. $ 70,200 $ 58,812 $ 61,805
Services and other ........................................................ 49,060 43,916 48,694
--------- --------- ---------
Total revenue ................................................. 119,260 102,728 110,499
--------- --------- ---------
Costs and expenses:
Cost of software .......................................................... 7,953 9,211 8,864
Cost of services and other ................................................ 22,511 24,825 26,807
Selling and marketing ..................................................... 41,761 40,786 40,116
Product development ....................................................... 17,576 16,924 16,649
General and administrative ................................................ 9,986 13,128 12,920
Merger, exit and restructuring costs ...................................... 14,895 -- 7,858
Purchased technology ...................................................... -- 3,040 4,900
Loss on disposal of subsidiary ............................................ -- 602 --
--------- --------- ---------
Total costs and expenses ...................................... 114,682 108,516 118,114
--------- --------- ---------
Income (loss) from operations ............................................. 4,578 (5,788) (7,615)
--------- --------- ---------
Other income (expense):
Other income -- net ....................................................... 579 981 461
Interest expense .......................................................... (389) (2,965) (2,100)
Loss on investment in joint venture ....................................... -- -- (176)
--------- --------- ---------
Total other income (expense) .............................................. 190 (1,984) (1,815)
--------- --------- ---------
Income (loss) before provision for (benefit from) income
taxes and extraordinary item .............................................. 4,768 (7,772) (9,430)
Provision for (benefit from) income taxes ................................. 3,131 1,149 (1,819)
--------- --------- ---------
Income (loss) before extraordinary item ................................... 1,637 (8,921) (7,611)
Extraordinary loss -- disposal of assets acquired in a
pooling of interests ...................................................... -- -- (2,382)
--------- --------- ---------
Net income (loss) ......................................................... $ 1,637 $ (8,921) $ (9,993)
========= ========= =========
Basic income (loss) per common share:
Before extraordinary item ................................................. $ 0.11 $ (0.65) $ (0.58)
--------- --------- ---------
Net income (loss) ......................................................... $ 0.11 $ (0.65) $ (0.76)
========= ========= =========
Diluted income (loss) per common share:
Before extraordinary item ................................................. $ 0.10 $ (0.65) $ (0.58)
--------- --------- ---------
Net income (loss) ......................................................... $ 0.10 $ (0.65) $ (0.76)
========= ========= =========
Shares for basic computation .............................................. 14,790 13,751 13,071
Shares for diluted computation ............................................ 16,724 13,751 13,071
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
--------------- Paid-In Accumulated Translation Treasury Unearned
Shares Amount Capital Deficit Adjustment Stock Compensation Total
------ ------ ------- ------- ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 12,765,074 $127 $45,194 $ (3,818) $ (188) $ -- $ -- $41,315
Issuance of stock for cash ........... 503,737 5 3,603 3,608
Acquisition of System Builder ......... 572,097 6 3,828 3,834
Repurchase and retirement of common
stock ................................ (51,480) (131) (239) (370)
Repurchase of common stock (280,082
shares)............................... (2,956) (2,956)
Unearned compensation ................. 140 (114) 26
Tax benefit arising from early
disposition of stock options.......... 192 192
Net loss............................... (9,993) (9,993)
Translation adjustment................. 195 195
---------- ---- ------- -------- ----- ------- ---- -------
Balance, December 31, 1996 ............ 13,789,428 138 52,826 (14,050) 7 (2,956) (114) 35,851
Adjustment to conform pooled
entity - Unidata
(See Notes 1 and 10)................. 281 (549) (100) (368)
Issuance of stock for cash............ 323,867 3 1,483 1,486
Acquisition of O2 Technologies......... 248,549 2 3,917 3,919
Unearned compensation ................. 28 28
Tax benefit arising from early
disposition of stock options ......... 146 146
Net loss .............................. (8,921) (8,921)
Translation adjustment................. (59) (59)
---------- ---- ------- -------- ----- ------- ---- -------
Balance, December 31, 1997............. 14,361,844 143 58,653 (23,520) (152) (2,956) (86) 32,082
Issuance of stock for cash ........... 1,383,431 14 8,877 8,891
Unearned compensation.................. 28 28
Tax benefit arising from early
disposition of stock options......... 1,244 1,244
Net income............................. 1,637 1,637
Translation adjustment................. (92) (92)
---------- ---- ------- -------- ----- ------- ---- -------
Balance, December 31, 1998............. 15,745,275 $157 $68,774 $(21,883) $(244) $(2,956) $(58) $43,790
========== ==== ======= ======== ===== ======= ==== =======
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss)..................................... $1,637 $(8,921) $(9,993)
Change in translation adjustment...................... (92) (59) 195
------ ------- -------
Comprehensive net income (loss)....................... $1,545 $(8,980) $(9,798)
====== ======== ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ 1,637 $(8,921) $(9,993)
Adjustments to reconcile net income (loss) to cash
provided by operating activities (net of
acquisitions):
Cash provided by Unidata operating activities
during the six months ended December 31, 1996............ -- 694 --
Depreciation and amortization.............................. 8,425 9,474 8,759
Purchased research and development......................... -- 3,040 4,900
Equity in loss of joint venture............................ -- -- 176
Deferred income taxes...................................... 630 38 (1,984)
Stock compensation......................................... 28 28 26
Write-down of assets in connection with exit of
businesses............................................... -- -- 3,059
Loss on disposal of assets................................. 280 1,515 33
Increase (decrease) in cash from:
Accounts receivable.................................. (42) 8,896 (3,371)
Other current assets................................. 1,115 2,065 642
Current liabilities.................................. 6,800 (244) 5,730
------- ------- -----
Cash provided by operating activities................ 18,873 16,585 7,977
------- ------- -----
Cash flows from investing activities:
Expenditures for property and equipment -- net......................... (2,727) (593) (3,622)
Capitalized software costs............................................. (3,024) (1,158) (2,323)
Purchase of a business, net of cash acquired........................... -- (5,318) (10,512)
Increase in cash surrender value of officers' life
insurance and deposits and other...................................... (2,254) (1,614) (278)
Cash used in other Unidata investing activities during
the six months ended December 31, 1996................................ -- (1,737) --
------- ------- --------
Cash used in investing activities.......................... (8,005) (10,420) (16,735)
------- ------- --------
Cash flows from financing activities:
Sale of common stock................................................... 8,891 1,486 3,608
Repurchases of common stock............................................ -- -- (3,326)
Proceeds from issuance of notes payable................................ -- -- 10,963
Borrowing (repayments) under line of credit............................ (7,368) 1,663 1,112
Repayments of capital lease and other obligations...................... (12,431) (516) (438)
Borrowings (repayments) under Unidata line of credit
during the six months ended December 31, 1996......................... -- 600 --
Sale of Unidata common stock during the six months
ended December 31, 1996............................................... -- 281 --
Cash used by other Unidata financing activities during
the six months ended December 31, 1996................................ -- (874) --
-------- ------- -------
Cash (used in) provided by financing activities........................ (10,908) 2,640 11,919
-------- ------- -------
Effect of exchange rate changes on cash................................ 52 (195) (270)
-------- ------- -------
Increase in cash and equivalents....................................... 12 8,610 2,891
Cash and equivalents, beginning of year................................ 24,155 15,545 12,654
-------- ------- -------
Cash and equivalents, end of year...................................... $24,167 $24,155 $15,545
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation -- In February 1998, Ardent Software, Inc. (formerly known
as VMARK Software, Inc.) and subsidiaries (the Company) merged with Unidata,
Inc. (Unidata). In connection with the merger, the Company issued 5,749,980
shares of common stock to Unidata shareholders for all of their interest in
Unidata. In addition, options outstanding under Unidata's option plans were
converted to options under the Company's plans, adjusted only for the impact of
the exchange ratio between shares of the two companies. The merger was accounted
for as a pooling-of-interests and, accordingly, the Company's financial
statements include the accounts of Unidata for all periods prior to the merger.
Prior to the consummation of the merger, Unidata had a fiscal year ending on
June 30 of each year. For purposes of presentation in these consolidated
financial statements, the balance sheet of the Company as of December 31, 1997
has been combined with the Unidata balance sheet as of December 31, 1997. The
Company's results of operations and cash flows for the year ended December 31,
1997 have been combined with Unidata's results of operations and cash flows for
the same period. The Company's results of operations and cash flows for the year
ended December 31, 1996 have been combined with the Unidata results of
operations and cash flows for the fiscal year ended June 30, 1996. Unidata's
summarized statement of operations and cash flows from operations for the
six-month period ended December 31, 1996 are included in Note 10 to these
consolidated financial statements.
Information regarding the separate revenue and net income (loss) of the
combining companies in 1997 and 1996 is presented below. There were no
adjustments required to conform the accounting policies of the companies.
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Ardent (formerly VMARK)................................................. $ 57,554 $ 69,266
Unidata................................................................. 45,174 41,233
-------- -------
Combined.................................................. $102,728 $110,499
======== ========
Extraordinary item:
Ardent (formerly VMARK)................................................ $ -- $(2,382)
Unidata................................................................ -- --
-------- -------
Combined.................................................. $ -- $(2,382)
======== =======
Net income (loss):
Ardent (formerly VMARK)................................................ $ 3,384 $(7,375)
Unidata................................................................ (12,305) (2,618)
-------- -------
Combined.................................................. $ (8,921) $(9,993)
======== =======
</TABLE>
Nature of the Business -- Ardent Software, Inc. designs, develops, markets,
sells and supports software for developing, deploying, and maintaining business
applications and data warehousing solutions. The Company also provides a
comprehensive range of services, including customer maintenance support,
training, on-site assistance and consulting. The Company has operations in the
United States, Canada, Europe, Australia, Japan and Africa. Selling and
marketing activities are conducted through direct selling efforts, value-added
resellers, and distributors throughout the world. Research and development
efforts are conducted in the United States, the United Kingdom and Australia.
Consolidation -- The consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires, out of
necessity, the use of estimates to determine the appropriate carrying value of
certain assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during each reporting period. Each of
these estimates requires the Company to assess past history and to estimate
probable outcomes in the future. Actual results could differ from these
estimates.
