<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20059
ARDENT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2818132
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 WASHINGTON STREET 01581-1021
WESTBORO, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 366-3888
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-
As of October 31, 1999, there were 19,385,486 shares of the Registrant's
Common Stock, $.01 par value per share, outstanding.
<PAGE> 2
ARDENT SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBERING IN
SEQUENTIAL NUMBERING SYSTEM
---------------------------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1999 and
September 30, 1998 4
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
for the three and nine months ended September 30, 1999 and
September 30, 1998 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and September 30, 1998 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,466 $24,167
Short-term investments 12,438 --
Accounts receivable - net 30,895 21,238
Prepaid expenses and other current assets 6,764 5,062
Assets held for sale 6,440 --
Deferred income taxes 1,655 1,634
-------- -------
Total current assets 83,658 52,101
-------- -------
Property and equipment - net 8,346 6,587
-------- -------
Long-term assets:
Intangible assets - net 57,599 14,633
Other long-term assets 6,050 5,085
Deferred income taxes 8,799 4,398
-------- -------
Total long-term assets 72,448 24,116
-------- -------
Total assets $164,452 $82,804
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,686 $ 5,476
Accrued expenses and other current liabilities 28,232 17,390
Accrued merger and restructuring costs 5,313 2,112
Deferred revenue 21,409 14,036
-------- -------
Total current liabilities 61,640 39,014
-------- -------
Stockholders' equity 105,768 46,746
Cost of treasury stock (2,956) (2,956)
------- -------
Total stockholders' equity 102,812 43,790
-------- -------
Total liabilities and stockholders' equity $164,452 $82,804
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software $24,684 $17,127 $ 66,435 $ 49,379
Services and other 20,605 12,607 53,738 35,302
------- ------- -------- --------
Total revenue 45,289 29,734 120,173 84,681
------- ------- -------- --------
Costs and expenses:
Cost of software 2,244 1,762 5,903 5,317
Cost of services and other 9,611 5,724 24,570 16,676
Selling and marketing 15,162 10,516 42,563 29,729
Product development 5,530 4,311 15,197 13,094
General and administrative 4,175 2,353 10,512 7,559
Purchased technology -- -- 5,052 --
Merger and restructuring costs -- -- 9,895 14,895
-- -- -------- --------
Total costs and expenses 36,722 24,666 113,692 87,270
------- ------- -------- --------
Income (loss) from operations 8,567 5,068 6,481 (2,589)
Other income - net 321 42 806 120
------- ------- -------- --------
Income (loss) before provision for income taxes 8,888 5,110 7,287 (2,469)
Provision for income taxes 3,288 1,789 6,123 599
------- ------- -------- --------
Net income (loss) $ 5,600 $ 3,321 $ 1,164 $ (3,068)
======= ======= ======== ========
Basic income (loss) per common share $ 0.29 $ 0.22 $ 0.07 $ (0.21)
======= ======= ======== ========
Shares used in basic calculation 19,016 14,987 17,574 14,604
======= ======= ======== ========
Diluted income (loss) per common share $ 0.27 $ 0.20 $ 0.06 $ (0.21)
======= ======= ======== ========
Shares used in diluted calculation 21,051 16,875 19,760 14,604
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $5,600 $3,321 $1,164 $(3,068)
Change in translation adjustment 14 (332) (7) (178)
Unrealized loss on available-for-sale securities (49) -- -- --
------ ------ ------ -------
Comprehensive net income (loss) $5,565 $2,989 $1,157 $(3,246)
====== ====== ====== =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,164 $ (3,068)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 10,400 5,137
Purchased technology 5,052 --
Amortization of restricted stock awards 21 21
Loss on disposal of assets 5,911 1,093
Deferred income taxes 111 (3,103)
Increase (decrease) in cash from:
Current assets (5,088) 2,191
Current liabilities (4,952) 10,578
------- --------
Cash provided by operating activities 12,619 12,849
------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (15,411) --
Proceeds from maturities of available-for-sale securities 2,973 --
Expenditures for property and equipment-net (3,871) (1,987)
Expenditures for capitalized software costs (4,792) (2,242)
Cash acquired in a business combination 1,285 --
Increase in cash surrender value of officers' life
insurance and deposits and other (605) (2,121)
------- --------
Cash used in investing activities (20,421) (6,350)
------- --------
Cash flows from financing activities:
Borrowings under line-of-credit arrangements -- 12,620
Repayments under line-of-credit arrangements -- (15,077)
Sale of common stock 9,643 6,516
Repayments under capital lease and other obligations -- (12,352)
------- --------
Cash provided by (used in) financing activities 9,643 (8,293)
--------
Effect of exchange rate changes on cash (542) (143)
------- --------
Increase (decrease) in cash and cash equivalents 1,299 (1,937)
Cash and cash equivalents, beginning of period 24,167 24,155
------- --------
Cash and cash equivalents, end of period $25,466 $ 22,218
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements included in the Company's Annual Report to Stockholders and Form
10-K for the year ended December 31, 1998.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
interim periods presented. The operating results for the interim periods
presented are not necessarily indicative of the results which would be
expected for the full year.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. Cash and Investments
The Company considers liquid investments purchased with a remaining
maturity of three months or less to be cash equivalents. The Company
considers liquid investments purchased with a maturity of more than three
months to be investments based on the criteria established by Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS No. 115). The Company invests only in
high-grade government and corporate debt securities.
