SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20109
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Kronos Incorporated
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2640942
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
297 Billerica Road, Chelmsford, MA 01824
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(Address of principal executive offices) (Zip Code)
(978) 250-9800
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(Registrant's telephone number, including area code)
400 Fifth Avenue, Waltham, MA 02154
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(Former name, former address and former fiscal year,
if changed since last report)
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
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As of July 29, 2000, 12,334,935 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
KRONOS INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1.Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the Three
Months and Nine Months Ended July 1, 2000 and July 3, 1999 1
Condensed Consolidated Balance Sheets at July 1, 2000
and September 30, 1999 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended July 1, 2000 and July 3, 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 12
PART II. OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Product .......................................... $ 38,602 $ 43,965 $ 106,845 $ 117,788
Service .......................................... 29,531 23,252 87,722 64,230
----------- ----------- ----------- -----------
68,133 67,217 194,567 182,018
Cost of sales:
Product .......................................... 8,729 9,883 24,586 27,196
Service .......................................... 17,813 13,664 51,068 38,521
----------- ----------- ----------- -----------
26,542 23,547 75,654 65,717
----------- ----------- ----------- -----------
Gross profit ................................ 41,591 43,670 118,913 116,301
Expenses:
Sales and marketing .............................. 24,147 23,094 68,492 63,458
Engineering, research and development ............ 7,245 6,988 21,834 19,616
General and administrative ....................... 4,409 4,030 12,853 11,246
Other expense, net ............................... 533 106 628 571
----------- ----------- ----------- -----------
36,334 34,218 103,807 94,891
----------- ----------- ----------- -----------
Income before income taxes .................. 5,257 9,452 15,106 21,410
Provision for income taxes ............................. 1,945 3,318 5,589 7,515
----------- ----------- ----------- -----------
Net income .................................. $ 3,312 $ 6,134 $ 9,517 $ 13,895
=========== =========== =========== ===========
Net income per common share:
Basic ....................................... $ 0.27 $ 0.49 $ 0.76 $ 1.11
=========== =========== =========== ===========
Diluted ..................................... $ 0.26 $ 0.47 $ 0.73 $ 1.06
=========== =========== =========== ===========
Average common and common equivalent shares outstanding:
Basic ....................................... 12,404,310 12,528,865 12,460,641 12,537,394
=========== =========== =========== ===========
Diluted ..................................... 12,734,592 13,115,132 13,016,507 13,051,479
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
July 1, September 30,
2000 1999
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents .................................................... $ 10,654 $ 20,148
Marketable securities ................................................... 13,683 20,893
Accounts receivable, less allowances of $7,472 at
July 1, 2000 and $6,791 at September 30, 1999 ....................... 64,810 66,817
Deferred income taxes ................................................... 6,139 5,414
Other current assets .................................................... 13,817 11,872
--------- ---------
Total current assets ............................................. 109,103 125,144
Property, plant and equipment, net ......................................... 39,486 23,981
Marketable securities ...................................................... 16,000 21,400
Excess of cost over net assets of businesses acquired, net ................. 29,167 29,946
Deferred software development costs, net ................................... 14,108 12,218
Other assets ............................................................... 15,696 15,554
--------- ---------
Total assets .................................................... $ 223,560 $ 228,243
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 7,329 $ 8,503
Accrued compensation .................................................... 16,532 21,106
Accrued expenses and other current liabilities .......................... 37,286 32,753
Deferred maintenance revenues ........................................... 46,206 41,636
--------- ---------
Total current liabilities ....................................... 107,353 103,998
Deferred maintenance revenues .............................................. 17,079 18,818
Other liabilities .......................................................... 1,370 1,169
Shareholders' equity:
Preferred Stock, par value $1.00 per share: authorized 1,000,000 shares,
no shares issued and outstanding ..................................... -- --
Common Stock, par value $.01 per share: authorized 50,000,000 shares,
12,634,728 shares issued at July 1, 2000 and September 30, 1999 ....... 126 126
Additional paid-in capital .............................................. 19,553 31,087
Retained earnings ....................................................... 91,660 82,143
Accumulated other comprehensive loss .................................... (1,088) (337)
Cost of Treasury Stock (302,426 shares and 192,165