27
<PAGE> 28
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation -- The functional currency of foreign operations is
the local country's currency. Assets and liabilities of operations outside the
United States are translated into United States dollars using current exchange
rates at the balance sheet date. Results of operations are translated at average
exchange rates prevailing during each period. Translation adjustments are
accumulated as a separate component of stockholders' equity and are considered a
component of other comprehensive income (loss).
The Company hedges its exposure to foreign currency fluctuations through foreign
exchange forward contracts. As of December 31, 1998, the Company had foreign
exchange forward contracts outstanding used to hedge foreign exchange exposure
on intercompany balances of certain of its international subsidiaries. These
contracts are comprised of contracts to sell foreign currency aggregating
$9,302,000 of notional amount (principally British pounds and French francs).
These contracts are short-term in duration (typically 90 days) and have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. The Company deals only with reputable financial institutions in
entering into these contracts and commitments and are never held for speculative
purposes. The gains and losses associated with currency rate changes on these
contracts, net of the corresponding gains and losses on the hedged intercompany
accounts, are recorded as a component of other income/expense in the period the
change occurs. Foreign exchange gains or losses were not material in any period
presented.
Revenue Recognition -- Prior to 1998, revenue from software license sales was
recognized upon shipment of the product. To the extent that insignificant
obligations remained after delivery, costs associated with those obligations
were accrued at the time that revenue was recognized. Effective January 1, 1998,
the Company adopted the provisions of Statement of Position No. 97-2, "Software
Revenue Recognition" (SOP 97-2). Since that date, revenue from software license
sales continues to be recognized when persuasive evidence of an arrangement
exists, delivery of the product has been made, and a fixed fee and
collectibility has been determined; to the extent that obligations exist for
other services, the Company allocates revenue between the license and the
services based upon their relative fair value. Revenue from customer maintenance
support agreements is deferred and recognized ratably over the term of the
agreements. Revenue from consulting and training services is recognized as those
services are rendered. Adoption of the provisions of SOP 97-2 did not have a
significant impact on the consolidated results of operations or financial
position of the Company.
Concentration of Credit Risk -- The Company sells its products to various
companies in several industries. The Company performs on-going credit
evaluations of its customers and maintains allowances for potential credit
losses, and such losses have been within management's expectations. The Company
generally requires no collateral from its customers.
Advertising Costs -- Advertising costs, included in selling and marketing
expenses, are expensed as incurred and were approximately $1,966,000, $1,045,000
and $1,198,000 in 1998, 1997 and 1996, respectively.
Software Development Costs -- Certain software development costs for products
and product enhancements are capitalized after technological feasibility has
been established (generally when a working model is complete). Such costs are
included in intangible assets and are amortized over the estimated useful lives
(two to three years) in an amount equal to the greater of the amount computed
using the ratio of current revenues to total expected revenues in a product's
expected life or straight line. Related accumulated amortization was
approximately $2,387,000 and $2,255,000 at December 31, 1998 and 1997,
respectively. Research and development costs and software development costs
incurred before technological feasibility has been established are expensed as
incurred.
Property and Equipment -- Purchased property and equipment is recorded at cost.
Leased equipment is recorded at the present value of the minimum lease payments
required during the lease period. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the related
assets or the life of the lease, whichever is shorter. Capitalized cost of the
leased assets was $9,689,000 and related accumulated amortization was $1,493,000
at December 31, 1997. The Company renegotiated the lease of its principal
operating facility in the first quarter of 1998, and as a result of this
renegotiation, the lease no longer qualified as a capital lease. The Company has
re-classified the lease as operating, removed the asset and liability from the
balance sheet, and recorded a net gain of approximately $600,000 as a component
of other income (expense) (see Note 3).
Intangible Assets -- Intangible assets, other than capitalized software
development costs, are principally comprised of purchased technology and
goodwill and are recorded at cost. Amortization expense is recorded to costs of
software or other operating categories depending on the use of the related
intangible asset. Amortization expense is provided on a straight-line method
over the estimated life of the asset (two to seven years) and totaled, together
with amortization of capitalized software costs described above, $5,062,000,
$4,378,000, and $4,381,000 in the years ended December 31, 1998, 1997, and 1996,
respectively. The Company periodically reviews the carrying value of intangible
assets in relation to expectations of nondiscounted future cash flows
attributable to each asset. A permanent
28
<PAGE> 29
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impairment in the value of an intangible asset is recognized in operating
results in the period the impairment occurs. Accumulated amortization was
$10,251,000 and $12,964,000 at December 31, 1998 and 1997, respectively.
Cash Equivalents -- The Company considers all short-term, highly liquid
investments, purchased with a remaining maturity of three months or less, to be
cash equivalents.
Supplemental cash flow information is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid for income taxes.................................... $365 $ 787 $ 672
Cash refunds of income taxes.................................. 728 1,913 3,406
Cash paid for interest........................................ 389 2,965 2,100
Stock issued in purchase acquisition.......................... -- 3,919 3,834
</TABLE>
Income Taxes -- Deferred taxes are provided to reflect temporary differences in
the basis between book and tax assets and liabilities and certain loss and
credit carryforwards. Deferred tax assets and liabilities are measured using
currently enacted tax rates (see Note 5).
Income (Loss) Per Common Share -- Basic income (loss) per common share is
computed using the weighted average number of common shares outstanding during
each year. Diluted income (loss) per common share reflects the effect of the
Company's outstanding options, except where such items would be anti-dilutive.
A reconciliation between shares used for the computation of basic and diluted
income (loss) per common share is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Shares for basic computation.................................. 14,790 13,751 13,071
Effect of dilutive stock options.............................. 1,934 -- --
----- ------ ------
Shares for diluted computation................................ 16,724 13,751 13,071
====== ====== ======
</TABLE>
Potential shares from option exercises excluded from the diluted calculation due
to anti-dilution in the years ended December 31, 1997 and 1996 were 501,000 and
750,000, respectively.
Fair Value of Financial Instruments -- Financial instruments held or used by the
Company include cash and its equivalents, accounts receivable, accounts payable,
capital lease obligations and forward foreign currency contracts. The fair
values of these instruments, which could change if market conditions change, are
based on management's estimates. With the exception of forward contracts,
management believes that the carrying value of these instruments approximates
fair value. At December 31, 1998 there was an unrealized gain on foreign
exchange contracts of approximately $66,000. The unrealized gain on foreign
exchange contracts at December 31, 1997 was approximately $107,000.
Stock-Based Compensation -- Compensation cost associated with awards of stock or
options to employees is measured using the intrinsic value method. Tax benefits
associated with early exercise of stock options are generally recorded as
increases to additional paid-in capital (see Note 4).
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board (FASB) released Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No.
133), which the Company will be required to adopt effective January 1, 2000.
SFAS No. 133 establishes standards for reporting and accounting for derivative
instruments, and conforms the requirements for treatment of hedging activities
across the different types of exposures hedged. The Company has not yet
completed its evaluation of SFAS No. 133, and is, therefore, unable to disclose
the impact adoption will have on its consolidated financial position or results
of operations.
29
<PAGE> 30
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1998, the AICPA released Statement of Position No. 98-9, (SOP 98-9)
"Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions". SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements, and (3) all revenue recognition criteria of SOP
97-2 (other than the requirement for VSOE of the fair value of each delivered
element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs of SOP
97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP
98-9 will be effective for transactions that are entered into in fiscal years
beginning after March 15, 1999. Retroactive application is prohibited. The
Company does not expect the adoption of SOP 98-9 to have a material effect on
its consolidated financial position or results of operations.
Changes in Presentation -- Certain prior year amounts have been reclassified to
conform to the current year presentation.
2. MERGERS AND ACQUISITIONS
Merger with Unidata, Inc.
On February 10, 1998, the Company merged with Unidata, Inc. (see Notes 1
and 10).
Acquisitions
Agreement to Acquire Prism Solutions, Inc. -- On November 19, 1998 the Company
signed a definitive agreement to acquire all of the stock of Prism Solutions,
Inc. ("Prism"), a provider of tools and solutions to the data warehousing
market. The agreement provides for Prism shareholders to receive 0.13124 shares
of Ardent common stock for each share of Prism common stock. The transaction is
expected to be completed by April 30, 1999. Total consideration is estimated at
approximately $49,000,000; consisting of approximately $42,400,000 representing
the value of Ardent shares to be issued for Prism outstanding shares and
approximately $6,600,000 representing the value of Ardent stock options
exchanged for Prism stock options. Stock options will be exchanged using the
same ratio as for common shares. The acquisition will be accounted for as a
purchase.
During the last three years, the Company has made the following additional
acquisitions, all of which were accounted for as purchases and the results of
operations included with those of the Company from the date of acquisition
(amounts in thousands):
<TABLE>
<CAPTION>
FAIR VALUE OF NET LIABILITIES TOTAL
COMPANY ACQUIRED CASH PAID SHARES ISSUED ASSUMED CONSIDERATION
---------------- --------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Integrasoft (June 1998)................... $ -- $ -- $ 405 $ 405
O2 Technologies (December 1997)........... 5,530 3,919 2,090 11,539
FT Technology Institute (January
1996)..................................... 360 -- -- 360
Marine, S.A. (July 1996).................. 561 -- -- 561
System Builder (November 1995)............ 10,509 3,834 -- 14,343
</TABLE>
Integrasoft -- Integrasoft (doing business as Dovetail) was a meta data
transformation technology company which developed software to allow for
management and re-use of meta data. In connection with the acquisition, the
Company assumed approximately $405,000 in liabilities. Of this total
consideration paid, $398,000 was allocated to goodwill.