Management of the Company determines the appropriate classification of debt
securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. Debt securities are classified as held-to-maturity
when the Company has the positive intent and the ability to hold the
securities until maturity. Held-to-maturity securities are stated at
amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, as well as any interest on the
securities, is included in interest income. Held-to-maturity investments
with maturities greater than 3 months but less than one year are classified
as short-term investments. Held-to-maturity investments with maturities
greater than one year are classified as long-term investments.
Marketable debt securities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported
as a component of other comprehensive income (loss). The amortized cost of
debt securities in this category is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are include in
other income (expense). The cost of securities sold is based on the
specific identification method. Interest on securities classified as
available-for-sale is included in interest income. Available-for-sale debt
securities are classified as short-term investments.
As of September 30, 1999, the Company recorded a net unrealized loss of
$49,000 related to available-for-sale securities. Realized gains and losses
were zero for the three and nine months ended September 30, 1999 and 1998.
3. Income (Loss) Per Common Share
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each period presented and
excludes the dilutive effect of common stock equivalents. Diluted income
(loss) per common share is computed using the weighted average number of
common shares outstanding during each period presented and includes the
dilutive effect of common stock equivalents, namely the Company's
outstanding options (using the treasury stock method), 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>
Three Months Ended September 30 Nine Months Ended September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares for basic computation 19,016 14,987 17,574 14,604
Effect of dilutive stock options 2,035 1,888 2,186 --
------ ------ ------ ------
Shares for diluted computation 21,051 16,875 19,760 14,604
====== ====== ====== ======
</TABLE>
Weighted options to purchase 55,000 and 196,000 shares of common stock were
outstanding at September 30, 1999 and 1998, respectively, but were not
included in the computation of diluted earnings per share because their
effect would be anti-dilutive.
4. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year,
adjusted for significant non-deductible costs. Cumulative adjustments to
the tax provision are recorded in the interim period in which a change in
the estimated annual effective rate is determined.
7
<PAGE> 8
5. Litigation
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 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. On May
11, 1999, the U.S. District Court for the District of Colorado issued an
order compelling arbitration and the Company has filed 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 the 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. The Company denied
its alleged liability and filed certain counterclaims against the plaintiff
seeking an amount in excess of $9,000,000. The action is in the final
stages of discovery. While the outcome cannot be predicted with certainty,
management of the Company plans to continue to oppose the action
vigorously.
The Company is a defendant in a class action initially filed in 1997
against Prism Solutions, Inc. ("Prism"), prior to its acquisition by the
Company, in the Superior Court of the State of California, County of Santa
Clara. The action was filed on behalf of persons who acquired Prism stock
during a period following its initial public offering. It alleges the
improper inflation of demand for the stock around the time of the offering
and seeks damages in an unspecified amount under both California
corporation and federal securities laws. Prism denied the allegations
against it in its answer to the complaint. The action is in the early
stages of discovery. While the outcome cannot be predicted with certainty,
management of the company plans to continue to oppose the action
vigorously. 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.