shares at July 1, 2000 and September 30, 1999, respectively) ......... (12,493) (8,761)
--------- ---------
Total shareholders' equity ...................................... 97,758 104,258
--------- ---------
Total liabilities and shareholders' equity ...................... $ 223,560 $ 228,243
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
KRONOS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
------------------
July 1, July 3,
2000 1999
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<S> <C> <C>
Operating activities:
Net income ......................................................................... $ 9,517 $ 13,895
Adjustments to reconcile net income to net cash and equivalents
provided by operating activities:
Depreciation .............................................................. 5,826 5,938
Amortization of excess of cost over net assets of businesses acquired ..... 4,842 2,952
Amortization of deferred software development costs ....................... 5,356 4,340
Provision for deferred income taxes ....................................... (3,808)
Changes in certain operating assets and liabilities:
Accounts receivable, net .............................................. 2,685 (4,830)
Deferred maintenance revenue .......................................... 2,115 14,374
Accounts payable, accrued compensation
and other liabilities ............................................ (898) 7,049
Other ................................................................. 1,025 (7,721)
-------- --------
Net cash and equivalents provided by operating activities ........ 26,660 35,997
Investing activities:
Purchase of property, plant and equipment .......................................... (16,959) (9,900)
Capitalization of software development costs ....................................... (7,246) (6,389)
Decrease (increase) in marketable securities ....................................... 12,610 (19,887)
Acquisitions of businesses ......................................................... (9,009) (9,771)
-------- --------
Net cash and equivalents used in investing activities ............ (20,604) (45,947)
Financing activities:
Net proceeds from exercise of stock option and employee stock
purchase plans ................................................................. 5,931 3,835
Purchase of treasury stock ......................................................... (21,365) (4,457)
Proceeds from sale of put options .................................................. 169
-------- --------
Net cash and equivalents used in financing activities ............ (15,265) (622)
Effect of exchange rate changes on cash and equivalents .................................. (285) (66)
-------- --------
Decrease in cash and equivalents ......................................................... (9,494) (10,638)
Cash and equivalents at the beginning of the period ...................................... 20,148 29,888
-------- --------
Cash and equivalents at the end of the period ............................................ $ 10,654 $ 19,250
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
KRONOS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - General
The accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, that management
considers necessary for a fair presentation of the Company's financial position
and results of operations as of and for the interim periods presented pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
the disclosures in these financial statements are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the Company's audited financial
statements for the fiscal year ended September 30, 1999. The results of
operations for the three and nine months ended July 1, 2000 are not necessarily
indicative of the results for a full fiscal year.
NOTE B - Fiscal Quarters
The Company utilizes a system of fiscal quarters. Under this system, the first
three quarters of each fiscal year end on a Saturday. However, the fourth
quarter of each fiscal year will always end on September 30. Because of this,
the number of days in the first quarter (93 days in fiscal 2000 and 94 days in
fiscal 1999) and fourth quarter (91 days in fiscal 2000 and 89 days in fiscal
1999) of each fiscal year varies from year to year. The second and third
quarters of each fiscal year will be exactly thirteen weeks long. This policy
does not have a material effect on the comparability of results of operations
between quarters.
NOTE C - Revenue Recognition
The Company recognizes revenues from sales and sales-type leases of its systems,
application software, parts and components when a noncancelable agreement has
been signed, the product shipped, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable and collection is considered
probable. From time to time customers request delayed shipment, usually because
of scheduling for systems integration and /or lack of storage space at the
customers' facilities during the implementation. In such bill and hold
transactions, the Company recognizes revenue when the criteria of Staff
Accounting Bulletin No. 101 are satisfied. Revenues from maintenance agreements
are recognized ratably over the contractual period and all other service
revenues are recognized as the services are performed.
NOTE D - Marketable Securities
A portion of the Company's portfolio of state revenue bonds and government
agency bonds was placed under the direction of an investment advisor during
fiscal year 2000 in order to better meet the Company's investment objectives. As
a result, the Company has reclassified $25,428,000 of these marketable
securities from held-to-maturity to available-for-sale at July 1, 2000. The
related unrealized loss as of July 1, 2000 was $206,000 and is included in
Other Comprehensive Loss.