O2 Technologies -- O2 Technologies ("O2") was a database software company which
developed, marketed, sold and supported an object database management system. In
connection with the acquisition, the Company issued 248,549 shares of common
stock. Of the total consideration paid, $3,040,000 was allocated to research and
development in process, for which no alternative use existed, and was charged to
expense at the date of consummation. The remainder of the purchase price was
allocated to purchased technology and goodwill based upon fair values. At the
time of acquisition, O2 had two new software products under development, O2
Database version 5.0 and O2 Database version 5.1. Development of version 5.0
began in early 1997. At the time of the close of the transaction, approximately
65% of version 5.0 was complete, based on a cost-based percentage of completion
valuation method. Ardent invested an additional $1,300,000 in this product
following acquisition and the product was released in June 1998. Development of
version 5.1 also began in early 1997. At the time of the close of the
transaction, approximately 15% of this product was complete, based upon a
cost-based percentage of completion methodology. Ardent has invested
approximately $1,000,000 in this product since the acquisition and expects to
invest an additional $1,650,000 in this product before its scheduled release
date in March 1999. Both projects have progressed, in all material respects,
consistently with the assumptions that Ardent used for estimating the fair
value. The inability of Ardent to complete the technology within the expected
timeframe could materially impact future revenues and earnings, which could have
a material adverse effect on Ardent's business, financial condition and results
of operations.
FT Technology Institute -- FT Technology Institute operated as an education and
service training business based in Sydney, Australia. The purchase price was
allocated between property and equipment and goodwill based upon fair values. In
December 1996, the Company decided to withdraw from this line of business. The
writedown of the remaining net book value of related assets and employee
termination costs are included in the results of operations in 1996 as a
component of costs and expenses (See Note 9).
30
<PAGE> 31
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marine, S.A. -- Marine, S.A. was a french software distributor known as Patio
("Patio"). The purchase price was allocated between property and equipment and
goodwill based upon estimated fair values on the acquisition date.
System Builder -- System Builder was a software tools development company. In
connection with the acquisition, the Company issued 572,097 shares of common
stock. Of the total consideration paid, $4,900,000 was allocated to research and
development in process, for which no alternative use existed, and was charged to
expense at the date of consummation. The remainder of the purchase price was
allocated to property and equipment, identifiable intangible assets and goodwill
based upon fair values. At the time of acquisition, System Builder had three new
software products under development, SQLator and new versions of the System
Builder development tool, SB+ and the client-based version of the tool,
SBClient. SB+ and SBClient were released in December 1996 and approximately
$1,760,000 was incurred to complete the two products. SQLator was released in
February 1997 and $1,280,000 was incurred to complete the product. The
progression of the projects to completion was substantially consistent with the
expectations at the time of the acquisition.
Pro Forma Results of Operations -- The results of operations for the acquired
entities were not significant to the Company in either 1998 or 1997.
Accordingly, pro forma information has not been presented.
3. FINANCING AND LEASING ARRANGEMENTS
LEASING ARRANGEMENTS
The Company leases office facilities, motor vehicles and certain office
furnishings under noncancelable operating lease agreements expiring on various
dates through 2008. Total rent expense under all operating leases for the years
ended December 31, 1998, 1997 and 1996 approximated $4,037,000, $3,271,000 and
$3,071,000, respectively.
At December 31, 1998, future minimum payments under operating leases are due as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999........................................... $ 4,082
2000............................................ 3,442
2001............................................ 2,609
2002............................................ 1,314
2003............................................ 997
Thereafter...................................... 5,096
-------
$17,540
=======
</TABLE>
The Company had a twenty-year capital lease on its principal operating facility
which commenced in November 1994. In March 1998, the Company renegotiated this
lease. As part of the renegotiation, the term of the lease was modified and
reduced from 20 years to 14 years. As a result, the lease no longer qualifies as
a capital lease and has been reclassified as operating. In connection with this
reclassification, the Company removed the asset and liability from the balance
sheet and recorded a net gain of approximately $600,000 as a component of other
income (expense) in 1998.
LINES OF CREDIT
The Company has a working capital line of credit with a bank under which the
Company may borrow, on a secured basis, up to the lesser of $12,500,000 or
70-80% of eligible domestic and foreign accounts receivable, conditioned upon
meeting financial covenants, including maintaining specified levels of quarterly
earnings, tangible net worth and liquidity. The line of credit also prohibits
the Company from paying dividends. Interest on outstanding borrowings under the
facility is at the bank's prime rate plus 1.25% -- .25%, depending on the
Company's tangible net worth. The applicable interest rate was 7.75% at December
31, 1998 and 8.5% at December
31
<PAGE> 32
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
31, 1997. At December 31, 1998 and 1997, there were no borrowings outstanding
under the line-of-credit facility; as of each date $10,200,000 and $5,830,000,
respectively, were available to the Company under the line of credit.
The Company had a credit agreement with a bank that provided a revolving line of
credit in the amount of $8,000,000 for working capital needs and the purchase of
O2 Technologies. Interest accrued at the bank's prime rate (8.5% at December 31,
1997) plus 1%. The agreement provided for a borrowing base in an amount equal to
80% of eligible accounts receivable, as defined, and was collateralized by
substantially all of the assets of the Company and a personal guarantee for
amounts drawn in excess of the borrowing base. At December 31, 1997, advances of
$6,825,000 had been made against the line of credit, with $1,175,000 remaining
available. The Company was required to pay a commitment fee at a rate of .25%
per annum on the average daily unused portion of the line. The revolving credit
agreement included various restrictive covenants, the most restrictive of which
prohibited or limited the Company's capacity to incur additional indebtedness,
and required maintenance of certain financial requirements including tangible
net worth, fixed charge coverage and current ratio, as defined in the agreement.
In February 1998, the agreement expired and the Company paid the outstanding
balance in full.
STOCKHOLDER NOTES PAYABLE
The Company had stockholder loans payable totaling $2,350,000 at December 31,
1997. The agreements required quarterly interest payments at a national bank's
prime lending rate (8.5% at December 31, 1997) plus 1%. The loans had an
original due date of December 31, 1996 and had been extended to December 31,
2003. The loans were not collateralized and had various restrictive covenants
which include restrictions on payment of dividends. In April 1998, the Company
paid down the remaining outstanding balance.
SUBORDINATED NOTE PAYABLE
The Company had entered into a $10,000,000 eight-year note with an insurance
company that was to mature in December 2003. Interest accrued at a rate of 11.5%
per annum, payable semi-annually, with $96,000 accrued at December 31, 1997. The
note was subordinated to all senior debt, as defined. Principal payments of
$1,500,000 were due each year beginning in December 1998 with the balance due at
maturity. The Company had the right to prepay $5,000,000 without a premium. In
March 1998, the Company paid the remaining outstanding balance in full and the
bank waived the prepayment penalty.
RECEIVABLES FINANCING ARRANGEMENTS
As part of the Company's management of working capital, certain accounts
receivable are periodically sold to financial institutions. Such factoring
arrangements are treated as sales in accordance with SFAS No. 125, since the
Company relinquishes control and all rights over the accounts that are
transferred to the factor. Receivables sold under these arrangements aggregated
$13,200,000 in 1998 and $7,150,000 in 1997. These sales are typically done on a
limited recourse basis, and any potential losses are evaluated at the time the
asset is sold. To date, no losses on factored receivables have been incurred,
other than the fee charged to the Company by the factor.
The Company, together with a third-party leasing company, offers a leasing
program to current and potential customers. Under the program, customers are
able to purchase Ardent products through operating and capital leases with a
third-party lessor. All sales under this program are subject to the Company's
normal revenue recognition policies and are made without recourse to the
Company. Sales under the program in the years ended December 31, 1998 and
December 31, 1997 totaled approximately $1,632,000 and $1,536,000, respectively.
4. STOCKHOLDERS' EQUITY
Preferred Stock -- The Board of Directors is authorized to designate one or more
series of preferred stock and to establish the voting, dividend, liquidation and
other rights and preferences of the shares of each series, and to provide for
the issuance of shares of any series. The Board of Directors has designated
15,000 shares of $0.01 par value preferred stock as Series A Junior Preferred
Stock. At December 31, 1998, no shares of preferred stock were outstanding.
Preferred Share Purchase Rights -- On June 6, 1996, the Company's Board of
Directors declared a dividend of one purchase right (a "Right") for every
outstanding share of the Company's common stock. The Rights were distributed on
June 12, 1996 to holders of record as of that date. Each Right entitles the
holder to purchase from the Company one one-thousandth of a share of Series A
Junior Preferred Stock at a price of $75, subject to adjustments in certain
events. The Rights will be exercisable only if a person or group acquires 15% or
more of the outstanding shares of the Company's common stock or announces a
tender offer, the consummation of
32
<PAGE> 33
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which would result in such person or group owning 30% or more of the Company's
common stock. If a person or group (other than the Company and its affiliates)
acquires 15% or more of the Company's outstanding common stock, each Right
(other than Rights held by such person or group) will entitle the holder to
receive shares of common stock, or in certain circumstances, cash, property, or
other securities of the Company, having a market value of two times the exercise
price of the right. In addition if the Company were acquired in a merger or
other business combination, or if more than 50% of its assets or earning power
were sold, each holder of a Right would be entitled to exercise such Right and
thereby receive common stock of the acquiring company with a market value of two
times the exercise price of the Right. Furthermore, at any time after a person
or group acquires more than 15% of the outstanding stock, but prior to the
acquisition of 50% of such stock, the Board of Directors may, at its option,
exchange all or a part of the Rights at an exchange ratio of one share of common
stock for each Right. The Company will be entitled to redeem the Rights at $.01
per Right, subject to adjustment in certain events, at any time on or prior to
the tenth day after public announcement that a 15% or greater position has been
acquired by any person or group. The Rights expire on June 12, 2006.
1986 Stock Option Plan -- The Company's 1986 Stock Option Plan (the 1986 Plan)
provides for the issuance of up to an aggregate 4,500,000 shares of common stock
upon the exercise of incentive stock options (ISOs) and non-qualified stock
options (NSOs) granted to key employees and consultants of the Company and its
subsidiaries. The exercise price for ISOs must be at least equal to the fair
market value of the underlying shares of common stock at the time of grant, and
the exercise price of NSOs may be at any price established by the Board of
Directors. The term of each option may not exceed ten years. Options are
exercisable either in full immediately, or in installments, as the Board of
Directors may determine at the time it grants such options. In general, the
shares acquired by exercising the options vest ratably over four to five years
from the date the options first become exercisable. As of December 31, 1998,
there were 588,946 options available for grant under the 1986 Plan.