6. Comprehensive Income (Loss)
The Company currently records as other comprehensive income or loss the
change in cumulative translation adjustment resulting from the changes in
exchange rates and the effect of those changes upon translation of the
financial statements of the Company's foreign operations as well as
unrealized gains (losses) on available-for-sale debt securities. As of
September 30, 1999 and December 31, 1998, the cumulative translation
adjustment was $(251,000) and $(244,000), respectively. As of September 30,
1999, the Company recorded a net unrealized loss of $49,000 related to
available-for-sale securities.
7. Acquisition
On April 26, 1999, the Company acquired all of the outstanding shares of
Prism Solutions, Inc. in a stock-for-stock transaction accounted for as a
purchase. Ardent issued 0.13124 shares of common stock for each outstanding
common share of Prism; totaling 2,491,596 shares of Ardent common stock
issued to consummate the transaction. Total consideration and liabilities
assumed approximated $76,400,000 (including $48,184,000 of equity
consideration from Ardent shares issued and Prism stock options assumed),
which was allocated as follows: $50,633,000 to goodwill, core software,
customer base and other intangible assets, $14,275,000 to equipment, tax
assets, receivables and other non-software assets, $6,440,000 to assets
held for resale (net of tax), and $5,052,000, or 6.6% of consideration and
liabilities assumed, to in-process research and development (IPR&D). This
allocation is subject to change pending a final analysis of the value of
the assets acquired and the liabilities assumed and divestiture of Prism's
Customer Relationship Management Software business. The impact of such
changes are not expected to be material.
8. Restructuring Costs
The Company recorded a one-time restructuring charge of $9,895,000 in June
1999 related principally to the discontinuation of the O2 System product
line ("O2"). Included in these costs were: $5,894,000 for impairment of
assets, $3,617,000 for severance and related benefits, $332,000 for closure
of facilities, and $52,000 for financial advisor, legal and accounting
fees. As of September 30, 1999, approximately $836,000 remains unpaid,
comprised principally of severance and facility costs.
The decision to discontinue O2 was made due to ongoing difficulties
experienced by the Company in achieving projected sales levels and
forecasts which indicated that ongoing performance would continue to be
less than originally expected. Accordingly, the Company determined that
scaling back this activity and investing funds elsewhere was a more
appropriate use of the Company's limited capital resources.
Recognizing that this decision raised the possibility that intangibles
directly associated with O2 could be impaired, the Company estimated the
remaining non-discounted cash flows to be generated by those O2 activities
to be continued by the Company (principally residual maintenance and
service work) and compared the aggregate of such amounts to the net book
value of the intangible assets recorded at the date O2 was acquired. Since
the non-discounted cash flows from the remaining O2 activities were less
than the carrying amount of O2 assets at June 30, 1999, an impairment
charge of $5,984,000 was recorded. In calculating this charge, the fair
value of the remaining O2 intangible and other long-lived assets was
determined by discounting the cash flow estimates to their net present
value using a discount rate of 8%.
8
<PAGE> 9
9. New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133", which
defers the effective date of SFAS No. 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", issued in June 1998,
establishes standards for derivative instruments and hedging activities. It
requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. It requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met and that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company will adopt SFAS No. 133 in the first quarter of
fiscal 2001. The Company is currently evaluating this statement, but does
not expect it to significantly affect the accounting and reporting of its
current hedging program.
In December 1998, the AICPA released Statement of Position 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 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. The adoption of SOP 98-9
did not have a material effect on the Company's consolidated financial
position or results of operations.
10. 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 "Disclosures about
Segments of an Enterprise and Related Information", 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 makers
and Board of Directors. Evaluations of each segment are done on the basis
of revenue and income (loss) from operations, excluding any tax effects,
interest income or interest expense.