1991 Director Stock Option Plan -- The 1991 Director Stock Option Plan (the
Director Plan) provides for the grant of non-qualified stock options to
non-employee directors of the Company for the purchase of up to an aggregate of
350,000 shares of common stock. Under the Director Plan, each non-employee
director is entitled to receive, when first elected to serve as a director, an
option to purchase 15,000 shares. In addition, each non-employee director is
entitled to receive on January 31 of each year an option to purchase 10,000
shares (5,000 shares for 1998 and prior years). The exercise price of the
options may not be less than fair market value on the date of grant. Options may
only be exercised with respect to vested shares. As of December 31, 1998, there
were 91,920 options available for grant under the Director Plan. Options granted
under the Director Plan have ten year terms and vest over a three year period.
1995 Non-Statutory Stock Option Plan -- The Company's 1995 Non-Statutory Stock
Option Plan (the 1995 Plan), provides for the grant of non-qualified stock
options to key employees (other than executive officers, who are not eligible to
participate) and consultants of the Company for the purchase of up to an
aggregate of 5,300,000 shares of common stock. The exercise price of the options
may be at any price established by the Board of Directors, which administers the
1995 Plan. The term of each option may not exceed ten years. Options are
exercisable over periods determined at the discretion of the Board of Directors
and are generally subject to vesting on a monthly basis over four to five years.
As of December 31, 1998, there were 1,271,343 options available for grant under
the 1995 Plan.
The following is a summary of activity for all of the Company's option plans:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1996................... 2,675,827 $ 7.79
Granted.......................................... 1,730,525 8.28
Exercised........................................ (118,983) 4.49
Canceled......................................... (951,733) 10.42
---------- ------
Outstanding at December 31, 1996................. 3,335,636 7.26
Granted.......................................... 1,143,663 7.13
Issued pursuant to O2 Technologies
acquisition...................................... 548,585 5.85
Exercised........................................ (226,786) 5.17
Canceled......................................... (906,878) 8.49
---------- ------
Outstanding at December 31, 1997................. 3,894,220 6.93
Granted.......................................... 3,275,258 12.71
Exercised........................................ (1,216,140) 6.37
Canceled......................................... (326,287) 9.04
---------- ------
Outstanding at December 31, 1998................. 5,627,051 $10.25
========== ======
</TABLE>
33
<PAGE> 34
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information regarding options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AND/OR
OPTIONS OUTSTANDING SHARES TRANSFERABLE
------------------------------------ ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF SHARES LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------- ----------------------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .16 - $ 2.51......... 168,724 8.3 $2.05 168,187 $2.05
3.84 - 5.88......... 479,356 8.8 5.68 418,857 5.66
6.00 - 7.83......... 1,298,230 7.8 6.88 615,816 6.89
8.00 - 10.00......... 2,182,741 8.9 9.75 624,695 9.41
10.25 - 12.50......... 390,083 8.3 10.98 127,711 10.83
13.00 - 16.00......... 259,785 9.0 14.13 57,358 14.13
17.00 - 18.75......... 822,711 9.9 18.67 11,693 17.23
20.59 - 23.50......... 25,421 9.5 24.24 3,728 22.80
---------
5,627,051 8.7 $10.25 2,028,045 $7.55
========= =========
</TABLE>
At December 31, 1997 and 1996, 1,440,147 and 948,599, respectively, options were
exercisable or the related shares were transferable.
As described in Note 1, the Company uses the intrinsic value method to measure
compensation expense associated with grants of stock options to employees. Had
the Company used the fair value method to measure compensation, the Company's
net loss and diluted loss per share would have been $(3,326,000) or $(0.22) per
share in 1998, $(11,475,000) or $(0.84) per share in 1997, and $(12,120,000) or
$(0.93) per share in 1996.
The fair value of each stock option is estimated on the date of grant using the
Black -Scholes option-pricing model with the following weighted-average
assumptions in 1998, 1997 and 1996: expected lives of 4 to 6 years, expected
volatility of 64.1% in 1998, 46.9% in 1997, and 64.9% in 1996, a dividend yield
of 0% and a risk-free interest rate of 4.75% in 1998, 6% in 1997 and 6.10% in
1996. Stock option grants made by Unidata prior to the merger were measured
using the minimum value method as Unidata had been privately held and no data
relating to volatility was available. The weighted average fair value of options
granted and awarded in 1998, 1997 and 1996 was $7.38, $3.80, and $5.40,
respectively.
The option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable and have contractual lives of ten years. However, management believes
that the assumptions used and the model applied to value the awards yields a
reasonable estimate of the fair value of the grants made under the
circumstances.
During 1996, a total of 80,000 options were granted to certain officers of the
Company at exercise prices which were an aggregate of $140,000 lower than the
market value at the date of grant. This amount was recorded as unearned
compensation and is being amortized to expense over the five year vesting period
of the options. Related compensation expense was approximately $28,000 in 1998
and 1997, and $26,000 in 1996. The weighted average exercise price of the
options involved is $6.38 per share.
In January 1999, an additional 40,000 options were granted under the Directors
Plan at an exercise price of $26.88.
Employee Stock Purchase Plan -- The Company's Employee Stock Purchase Plan (the
Purchase Plan) provides for the purchase of common stock at six-month intervals
at 85% of the lower of the fair market value on the first day or the last day of
each six-month period. The Company issued 114,579, 72,460 and 157,590 shares in
1998, 1997 and 1996, respectively, under the Purchase Plan. At December 31,
1998, 220,188 shares were reserved for future issuance's under the Purchase
Plan. The pro forma disclosures presented above include compensation expense
related to the Purchase Plan of $168,000, $74,000 and $446,000 in 1998, 1997 and
1996, respectively.
Warrants -- In connection with obtaining financing in 1996, the Company had
issued warrants to existing stockholders to acquire 111,912 shares of its common
stock. These warrants were exercised in connection with the repayment of the
related obligation. Pursuant to the exercise of the warrants, the Company
received $250,000 in proceeds.
The Company has issued warrants to existing stockholders to acquire 114,151
shares of its common stock. The warrants are exercisable until December 2004 at
an exercise price of $8.56.
34
<PAGE> 35
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The components of income (loss) before income taxes and extraordinary item were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic.................................................. $2,574 $(3,304) $(6,125)
Foreign................................................... 2,194 (4,468) (3,305)
------ ------- -------
$4,768 $(7,772) $(9,430)
====== ======== ========
</TABLE>
The components of the provision (benefit) for income taxes consists of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $ 889 $ 110 $ 258
State..................................................... 105 103 (20)
Foreign................................................... 1,507 (88) 290
------ ------ -------
Total........................................ 2,501 125 528
------ ------ -------
Deferred:
Federal................................................... 1,177 1,105 (1,171)
State..................................................... 138 (364) (161)
Foreign................................................... (685) 283 (1,015)
------ ------ -------
Total........................................ 630 1,024 (2,347)
------ ------ -------
Total.................................. $3,131 $1,149 $(1,819)
====== ====== ========
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets:
Accounts receivable.................................................. $ 749 $1,398
Accrued expenses and other........................................... 885 445
------ ------
Total current assets.................................... $1,634 $1,843
====== ======
Long-term assets and liabilities:
Property and equipment............................................... $(328) $(62)
Intangible assets.................................................... 3,050 2,781
Capitalized software costs........................................... (521) (67)
Net operating loss carryforwards -- U.S.............................. 4,667 5,131
Net operating loss carryforwards -- foreign.......................... 2,628 2,125
Tax credit carryforwards -- U.S...................................... 2,487 2,420
Other................................................................ 104 101
Valuation allowance.................................................. (7,689) (7,609)
------- -------
Total net long-term assets.............................. $ 4,398 $4,820
======= ======
</TABLE>
35
<PAGE> 36
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance for deferred tax assets as of December 31, 1997, was
$7,609,000. The net change in the total valuation allowance for the year ended
December 31, 1998, was an increase of $80,000 principally due to fully reserved
tax benefits of foreign loss carryforwards. A valuation allowance of $7,689,000
remains at December 31, 1998, and is primarily attributable to loss and credit
carryforwards that the Company currently evaluates as not being likely to be
realized.
At December 31, 1998, the Company has federal net operating loss carryforwards
of approximately $13,726,000, and federal tax credit carryforwards of
approximately $2,034,000, that all expire in varying amounts beginning in 1999
through 2018. Due to the "change in ownership" provisions of the Internal
Revenue Code of 1986, the availability of net operating loss and tax credit
carryforwards to offset future federal taxable income is subject to cumulative
annual limitations. Restrictions on net operating loss carryforwards expire at a
rate of approximately $1,665,000 in 1999, and $1,490,000 for years thereafter
through 2005. As of December 31, 1998, $3,022,000 of limited net operating loss
carryforwards were not subject to restrictions of future usage. Foreign tax loss
carryforwards of $7,147,000 are available for use in reducing future taxable
income in certain foreign jurisdictions.
The difference between the provision (benefit) for income taxes and the amount
computed by applying the highest federal statutory income tax rate of 35% to
income (loss) before provision (benefit) for income taxes and extraordinary
items is explained below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................ 35% (35)% (35)%
State taxes, net of federal benefit........................... 3 (5) (3)
Surtax exemption.............................................. (1) 1 1
Nondeductible charges and other............................... 3 3 10
Foreign income taxes.......................................... (7) 21 (1)
Change in valuation allowance................................. 9 (4) 8
Tax credits and other......................................... -- (5) 1
Non-deductible in-process research and development............ -- 39 --
Non-deductible merger charges................................. 23 -- --
--- --- ---
Effective tax rate............................................. 65% 15% (19)%
=== === ===
</TABLE>
6. SEGMENT INFORMATION
The Company has identified two distinct and reportable segments: the Database
segment and the Data warehouse segment. The Company considers these two segments
reportable under SFAS No. 131 criteria as they are managed separately and the
operating results of each segment are regularly reviewed and evaluated
separately by the Company's chief decision maker and Board of Directors.
Evaluations of each segment are done on the basis of revenue and income (loss)
from operations excluding any tax effects or interest income or expense.
The accounting policies of each segment are the same as those described in Note
1. There are no intercompany transactions between the two business segments.
There is no Data warehouse revenue or expense information for the year ended
December 31, 1996, as the Data warehouse business unit was not formed until
fiscal year 1997. The U.S. Database segment incurred a loss of approximately
$176,000 in 1996 on an investment in a joint venture accounted for by the equity
method.
Within each operating segment, the Company's operations are conducted throughout
the world, with four locations representing individually more than 10% of
revenues or income (loss) from operations; the United States of America (US),
the United Kingdom (UK), the Asia Pacific region (principally Australia), and
France. The Company also conducts operations in Canada, Germany, South Africa
and Japan, however, these operations are individually insignificant and have
been included in "Other Foreign" below. The following table presents information
about the Company's operating segments:
36
<PAGE> 37
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Database Segment Data Warehouse Segment
----------------------------------------------- ---------------------------------------------------------
Asia Other Asia Other Total
US UK Pacific France Foreign US UK Pacific France Foreign Cons.
-- -- ------- ------ ------- -- -- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Revenue:
License revenue.... $34,505 $10,772 $ 3,719 $ 6,136 $ 2,013 $ 8,457 $ 1,530 $1,182 $1,436 $ 450 $ 70,200
Services revenue... 30,136 7,118 3,447 3,332 1,485 2,695 386 275 175 11 49,060
------- ------- ------- ------- ------- ------- -------- ------ ------ ----- --------
Total revenue... 64,641 17,890 7,166 9,468 3,498 11,152 1,916 1,457 1,611 461 119,260
------- ------- ------- ------- ------- ------- -------- ------ ------ ----- --------
Depreciation and
amortization ...... 5,531 402 258 210 15 1,675 206 69 59 -- 8,425
------- ------- ------- ------- ------- -------- ------- ------ ------ ----- --------
Merger costs......... 11,549 1,281 1,240 705 120 -- -- -- -- -- 14,895
------- ------- ------- ------- ------- -------- ------- ------ ------ ----- --------
Income (loss) from
operations......... $(3,620) $ 6,787 $ (219) $(1,530) $ 2,134 $ 3,063 $(2,170) $ (257) $ 661 $(271) $ 4,578
======= ======= ======= ======= ======= ======= ======= ====== ====== ===== ========
1997
Revenue:
License revenue.... $33,239 $ 8,982 $ 5,252 $ 6,078 $ 946 $ 2,680 $ 524 $ 358 $ 657 $ 96 $ 58,812
Services revenue... 31,267 4,622 3,913 1,772 1,472 755 11 104 -- -- 43,916
------- ------- ------- ------- ------- ------- ------- ------ ------ ----- --------
Total revenue 64,506 13,604 9,165 7,850 2,418 3,435 535 462 657 96 102,728
------- -------- ------- ------- ------- ------- ------- ------ ------ ----- --------
Depreciation and
amortization 6,891 667 459 196 174 872 134 45 36 -- 9,474
------- ------- ------- ------- ------- ------- ------- ----- ------ ----- --------
Income (loss) from
operations $(2,894) $ 2,410 $(3,993) $ (532) $ 280 $ (502) $(1,467) $ 337 $ 507 $ 66 $ (5,788)
======= ======= ======= ======= ======= ======= ======= ===== ====== ===== ========
1996
Revenue:
License revenue $41,072 $ 9,513 $ 3,968 $ 3,696 $ 3,556 -- -- -- -- -- $ 61,805
Services revenue 30,788 4,537 3,899 3,124 6,346 -- -- -- -- -- 48,694
------- ------- ------- ------- ------- ------- ------- ----- ------ ----- --------
Total revenue 71,860 14,050 7,867 6,820 9,902 -- -- -- -- -- 110,499
------- ------- ------- ------- ------- ------- ------- ----- ------ ----- --------
Depreciation and
amortization 7,226 774 464 175 120 -- -- -- -- -- 8,759
------- ------ ------- ------- ------- ------- ------- ----- ------ ----- --------
Exit and
restructuring costs 5,171 9 574 268 1,836 -- -- -- -- -- 7,858
------- ------ ------- ------- ------- ------- ------- ----- ------ ----- --------
Income (loss) from
operations $(3,935) $ (311) $ (728) $ (658) $(1,983) $ -- $ -- $ -- $ -- $ -- $ (7,615)
======= ====== ======= ====== ======== ======= ======= ===== ===== ===== ========
</TABLE>
Export sales from the United States did not exceed ten percent of revenue for
any year presented.
Information regarding assets or cash flows or additions to long-lived assets by
segment is not available. Information regarding assets by geographical location
as of December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
United States of America............................ $69,980 $84,862
United Kingdom...................................... 10,976 8,273
Asia Pacific (primarily Australia).................. 3,543 4,137
France.............................................. 7,516 8,138
Other foreign....................................... 2,741 1,537
Eliminations........................................ (11,952) (12,963)
------- --------
Total assets........................... $82,804 $93,984
======= =======
</TABLE>
7. LITIGATION
The Company was a defendant in a proceeding in the U.S. District Court in the
District of Massachusetts. The plaintiffs alleged that the Company and certain
of its officers, during July through October 1995, made certain untrue
statements and failed to disclose certain information regarding the Company's
prospective financial performance in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that such
statements and omissions artificially inflated the market prices of the
Company's stock. The Company denied the allegations. Following completion of all
discovery, the defendants and their insurance carrier reached, in September
1998, an agreement in principle with the plaintiffs to settle the action. The
Company has recorded its contribution to the agreed settlement which was not
material to the consolidated financial position or results of operations of the
Company for the year ended December 31, 1998.
The Company is a defendant in two actions filed against Unidata prior to its
merger into the Company, one in May 1996 in the U.S. District Court for the
Western District of Washington and one in September 1996 in the U.S. District
Court for the District of
37
<PAGE> 38
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Colorado. The plaintiff, a company controlled by a former stockholder
of Unidata and a distributor of its products in certain parts of Asia, alleges
in both actions the improper distribution of certain Unidata products in the
plaintiff's exclusive territory and asserts damages of approximately
$30,000,000 under claims for fraud, breach of contract, unfair competition,
racketeering and corruption, and trademark and copyright infringement, among
other relief. Unidata denied the allegations against it in its answers to the
complaints. In the Colorado action, Unidata moved that the matter be resolved
by arbitration in accordance with its distribution agreement with the
plaintiff. The motion regarding arbitration has been under the Court's
consideration for approximately two years. No discovery or other activities in
either action has occurred pending the Court's decision on the motion for
arbitration. While the outcome cannot be predicted with certainty, management
of the Company believes that the actions against the Company are without merit
and plans to continue to oppose them vigorously.
The Company is a defendant in an action filed in July 1998 in the U.S.
District Court for the Southern District of Ohio. The plaintiff, with whom the
Company entered into a joint venture in 1996 to develop the Object Studio
product, alleges in its complaint that the Company is obligated to support the
joint venture in amounts up to $1,400,000 per year for an aggregate present
value liability of up to $8,000,000. While the outcome cannot be predicted with
certainty, the Company believes the allegations are without merit and has
denied its alleged liability and filed certain counterclaims against the
plaintiff seeking an amount in excess of $9,000,000.
The Company is also subject to various other legal proceedings and claims,
either asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty, management
does not believe that the outcome of any of these legal matters will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
8. RETIREMENT PLANS
The Company provides certain supplemental retirement benefits to its executive
officers, which it has funded through life insurance policies in a "split
dollar" arrangement. The executive officers are allowed to borrow against the
excess cash surrender value in the policy over and above the Company's
cumulative paid-in premiums. Upon termination of a policy or the death of the
insured executive, the Company will receive proceeds equal to the amount of the
cumulative premium paid by the Company. The Company may borrow against its share
of the accumulated cash surrender value in the respective policies at any time.
The Company accounts for these policies as a defined contribution plan and
expenses premiums on the policies as incurred, which represents the compensation
element of the plan. In addition, since the Company controls its share of the
cash surrender value of the policies at all times, it accounts for any changes
in cash surrender value in accordance with the guidance provided in Financial
Accounting Standards Board Technical Bulletin No. 85-4, "Accounting for
Purchases of Life Insurance." Accordingly, increases or decreases in cash
surrender value are recognized each period and the asset recorded on the
Company's books represents the lesser of the Company's share of cash surrender
value or the cumulative premiums paid on the policies. This amount is included
in other long-term assets and was $2,807,000 and $2,016,000 at December 31, 1998
and 1997, respectively. Total premiums in 1998, 1997, and 1996 were
approximately $858,000, $659,000, and $466,000, respectively.
The Company has 401(k) retirement and savings plans (the Plans) covering
substantially all U.S. employees. The Plans allow each participant to contribute
up to 15% of his or her base wage up to an amount not to exceed an annual
statutory maximum. Effective January 1, 1996, the Company matches 50% of the
contributions of each participant in excess of 2% of such participant's annual
compensation, up to 4% of such participant's annual compensation. The Company
made matching contributions to the Plan of approximately $741,000, $536,000, and
$538,000 in 1998, 1997, and 1996, respectively.
9. MERGER, EXIT AND RESTRUCTURING COSTS
MERGER COSTS
In connection with the merger with Unidata, the Company recorded a charge of
$14,895,000. The charge included $3,910,000 for financial advisor, legal and
accounting fees, $6,209,000 for severance and related costs, $2,170,000 for
closure of facilities, and $2,606,000 for the write-off of redundant assets. The
severance costs related to the termination of 139 Unidata and VMARK employees
who held overlapping positions and terminated employment principally within a
period of one month prior and one month following the close of the merger. Costs
associated with integration activities preceding and following the merger were
charged to expense as incurred. The facilities closure costs related to the
accrual of future rental obligations for duplicate sales offices which were
identified at the time of the merger in California, Georgia, New Jersey,
Colorado, Texas, Australia, France, and the United Kingdom. The offices were
closed within a period of one month prior and two months following the merger
and were either sublet, or remained idle until the end of the lease term. Rent
costs following the merger until closures were finalized and employees were
moved were charged to expense as incurred. The redundant assets which were
written off in connection with the merger included the net book value of
abandoned leasehold improvements ($1,300,000), scrapped computer and office
equipment ($450,000), scrapped documentation and product inventory with
predecessor company names ($500,000) and prepaid license inventory related to a
version
38
<PAGE> 39
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Unidata database product which was no longer sold following the merger
($350,000). All assets were scrapped or disposed of within two months following
the merger. Benefits related to reduced salaries, rent and depreciation began to
be realized immediately following the merger. As of December 31, 1998,
$1,312,000 remains unpaid comprised principally of future rental obligations on
idle facilities and approximately $300,000 of severance associated with longer
term arrangements with senior executives. All of which is expected to be paid in
1999.