The accounting policies of each segment are the same as those described in
Note 1 to the Consolidated Financial Statements of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. There are no
intercompany transactions between the two business segments. The following
table presents information about the Company's operating segments for the
quarters and nine months ended September 30:
<TABLE>
<CAPTION>
TOTAL
Three Months Ended September 30, 1999 DATABASE DATA WAREHOUSE CONSOLIDATED
-------- -------------- ------------
<S> <C> <C> <C>
Revenue from external customers $26,064 $19,225 $45,289
Income from operations 7,659 908 8,567
</TABLE>
<TABLE>
<CAPTION>
TOTAL
Three Months Ended September 30, 1998 DATABASE DATA WAREHOUSE CONSOLIDATED
-------- -------------- ------------
<S> <C> <C> <C>
Revenue from external customers $24,990 $4,744 $29,734
Income from operations 4,967 101 5,068
</TABLE>
<TABLE>
<CAPTION>
TOTAL
Nine months ended September 30, 1999 DATABASE DATA WAREHOUSE CONSOLIDATED
-------- -------------- ------------
<S> <C> <C> <C>
Revenue from external customers $78,422 $41,751 $120,173
Non-recurring charges* 9,895 5,052 14,947
Income (loss) from operations 8,701 (2,220) 6,481
</TABLE>
<TABLE>
<CAPTION>
TOTAL
Nine Months Ended September 30, 1998 DATABASE DATA WAREHOUSE CONSOLIDATED
-------- -------------- ------------
<S> <C> <C> <C>
Revenue from external customers $73,976 $10,705 $84,681
Non-recurring charges** 14,895 -- 14,895
Loss from operations (2,535) (54) (2,589)
</TABLE>
* See notes 6 and 7 for additional information.
** Non-recurring merger charges related to the merger with Unidata in the
first quarter of 1998.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
On April 26, 1999, the Company acquired all of the outstanding shares of Prism
Solutions, Inc. (see also footnote 6 to the condensed consolidated financial
statements). The accounts of Prism have been included in the Company's results
of operations beginning with the effective date of the acquisition.
The following table sets forth certain data as a percentage of total revenue for
the three and nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software 54.5% 57.6% 55.3% 58.3%
Services and other 45.5 42.4 44.7 41.7
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of software 5.0 5.9 4.9 6.3
Cost of services and other 21.2 19.3 20.4 19.7
Selling and marketing 33.5 35.4 35.4 35.1
Product development 12.2 14.5 12.7 15.5
General and administrative 9.2 7.9 8.8 8.9
Purchased technology -- -- 4.2 -
Merger and restructuring costs -- -- 8.2 17.6
----- ----- ----- -----
Total costs and expenses 81.1 83.0 94.6 103.1
----- ----- ----- -----
Income (loss) from operations 18.9% 17.0% 5.4% (3.1)%
===== ===== ===== =====
</TABLE>
REVENUE
The Company's total revenue increased 52% to $45,289,000 in the third quarter of
1999 from $29,734,000 in the third quarter of 1998 and increased 42% to
$120,173,000 for the first nine months of 1999 compared to $84,681,000 for the
first nine months of 1998.
Software license revenue for the three and nine months ended September 30, 1999
increased 44% and 35% to $24,684,000 and $66,435,000, respectively, from
$17,127,000 and $49,379,000 for the same periods in 1998. The Company continues
to experience growth of its customer base due to strong demand for its data
warehouse products. Data warehouse license revenue for the three and nine month
period ended September 30, 1999 increased 220% and 196% to $11,929,000 and
$25,780,000, respectively, from $3,727,000 and $8,709,000 for the same periods a
year ago. Data warehouse license revenue represented approximately 48% and 39%
of license revenue in the three and nine months ended September 30, 1999,
respectively, compared to 22% and 18% of license revenue in the same periods of
the prior year. Embedded database and tools license revenue for the three and
nine months ended September 30, 1999 remained relatively flat at $12,755,000 and
$40,655,000, respectively, compared to $13,400,000 and $40,670,000 for the same
periods of the prior year. Software license revenue represented 55% of total
revenue for the quarter and nine months ended September 30, 1999, compared to
58% for the same periods in 1998.
Services and other revenue, consisting of consulting, training, and software
maintenance increased 63% and 52% to $20,605,000 and $53,738,000 for the quarter
and nine months ended September 30, 1999, respectively, as compared to
$12,607,000 and $35,302,000 for the quarter and nine months ended September 30,
1998. The increase in total revenue is due to increases in the installed
customer base as well as the acquisition of Prism Solutions, Inc., for which
revenues from April 26, 1999 to September 30, 1999 are included. Consulting and
training revenue increased 102% and 97% to $9,212,000 and $22,664,000,
respectively, for the three and nine months ended September 30, 1999, from
$4,569,000 and $11,506,000, respectively, for the three and nine months ended
September 30, 1998, principally due to the acquisition of Prism and increased
demand for data warehouse consulting services. Maintenance revenue increased 42%
and 31% to $11,393,000 and $31,074,000, respectively, for the three and nine
months ended September 30, 1999, from $8,038,000 and $23,796,000, respectively,
for the same periods in 1998 due to continued growth in the Company's installed
customer base, principally due to the acquisition of Prism and growth of the
data warehouse segment, as well as continued improvement in maintenance capture
rates. Services and other revenue increased to 46% and 45% of total revenue for
the third quarter and first nine months of 1999, respectively, compared to 42%
for the same fiscal periods of 1998.
10
<PAGE> 11
COST OF SOFTWARE
Cost of software, which consists of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs, increased by 27% to $2,244,000 for the third quarter of
1999 as compared to $1,762,000 for the comparable period in the prior year, and
increased 11% to $5,903,000 for the nine months ended September 30, 1999 from
$5,317,000 for the nine months ended September 30, 1998. The increase in total
cost of software for the three and nine months ended September 30, 1999 is
primarily due to increases in amortization associated with the acquisition of
Prism. Cost of software as a percentage of license revenue slightly decreased to
9% for the three and nine months ended September 30, 1999, from 10% and 11% for
the same periods of the prior year. These relatively flat levels of expense year
over year are due to the fixed nature of these costs and minimal changes in the
mix of product revenues that have associated royalties.
COST OF SERVICES AND OTHER
Cost of services and other, which consist of consulting, training, and other
customer support service costs, increased 68% to $9,611,000 for the third
quarter of 1999 and 47% to $24,570,000 for the first nine months of 1999 as
compared to $5,724,000 and $16,676,000, respectively, for the same periods a
year ago. The increase in total costs is principally due to the acquisition of
Prism Solutions, Inc. The profit margin associated with services and other
revenue increased to 54% from 53% for the first nine months of 1999 as compared
to the first nine months of 1998 and decreased to 53% for the third quarter of
1999 from 55% for the third quarter of 1998. Costs of services represented 47%
and 46% of services revenue for the three and nine months ended September 30,
1999, respectively, and 45% and 47% for the same periods of 1998.
SELLING AND MARKETING
Selling and marketing expenses, which consist primarily of sales organization
costs and marketing programs, remained relatively flat at 34% and 35% of total
revenue or $15,162,000 and $42,563,000, respectively, in the three and nine
months ended September 30, 1999 as compared to 35% of total revenue or
$10,516,000 and $29,729,000, respectively, for the comparable periods of the
prior year. The relatively flat levels of spending year over year is primarily
due to increased investments in the data warehouse product line offset by
decreases in selling and marketing programs for the relational database
technology and tools product line and the discontinuation of the O2 System
product line.
PRODUCT DEVELOPMENT
Product development expenses, which consist primarily of salaries and related
benefits of development personnel and facility costs, increased 28% to
$5,530,000 in the third quarter of 1999 from $4,311,000 in the third quarter of
1998 and increased 16% to $15,197,000 in the first nine months of 1999, as
compared to $13,094,000 for the same fiscal period of the prior year. The
increase in total product development expenses is due to the acquisition of
Prism and increased investments in the DataStage suite of products. Product
development expenses as a percentage of total revenue were 12% and 13 % for the
third quarter and the first nine months of 1999, respectively, as compared to
15% and 16% for the same fiscal periods in 1998. The decreases in expense as a
percentage of revenue are principally due to the synergies gained from the
acquisition of Prism as well as the discontinuation of the O2 product line.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of finance, human
resources, legal, information systems, administrative departments and
amortization of purchased goodwill. General and administrative expenses
increased 77% in the third quarter of 1999 to $4,175,000 from $2,353,000 in the
comparable period of 1998. General and administrative expenses increased 39% to
$10,512,000 in the first nine months of 1999 from $7,559,000 for the same period
a year ago. This increase is primarily due to goodwill amortization associated
with the acquisition of Prism Solutions, Inc. Although the Company has undergone
significant growth, Ardent continues to experience significant leverage of the
general and administrative function. Exclusive of goodwill amortization related
to the acquisition of Prism, general and administrative expenses represented 6%
and 7% of total revenue for the three and nine months ended September 30, 1999,
respectively, versus 8% and 9% for the same periods of 1998.
RESTRUCTURING COSTS
The Company recorded a one-time restructuring charge of $9,895,000 in June 1999
principally related to the discontinuation of the O2 System product line.