RESTRUCTURING COSTS
The 1996 results include a $2,125,000 restructuring charge associated with the
downsizing of Object Studio -- related activities. The charge was recorded
pursuant to a formal plan adopted and announced in May 1996. The charge included
approximately $1,900,000 in employee severance and benefits, $153,000 for the
write off of capitalized software and $72,000 related to abandonment of
facilities. Fifty employees were immediately terminated in this restructuring.
As of December 31, 1998, all balances related to this restructuring have been
paid.
The 1996 results also include a $2,197,000 charge associated with a
restructuring and reduction in staff from all areas of the Company. Management
approved the restructuring plan late in fiscal year 1996 with the intent to
bring costs in line with revenues. The charge included $1,591,000 in employee
severance and benefits and $606,000 for the write-off of intangible assets. This
intangible asset write-off related to the impairment of the remaining net book
value of technology purchased in 1992, the development of which ceased with the
first version of UniVerse Release 9. Thirty-four employees were immediately
terminated in this restructuring. As of December 31, 1998, all balances related
to this restructuring had been paid.
In October, 1996, the Company entered into a joint venture with one of its
resellers (the "Other Party") to develop and support the ObjectStudio product
suite. This joint venture was formed to allow the Company to reduce its ongoing
cash cost of continued development of ObjectStudio. The Company's investment
consisted of certain product rights. The Company's share of the venture's loss
for the quarter ended December 31, 1996 is included as a component of other
income and expense.
In December 1996, as part of the Company's ongoing efforts to direct the
business towards growth areas, management, at the direction of the Board of
Directors, undertook a review of all existing businesses, including those
acquired through the merger with Easel Corporation in 1995 which was accounted
for as a pooling-of-interests. Following this review, in December 1996,
management recommended and the Board of Directors approved a comprehensive plan
to exit certain businesses. In general, these businesses represented portions of
the business with minimal profitability and lower future growth prospects. For
discussion of certain abandoned businesses and asset write-offs, see above.
39
<PAGE> 40
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Despite the formation of the joint venture, profitability related to the
ObjectStudio product line continued to be below expectation. In addition,
certain actions by competitors in the ObjectStudio marketplace led the Company
to conclude that it was not in the best interest of the Company to continue to
support this product line and that the Company would be best served by focusing
its resources on product lines with more favorable prospects.
Accordingly, the Company decided to exit the ObjectStudio product line.
To facilitate exit from the ObjectStudio product line, in December 1996 the
Company entered into certain agreements which effectively transferred all of the
Company's rights to the product to the Other Party. The Other Party also agreed
to take over the operations of the Company's German subsidiary (devoted to
ObjectStudio) and to assume all of the Company's obligations related to
ObjectStudio in exchange for a one time payment of $300,000. In addition, the
Company agreed to maintain its funding commitment to the joint venture for 1997,
aggregating $1,400,000, and accepted a significant reduction in its rights in
the venture. Because the Company had committed to pay the one time payment and
1997 funding, such costs, totaling $1,700,000, were considered to be exit costs
and were accrued at December 31, 1996 as components of continuing operations,
(merger, exit and restructuring costs).
As a result of the plan to exit the ObjectStudio business, forty employees were
terminated and such costs ($417,000) were accrued at December 31, 1996 and
charged to continuing operations. The Company also incurred costs for facility
abandonment ($1,419,000) related to the German subsidiary which was also charged
to continuing operations (merger, exit and restructuring costs). In addition, it
was determined that the Company's investment in the joint venture was worthless,
as the Company had transferred all of its rights in the related products and did
not expect to recover any of the funds invested. Accordingly, the investment was
written down to zero and a loss of $1,845,000 was recorded as a component of the
extraordinary item (see below).
In 1997 and 1998, the Company recorded no revenue or expenses associated with
ObjectStudio activity or the joint venture. In addition, the Company has paid
substantially all amounts described above and the dissolution of the joint
venture commenced in 1997, in line with the Company's expectations in 1996.
However, as discussed in Note 7, the Other Party has asserted certain claims
against the Company regarding the joint venture. At December 31, 1998,
approximately $800,000 in facilities costs remains unpaid.
Among the product lines and businesses to be discontinued or abandoned were
certain products or lines of business present at the date of the merger with
Easel. Because these dispositions were not contemplated at the date of the
merger and are therefore outside of the normal course of business, they have
been presented as an extraordinary item.
The components of the extraordinary item recorded in 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net loss on disposition of ASG............................. $ 537
Object Studio Asset writedown 1,845
------
Extraordinary loss........................................ $2,382
======
</TABLE>
The Company's US education business, ASG, was sold to a third party for
$420,000. The net loss reflected above represents the write-down of the assets
of ASG to net realizable value.
The following is a summary of activity in the various restructurings and merger
accrual balances in the years ended December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1995 Merger May 1996 December 1996 Extraordinary 1998 Merger
Accrual Restructure Restructure Item Accrual Total
----------- ----------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1995.. $ 1,286 $ -- $ -- $ -- $ -- $ 1,286
May 1996 restructure charge....... 2,125 2,125
December 1996 restructure charge.. 5,733 5,733
Extraordinary item................ 2,382 2,382
Severance payments................ (701) (1,481) (2,182)
Asset impairment.................. (153) (606) (2,382) (3,141)
Facilities payments............... (585) (72) (657)
------- -------- -------- -------- -------- --------
Balances as of December 31, 1996.. -- 419 5,127 -- -- 5,546
------- -------- -------- -------- -------- --------
Severance payments................ (321) (1,998) (2,319)
Funding payments.................. (1,745) (1,745)
Facilities payments............... (414) (414)
------- -------- -------- -------- -------- --------
Balances as of December 31, 1997.. -- 98 970 -- -- 1,068
------- -------- -------- -------- -------- --------
Unidata merger charge............. 14,895 14,895
Severance payments................ (98) (9) (5,937) (6,044)
Asset impairmens.................. (2,606) (2,606)
Professional fees................. (3,910) (3,910)
Facilities payments............... (161) (1,130) (1,291)
-------- -------- -------- -------- -------- --------
Balances as of December 31, 1998.. $ -- $ -- $ 800 $ -- $ 1,312 $ 2,112
======== ======== ======== ======== ======== ========
</TABLE>
40
<PAGE> 41
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RESULTS OF OPERATIONS OF UNIDATA, INC.
As described in Note 1, the Company consummated the merger with Unidata, Inc. on
February 10, 1998. Prior to 1997, Unidata's fiscal year ended on June 30.
Therefore, the six months of Unidata's operations and cash flows for the period
ending December 31, 1996 were not included in the 1996 consolidated statements
of operations and cash flows.
The summarized statement of operations and statement of cash flows for Unidata
for the six months ended December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SUMMARIZED STATEMENT OF OPERATIONS DECEMBER 31, 1996
- ---------------------------------- -----------------
<S> <C>
Revenue..................................................... $22,745
Total costs and expenses.................................... 22,558
Net loss.................................................... (549)
SUMMARIZED STATEMENT OF CASH FLOWS
- ----------------------------------
Cash provided by operating activities....................... $ 694
Cash used in investing activities........................... (1,737)
Cash provided from financing activities..................... 7
Effect of exchange rates on cash............................ 34
-------
Decrease in cash equivalents................................ $(1,002)
=======
</TABLE>
11. RELATED PARTY
During 1996, the Company issued a note payable to an insurance company and
affiliates. The insurance company is a stockholder and held warrants to purchase
111,912 shares of common stock (see Note 4). The Company had engaged this
insurance company to provide medical and life insurance for employees as well as
administer the Company's 401k Plan. During fiscal year 1997 and 1996, payments
to the insurance company for interest on the note totaled $1,150,000 and
$582,000 respectively, and payments for insurance benefits totaled $809,000 and
$251,000, respectively.
During 1996, the Company issued warrants to purchase 114,151 shares of common
stock to a director and an employee, both of whom are stockholders of the
Company (see Note 4).
The Company paid $222,000 and $228,000 in interest to a stockholder and director
during fiscal year 1997 and 1996, respectively, on an outstanding loan of
$2,350,000. The rate charged is the same as those paid to another unaffiliated
bank for working capital loans. In April 1998, the outstanding balance of this
loan was paid in full (see Note 3).
A former director and stockholder of the Company is a partner in a law firm that
was engaged by the Company to provide legal services. The Company had paid
$279,000 and $298,000 in legal services to this law firm during fiscal year 1997
and 1996, respectively.
41
<PAGE> 42
ARDENT SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED -- IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue............................................... $25,710 $29,237 $29,734 $34,579
Income (loss) from operations......................... (12,368) 4,711 5,068 7,167
Net income (loss)..................................... (9,357) 2,968 3,321 4,705
Basic net income (loss) per common share.............. (.66) .20 .22 .31
Diluted net income (loss) per common
share............................................... (.66) .18 .20 .27
1997
----
Revenue............................................... $26,020 $29,108 $23,580 $24,020
Income (loss) from operations......................... 1,321 1,583 (595) (8,097)
Net income (loss)..................................... 464 481 (753) (9,113)
Basic net income (loss) per common share.............. .03 .04 (.05) (.65)
Diluted net income (loss) per common
share............................................... .03 .03 (.05) (.65)
</TABLE>
Quarterly results of operations are affected by a number of factors, primarily
seasonality and the impact of acquisitions. Revenues for the third quarter of
1997 declined due to the method of combining the results of Ardent and Unidata;
prior to the merger Unidata utilized a June year end. As a result, the reported
second quarter of 1997 for the combined company includes the last fiscal quarter
of 1997 for Unidata; traditionally, Unidata experienced declines in the revenue
in the first quarter of its fiscal years.