Included in these costs were: $5,894,000 for impairment of assets, $3,617,000
for severance and related benefits, $332,000 for closure of facilities, and
$52,000 for financial advisor, legal and accounting fees. As of September 30,
1999, approximately $836,000 remains unpaid, comprised principally of severance
and facility costs.
The decision to discontinue O2 was made due to ongoing difficulties experienced
by the Company in achieving projected sales levels and forecasts which indicated
that ongoing performance would continue to be less than originally expected.
Accordingly, the Company determined that scaling back this activity and
investing funds elsewhere was a more appropriate use of the Company's limited
capital resources.
Recognizing that this decision raised the possibility that intangibles directly
associated with O2 could be impaired, the Company estimated the remaining
non-discounted cash flows to be generated by O2 activities to be continued by
the Company (principally residual maintenance and service work) and compared the
aggregate of such amounts to the net book value of the intangible assets
recorded at the date O2 was acquired. Since the non-discounted cash flows from
the remaining O2 activities were less than the carrying amount of O2 assets at
June 30, 1999, an impairment charge of $5,984,000 was recorded. In calculating
this charge, the fair value of the remaining O2 intangible and other long-lived
assets was determined by discounting the cash flow estimates to their net
present value using a discount rate of 8%.
11
<PAGE> 12
INCOME TAXES
The Company recorded a provision for income taxes of $3,288,000 and $6,123,000
for the three and nine months ended September 30, 1999, respectively, compared
to $1,789,000 and $599,000 for the same periods in 1998. The effective tax rate
recorded in the quarter ended September 30, 1999 was 37%. The provision for the
nine months ended September 30, 1999 represents an effective tax rate of 84%.
The year-to-date effective tax rate is substantially different than the
statutory rate due primarily to the non-deductibility of purchased technology
and restructuring charges incurred in the second quarter of 1999.
FOREIGN CURRENCY TRANSLATION
The Company hedges its exposure to foreign currency fluctuations on
inter-company balances of certain of its international subsidiaries through
foreign exchange forward contracts. These contracts are comprised of contracts
to sell foreign currency aggregating $3,737,000 and $9,302,000 at September 30,
1999 and December 31, 1998, respectively, of notional amount, principally
British pounds and French francs. These contracts are short-term in duration
(typically 90 days or less) 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
inter-company 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
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 inter-company 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through sales of equity
securities and positive cash flow from operations, including sales of
receivables to finance companies. At September 30, 1999 the Company had
$37,904,000 in cash, cash equivalents and short-term investments and $22,018,000
in working capital ($43,427,000 excluding deferred revenue, the satisfaction of
which will have no significant cash impact). The Company has a working capital
line of credit with a bank under which the Company may borrow, on an unsecured
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 limits the Company's ability to pay
dividends. At September 30, 1999 and December 31, 1998, there were no borrowings
outstanding under the line of credit facility; as of each date, $12,500,000 and
$10,200,000, respectively, were available to the Company under the line of
credit.
During the quarter, the Company transferred its rights to certain accounts
receivable to a finance company in exchange for cash payments from the finance
company. Total cash received by the Company in the quarter ended September 30,
1999, under these arrangements, totaled approximately $2,111,000.
The Company, 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
the Company's normal revenue recognition policies and are made without recourse
to the Company. Cash received under the program for the quarter and nine months
ended September 30, 1999 totaled approximately $673,000 and $4,464,000,
respectively.
The Company believes that its available cash, anticipated cash generated from
operations based upon its operating plan and future amounts available under its
credit facility, if any, will be sufficient to finance the Company's operations
and meet its foreseeable cash requirements at least for the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133", which defers the effective date of SFAS No. 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", issued in June
1998, establishes standards for derivative instruments and hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. It requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met and that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company will
adopt SFAS No. 133 in the first quarter of fiscal 2001. The Company is currently
evaluating this statement, but does not expect it to significantly affect the
accounting and reporting of its current hedging program.
In December 1998, the AICPA released Statement of Position 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
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. The adoption of SOP 98-9 did not
have a material effect on the Company's consolidated financial position or
results of operations.
12
<PAGE> 13
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,
the Company has subsidiary operations in two and distributor relationships in
the other nine.
The Company has assessed the potential impact of the Euro conversion in a number
of areas, particularly including marketing and product development. For
instance, the Company has considered whether the common currency will adversely
affect its pricing strategies for individual European countries. Although the
Company 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
The Company 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 the Company's
technology. In addition, while the Company 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 -- The Company 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 the Company
provides to its customers. These assessments include:
- - quality assurance testing of the Company'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 the Company's
business;
- - contacting third-party suppliers of material systems; and
- - assessment and implementation of repair or replacement requirements.
The Company has prepared and made available to its customers a Year 2000
readiness statement addressing its products. The Company maintains that its
products are Year 2000 compliant as developed or may be brought into compliance
via updates and/or new releases. The Company has been informed by most of its
vendors of material hardware and software components that the products of these
vendors used by the Company are currently Year 2000 compliant. The Company has
performed testing and assessment on its internally developed systems and has
completed all necessary updates as of September 30, 1999. Additionally, the
Company has identified and repaired or replaced third-party software and
hardware that were determined not to be Year 2000 compliant.
Costs -- To date, the Company has not incurred material incremental expenditures
in connection with identifying, evaluating and correcting Year 2000 compliance
issues. Most of the expenses have related to the operating costs associated with
time spent by employees in the evaluation process and Year 2000 compliance
matters.
Risks -- The Company 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 the Company's business,
results of operations and financial condition. There can be no assurance that
the Company 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 the Company 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 the Company'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.
13
<PAGE> 14
CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward looking statements. When used anywhere in this Form
10-Q 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 cautions readers not to place undue
reliance on any such forward-looking statements. The Company advises readers
that the various risk factors described below and in Part II of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 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 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.
FACTORS AFFECTING FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, many of which are beyond the Company'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 product lines that the Company intends to devote substantial
resources in the foreseeable future are data warehouse and database management.
There is no assurance that products in either of these two areas will continue
to be commercially successful.
The Company has experienced product delays and undetected errors or bugs in
certain products in the past. Although these delays and bugs have not materially
affected the Company's results in the past, these types of problems may
materially affect the Company in the future.
Approximately 39% of the Company's total revenue for the quarter ended September
30, 1999 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 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 for 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.
14
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's working capital line of credit agreement provides for
borrowings which bear interest at a variable rate based on a prime rate. As of
September 30, 1999, the Company had no borrowings outstanding pursuant to the
credit agreement. The Company believes that the effect, if any, of reasonably
possible near-term changes in interest rates on its financial position, results
of operations and cash flows should not be material.
The Company is exposed to changes in foreign currency exchange primarily in its
cash and foreign currency transactions. The Company holds foreign exchange
forward contracts. Derivative instruments used by the Company 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. The Company believes that it is
managing the foreign exchange exposure through its cash management and hedging
policies. This exposure is not considered material to the Company's financial
position, results of operations and cash flows.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 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. On May 11, 1999, the United States District Court for the
District of Colorado issued an order compelling arbitration and the Company has
filed 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 the 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. The Company denied its alleged liability
and filed certain counterclaims against the plaintiff seeking an amount in
excess of $9,000,000. The action is in the final stages of discovery. While the
outcome cannot be predicted with certainty, management of the Company plans to
continue to oppose the action vigorously.
The Company is a defendant in a class action initially filed in 1997 against
Prism, prior to its acquisition by the Company, in the Superior Court of the
State of California, County of Santa Clara. The action was filed on behalf of
persons who acquired Prism stock during a period following its initial public
offering. It alleges the improper inflation of demand for the stock around the
time of the offering and seeks damages in an unspecified amount under both
California corporation and federal securities laws. Prism denied the allegations
against it in its answer to the complaint. The action is in the early stages of
discovery. While the outcome cannot be predicted with certainty, management of
the company plans to continue to oppose the action vigorously.
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.
ITEMS 2. - 5. NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
27.3 - Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1999.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Ardent Software, Inc.
(Registrant)
Dated: November 12, 1999 /s/ Peter Gyenes
-----------------------------------
Peter Gyenes
Chairman, President and
Chief Executive Officer
(principal executive officer)
Dated: November 12, 1999 /s/ Charles F. Kane
-----------------------------------
Charles F. Kane
Vice President, Finance
and Chief Financial Officer
(principal finance and accounting
officer)
16
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