In addition, in the first quarter of 1998 and the fourth quarter of 1997, the
Company consummated certain business combinations which required expensing
certain amounts related to merger costs and in-process research and development
charges.
During 1998, the Company revised its estimate of the amount allocable to
acquired technology related to O2 Technologies. As a result of this revision, an
increase of $645,000 in amortization expense was recorded in the fourth quarter
of 1998.
13. RESTATEMENT/RECLASSIFICATION
Subsequent to the issuance of the Company's financial statements for the year
ended December 31, 1997, the Company's management determined that certain
elements (aggregating $3,536,000 on a pre-tax basis) of the extraordinary item
recorded for the year ended December 31, 1996, as a result of the disposition of
certain product lines present at the date of a pooling-of-interests transaction
with Easel Corporation in 1995, should have been recorded as elements of
continuing operations. Costs previously included in the extraordinary item
related to the disposition of these product lines included severance costs
associated with employees terminated who were employed in these lines of
business, costs associated with closure of facilities associated with these
lines of business, and committed costs related to a joint venture associated
with these lines of business. As a result, the Company has restated its
previously issued statement of operations for the year ended December 31, 1996
to reflect these costs as Merger, exit and restructuring costs. Only the costs
associated with asset writedowns in connection with exiting these product lines
have been included in the restated extraordinary item. This restatement had no
effect on net income in 1996, did not affect the results of operations or cash
flows for any other period, nor did they have any effect upon financial position
as of December 31, 1996 or any other date. The effects on Ardent's statement of
operations for the year ended December 31, 1996 are as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
AS
PREVIOUSLY
REPORTED AS RESTATED/RECLASSIFIED
<S> <C> <C>
Merger, exit and restructuring costs $ 4,322 $ 7,858
Total costs and expenses 114,578 118,114
Loss from operations (4,079) (7,615)
Loss before provision for income taxes and extraordinary item (5,894) (9,430)
Benefit from income taxes (635) (1,819)
Loss before extraordinary item (5,259) (7,611)
Extraordinary item (4,734) (2,382)
Net loss (9,993) (9,993)
Basic and diluted loss per common share before extraordinary item $ (0.40) $ (0.58)
Basic and diluted loss per common share $ (0.76) $ (0.76)
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
AGE ON
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Peter Gyenes........................... 53 Chief Executive Officer and Chairman of
the Board
David W. Brunel........................ 43 Director
Robert G. Claussen..................... 62 Director
James T. Dresher (1919-1999)........... 79 Director
Martin T. Hart......................... 62 Director
Robert M. Morrill...................... 61 Director
John G. Akers.......................... 50 Vice President, Americas Sales
Peter L. Fiore......................... 41 Vice President, Data Warehousing
James D. Foy........................... 51 Vice President, Engineering
Charles F. Kane........................ 41 Vice President, CFO, and Treasurer
Cornelius P. McMullan.................. 58 Vice President, International Operations
Jason E. Silvia........................ 49 Vice President, Services
James K. Walsh......................... 60 Vice President and General Counsel
</TABLE>
42
<PAGE> 43
PETER GYENES has been an executive officer of Ardent since May 1996, serving as
Executive Vice President, International Operations through October 1996,
Executive Vice President, Worldwide Sales through March 1997, President and
Chief Executive Officer through January 1998, and thereafter as Chairman of the
Board and Chief Executive Officer. From May 1995 to May 1996, Mr. Gyenes was
President and Chief Executive Officer of Racal InterLan Inc., a supplier of
local area networking products. From 1994 to May 1995, he was President of the
American Division of Fibronics International, Inc., and from 1990 to 1993, he
was Vice President and General Manager of the international operations and
minicomputer business unit of Data General Corporation. Mr. Gyenes is a Director
of Enteractive, Inc., a supplier of multimedia software.
DAVID W. BRUNEL has been a business consultant since July 1998. From February to
June 1998, he was President and Chief Operating Officer of Ardent. From 1988
until its merger into Ardent in February 1998, he was President, Chief Operating
Officer and a founder of Unidata, Inc.
ROBERT G. CLAUSSEN has been, since 1989, the Chairman of the Board and Chief
Executive Officer of Claussen Co., a real estate development company, and
managing general partner of several real estate development partnerships
affiliated with Claussen Co.
JAMES T. DRESHER (1919-1999) had been, since 1991, President of Glenangus
Holding Corp., a private holding company, and, since 1990, Chief Executive
Officer of Edgewood Corporation, a private land development company. From 1992
until its merger into Ardent in February 1998, Mr. Dresher was Chairman of the
Board and Chief Executive Officer of Unidata, Inc. He was also a director of
National-Oilwell, Inc., a multi-national oil service company.
MARTIN T. HART has been a business advisor and private investor since 1969. He
is a director of P.J. America, Inc., a food service company, MassMutual
Corporate Investors and MassMutual Participation Investors, Inc., both
investment companies, Schuler Homes, Inc., a builder of homes, Optical
Securities Group, Inc., a manufacturer of security systems, and T-Netix, Inc., a
communications company.
ROBERT M. MORRILL has been a private investor since 1991. He was Chairman of the
Board of Ardent from 1984 until February 1998 and Chief Executive Officer and
President of Ardent from March 1996 through March 1997.
JOHN G. AKERS joined Ardent in February 1998 as Vice President and General
Manager, Americas Relational Technology and Tools Sales. From 1989 until its
merger into Ardent in February 1998, he was Vice President of America Operations
of Unidata, Inc.
PETER L. FIORE joined the sales and marketing staff of Ardent in 1994 and has
been Vice President and General Manager of the Data Warehouse Business Unit
since June 1996. From 1993 to 1994, he was senior director of channel marketing
at CrossComm Corp., a manufacturer of communications networking products.
JAMES D. FOY joined the engineering staff of Ardent in 1994 and has been Vice
President, Engineering since April 1996. From 1990 until its acquisition by
Ardent in 1994, he was Chief Executive Officer and a founder of Constellation
Software, Inc., a software development company.
CHARLES F. KANE joined Ardent in December 1995 and has been Chief Financial
Officer since that time. From 1989 through November 1995, he served in several
financial and accounting positions with Stratus Computer, Inc., a manufacturer
of fault-tolerant computers, most recently as international controller and
finance director, mergers and acquisitions.
CORNELIUS P. MCMULLAN joined Ardent in January 1997, serving as Executive Vice
President of North American Sales until April 1997 and thereafter as Vice
President and General Manager of International Operations. From 1992 to 1996, he
was President and Chief Executive Officer of Sequoia Systems, a manufacturer of
fault tolerant computers.
JASON E. SILVIA joined Ardent in November 1993 and has served in several senior
sales and service positions, most recently as Vice President, Services since
1997. From 1979 to October 1993, he served in several management positions with
Computervision Corporation, a computer hardware and software company, most
recently as Vice President of Worldwide Operations.
JAMES K. WALSH joined Ardent in 1984 and has served as General Counsel since
that time.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Officer Compensation"
appearing in the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 1998, is incorporated herein by reference.
43
<PAGE> 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Ownership of Ardent Capital Stock"
appearing in the Company's definitive proxy statement for the 1999 Annual
Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(1) Financial Statements
The following financial statements are filed as part of this Annual
Report: Independent Auditors Report. Consolidated Balance Sheets as of
December 31, 1998 and 1997. Consolidated Statements of Operations for the
years ended December 31, 1998, 1997 and 1996. Consolidated Statements of
Stockholders' Equity for the years ended December 31, 1998, 1997 and
1996. Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 1998, 1997 and 1996. Consolidated Statements of
Cash Flows for the years ended December 31, 1998, 1997 and 1996. Notes to
Consolidated Financial Statements.
Supplemental Financial Data not covered by the Independent Auditors
Report: Selected Quarterly Financial Data
(2) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) Exhibits
Documents listed below, except for documents incorporated herein by reference,
are being filed as exhibits herewith. Pursuant to Rule 12b-32 of the General
Rules and Regulations promulgated by the Commission under the Securities
Exchange Act of 1934, certain exhibits re incorporated herein by reference.
2.1 Agreement and Plan of Merger and Reorganization dated as
of October 7, 1997 between VMARK and Unidata.(9)
2.2 Amendment to Agreement and Plan of Merger and
Reorganization dated as of November 7, 1997 between
VMARK and Unidata.(9)
2.3 Certificate of Merger dated February 10, 1998 between
VMARK and Unidata.(12)
2.4 Agreement and Plan of Merger and Reorganization dated as
of November 19, 1998 by and among Ardent Software, Inc.,
Aquarius Acquisition Corp. and Prism Solutions, Inc.(13)
3.2 Second Restated Certificate of Incorporation of the
Company.(1)
3.3 By-laws of the Company, as amended and restated
effective as of March 17, 1992.(1)
3.3a Amendment to By-laws effective February 10, 1994.(3)
44
<PAGE> 45
'
3.3b Amendment to By-laws effective February 10, 1998.(12)
3.4 Certificate of Designations, Rights, Preferences and Privileges of
Series A Junior Preferred Stock.(7)
4.1 Rights Agreement dated as of June 12, 1996 between the Company and
State Street Bank and Trust Company, as Rights Agent.(7)
4.2 First Amendment to Rights Agreement dated as of September 30, 1997
between the Company, as Rights Agent.(9)
10.1a 1986 Stock Option Plan, as amended and restated.(2)
10.1d 1986 Stock Option Plan as amended and restated effective October 7,
1997.(10)
10.2 1991 Director Stock Option Plan, as amended and restated.(2)
10.2b Amendment to 1991 Director Stock Option Plan effective January 31,
1995. (10)
10.2c Amendment to 1991 Director Stock Option Plan effective July 29,
1996.(10)
10.6 Restated Registration Rights Agreement dated as of April 10, 1992
between the Company and certain of its stockholders.(1)
10.11a Lease dated as of May 5, 1994 between the Company and 50 Washington
Street Associated Limited Partnership(4)
10.11b Lease between the Company and 50 Washington Street Associated
Limited Partnership as amended as of March 1998.(13)
10.18a Employee Stock Purchase Plan, as amended and restated.(2)
10.18b Employee Stock Purchase Plan, as amended and restated effective as
of October 7, 1997.(13)
10.23 Split Dollar Life Insurance Agreement between the Company and
James K. Walsh dated as of October 12, 1993.(3)
10.27 Split Dollar Life Insurance Agreement between the Company and
Jason E. Silvia dated as of April 27, 1994.(6)
10.28 Asset Purchase Agreement between the Company and Constellation
Software, Inc. dated February 15, 1994.(5)
10.31 1995 Non-Statutory Stock Option Plan, as amended and effected
January 1, 1996.(10)
10.31a 1995 Non-Statutory Stock Option Plan, as amended December 15,
1998.(13)
10.32 Split Dollar Life Insurance Agreement between the Company and
Charles F. Kane dated as of December 15, 1995.(10)
10.33 Split Dollar Life Insurance Agreement between the Company and Peter
L. Fiore dated as of September 15, 1996.(10)
10.34 Split Dollar Life Insurance Agreement between the Company and Peter
Gyenes dated as of June 15, 1996.(10)
10.39 Split Dollar Life Insurance Agreement between the Company and James
D. Foy dated as of April 15, 1997.(9)
10.40 Registration Rights Agreement dated February 10, 1998 between the
Company and James T. Dresher.(11)
10.42 Distribution Agreement dated November, 1995 among System Builder
Software Ltd., SB Tech Pty. Ltd., Desmond Miller and the
Company.(12)
10.43 Shareholder Agreement dated November 14, 1995 among certain
Shareholders of the Company and the Company.(12)
10.44 Split Dollar Life Insurance Agreement between the Company and
John G. Akers dated as of May 15, 1998.(13)
10.45 Split Dollar Life Insurance Agreement between the Company and
David W. Brunel dated as of May 15, 1998.(13)
45
<PAGE> 46
10.46 Loan and Security Agreement -- Revolving Line of Credit Loans by
the Company to Silicon Valley Bank as of March 27, 1998.(13)
10.47 Agreement of Merger by and among the Company, Dovetail
Acquisition Corp. and IntegraSoft, Inc. dated June 4, 1998.(13)
21.1 Subsidiaries of Ardent.
23.1 Consent of Deloitte and Touche LLP
23.2 Consent of PriceWaterhouseCoopers LLP
27.1 Financial Data Schedule 1998
27.2 Financial Data Schedule 1997
27.3 Financial Data Schedule 1996
(1) Incorporated by reference to the respective exhibit filed with the
Company's Registration Statement on Form S- 1, File No. 33-46533, initially
filed on March 19, 1992.
(2) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-8, File No. 333-00218, filed on January 5,
1996.
(3) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1994.
(4) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated May 19, 1994.
(5) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated March 1, 1994.
(6) Incorporated by reference to the exhibit with the Company's Form 8-K dated
March 29, 1996.
(7) Incorporated by reference to the respective exhibit of the Company's
Registration Statement on Form 8-A dated July 17, 1996, File No. 000-20059,
filed on July 29, 1996.
(8) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1996.
(9) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated November 12, 1997.
(10) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 31, 1997.
(11) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated February 12, 1998.
(12) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 31, 1998.
(13) Incorporated by reference to the respective exhibit of the Company's
Registration Statement on Form S-4/A, File No. 333-73267, dated March 23,
1999.
(4) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter of
the year ended December 31, 1998.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 28th day of
March, 1998.
ARDENT SOFTWARE, INC.
By: /s/ PETER GYENES
----------------------------------
Peter Gyenes
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
46
<PAGE> 47
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -----
<S> <C> <C>
/s/ PETER GYENES Chairman of the Board, President and Chief Executive
- ------------------------------ Officer (Principal Executive Officer)
Peter Gyenes
/s/ CHARLES F. KANE Vice President, Finance, and Chief Financial
- ------------------------------ Officer (Principal Finance and Accounting
Charles F. Kane Officer)
/s/ MARTIN HART Director
- ------------------------------
Martin Hart
/s/ ROBERT G. CLAUSSEN Director
- ------------------------------
Robert G. Claussen
/s/ ROBERT MORRILL Director
- ------------------------------
Robert Morrill
/s/ DAVID BRUNEL Director
- ------------------------------
David Brunel
</TABLE>
47
<PAGE> 48
SCHEDULE II
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END OF
YEAR EXPENSES DEDUCTIONS YEAR
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
For the Year Ended December 31, 1998................ $6,129,000 $ 860,000 $(3,638,000) $3,351,000
========== ========== =========== ----------
For the Year Ended December 31, 1997................ $2,968,000 $3,733,000 $ (572,000) $6,129,000
========== ========== =========== ==========
For the Year Ended December 31, 1996................ $1,941,000 $2,455,000 $(1,428,000) $2,968,000
========== ========== =========== ==========
</TABLE>
48
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF ARDENT
Ardent Software Pty. Ltd.
AUSTRALIA
Unidata Asia Pacific Pty. Ltd.
AUSTRALIA
Ardent Software Ltd.
UNITED KINGDOM
VMARK Software, Ltd.
UNITED KINGDOM
Unidata UK Ltd.
UNITED KINGDOM
VMARK Software UK Ltd.
UNITED KINGDOM
Ardent Software France SA
FRANCE
O2 Technology Ltd.
UNITED KINGDOM
O2 Technology, Inc.
UNITED STATES
Unidata France SA
FRANCE
VMARK Software GmbH
GERMANY
Ardent Software GmbH.
GERMANY
Ardent Japan K.K.
JAPAN
Ardent Software Africa Pty. Ltd.
SOUTH AFRICA
Ardent Software Canada Company
CANADA
Unidata Canada, Ltd.
CANADA
VMARK Holding Corp.
VMARK Canada, Inc.
CANADA
Easel Security Corp.
MASSACHUSETTS, UNITED STATES
Ardent Software FSC, Inc.
US Virgin Islands
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-49022, No. 33-64566, No. 33-80372, No. 33-85806, and 33-00218 of our report
dated January 22, 1999 (March 30, 1999 as to Note 13 to the consolidated
financial statements) (which expresses an unqualified opinion and includes an
explanatory paragraph regarding the restatement of the 1996 statement of
operations), appearing in the Annual Report on Form 10-K of Ardent Software,
Inc. for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 30, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration Statements No.
33-49022, No. 33-64566, No. 33-80372, No. 33-85806 and 33-00218 of our report
dated October 25, 1996, on our audit of the financial statements of Unidata,
Inc. and Subsidiaries, which report is included in this Annual Report on Form
10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Denver, CO
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARDENT'S
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-K AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 24,167,000
<SECURITIES> 0
<RECEIVABLES> 24,589,000
<ALLOWANCES> 3,351,000
<INVENTORY> 0
<CURRENT-ASSETS> 52,101,000
<PP&E> 21,320,000
<DEPRECIATION> 14,733,000
<TOTAL-ASSETS> 82,804,000
<CURRENT-LIABILITIES> 39,014,000
<BONDS> 0
0
0
<COMMON> 157,000
<OTHER-SE> 43,633,000
<TOTAL-LIABILITY-AND-EQUITY> 82,804,000
<SALES> 70,200,000
<TOTAL-REVENUES> 119,260,000
<CGS> 7,953,000
<TOTAL-COSTS> 30,464,000
<OTHER-EXPENSES> 84,218,000
<LOSS-PROVISION> 860,000
<INTEREST-EXPENSE> 389,000
<INCOME-PRETAX> 4,768,000
<INCOME-TAX> 3,131,000
<INCOME-CONTINUING> 1,637,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,637,00
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARDENT'S
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-K AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 24,155,000
<SECURITIES> 0
<RECEIVABLES> 27,290,000
<ALLOWANCES> 6,129,000
<INVENTORY> 0
<CURRENT-ASSETS> 53,260,000
<PP&E> 31,272,000
<DEPRECIATION> 15,356,000
<TOTAL-ASSETS> 93,984,000
<CURRENT-LIABILITIES> 40,712,000
<BONDS> 0
0
0
<COMMON> 143,000
<OTHER-SE> 31,939,000
<TOTAL-LIABILITY-AND-EQUITY> 93,984,000
<SALES> 58,812,000
<TOTAL-REVENUES> 102,728,000
<CGS> 9,211,000
<TOTAL-COSTS> 34,036,000
<OTHER-EXPENSES> 74,480,000
<LOSS-PROVISION> 3,733,000
<INTEREST-EXPENSE> 2,965,000
<INCOME-PRETAX> (7,772,000)
<INCOME-TAX> 1,149,000
<INCOME-CONTINUING> (8,921,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,921,000)
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARDENT'S
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-K AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 15,545,000
<SECURITIES> 0
<RECEIVABLES> 33,703,000
<ALLOWANCES> 2,830,000
<INVENTORY> 0
<CURRENT-ASSETS> 55,216,000
<PP&E> 29,164,000
<DEPRECIATION> 9,970,000
<TOTAL-ASSETS> 94,457,000
<CURRENT-LIABILITIES> 36,962,000
<BONDS> 0
0
0
<COMMON> 138,000
<OTHER-SE> 35,653,000
<TOTAL-LIABILITY-AND-EQUITY> 94,457,000
<SALES> 61,805,000
<TOTAL-REVENUES> 110,499,000
<CGS> 8,864,000
<TOTAL-COSTS> 35,671,000
<OTHER-EXPENSES> 82,443,000
<LOSS-PROVISION> 2,455,000
<INTEREST-EXPENSE> 2,100,000
<INCOME-PRETAX> (9,430,000)
<INCOME-TAX> (1,819,000)
<INCOME-CONTINUING> (7,611,000)
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<EXTRAORDINARY> (2,382,000)
<CHANGES> 0
<NET-INCOME> (9,993,000)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