NOTE E - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
July 1, September 30,
2000 1999
------- -------
<S> <C> <C>
Deferred professional service revenue ....... $17,153 $17,262
Accrued acquisition payments ................ 1,201 6,461
Federal and state taxes payable ............. 7,461 2,522
Accrued construction costs .................. 4,285 --
Accrued other ............................... 7,186 6,508
------- -------
$37,286 $32,753
======= =======
</TABLE>
<PAGE>
NOTE F - Comprehensive Income
For the three and nine months ended July 1, 2000 and July 3, 1999 comprehensive
income consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- ---------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Comprehensive income:
Net income .............................. $ 3,312 $ 6,134 $ 9,517 $13,895
Cumulative translation adjustment ....... (236) 217 (545) 815
Cumulative unrealized losses
on available-for-sale securities ..... (206) -- (206) --
--------- --------- --------- ---------
Total comprehensive income .................. $ 2,870 $ 6,351 $ 8,766 $14,710
========= ========= ========= =========
</TABLE>
NOTE G - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (in thousands) ...... $ 3,312 $ 6,134 $ 9,517 $ 13,895
=========== =========== =========== ===========
Weighted-average shares ........ 12,404,310 12,528,865 12,460,641 12,537,394
Effect of dilutive securities:
Put options ................. -- -- 10,266 --
Employee stock options ...... 330,282 586,267 545,600 514,085
----------- ----------- ----------- -----------
Adjusted weighted-average shares
and assumed conversions ..... 12,734,592 13,115,132 13,016,507 13,051,479
=========== =========== =========== ===========
Basic earnings per share ....... $ 0.27 $ 0.49 $ 0.76 $ 1.11
=========== =========== =========== ===========
Diluted earnings per share ..... $ 0.26 $ 0.47 $ 0.73 $ 1.06
=========== =========== =========== ===========
</TABLE>
<PAGE>
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This discussion includes certain forward-looking statements about
Kronos' business and its expectations. Any such statements are subject to risk
that could cause the actual results to vary materially from expectations. For a
further discussion of the various risks that may affect Kronos' business and
expectations, see "Certain Factors That May Affect Future Operating Results" at
the end of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Revenues. Revenues for the three and nine months ended July 1, 2000
amounted to $68.1 million and $194.6 million, respectively, as compared to $67.2
million and $182.0 million in the respective comparable periods in the prior
year. Revenue grew 1% and 7% in the three and nine month periods ended July 1,
2000, respectively, as compared to 28% and 27% in the respective comparable
periods in the prior year. The revenue growth rate experienced in fiscal 1999
exceeded Kronos' historical growth rate of approximately 20%. The unusually
strong growth rates experienced during fiscal 1999 were in part due to demand
for new products and product upgrades resulting from customers' Year 2000
compliance efforts. Management believes that as a result of customers' Year 2000
compliance efforts, Kronos benefited from an accelerated sales cycle during that
period. Management believes that demand continues to exist for Kronos' products
and services and that Kronos is experiencing a more elongated sales cycle during
fiscal 2000. The elongation of the sales cycle is, management believes, the
result of the combination of customers delaying investment in new applications
after the significant investments made in preparation for the Year 2000 and
increased complexity in the sales process for Kronos products and services. The
increased complexity in the sales process can be attributed to factors including
more complex product technology and an increase in average transaction size.
Product revenues for the quarter amounted to $38.6 million as compared to
$44.0 million in the same period of fiscal 1999. Product revenues for the first
nine months of fiscal 2000 were $106.8 million as compared to $117.8 million in
the first nine months of the prior year. Product revenue declined 12% and 9% in
the three and nine month periods ended July 1, 2000, respectively, and increased
25% and 24% in the respective comparable periods in the prior year. As
previously indicated, management believes that as a result of customers' Year
2000 compliance efforts during fiscal 1999, Kronos' product revenue growth
benefited from the combination of unusually strong product demand and
accelerated sales cycles. Management believes product revenues have been
negatively affected in fiscal 2000 for the reasons described above and
anticipates that product revenues will continue to be similarly affected over
the remainder of the fiscal year.
Service revenues for the third quarter of fiscal 2000 amounted to $29.5
million as compared to $23.3 million in the third quarter of fiscal 1999.
Service revenues for the first nine months of fiscal 2000 were $87.7 million as
compared to $64.2 million in the first nine months of the prior year. Service
revenue growth was 27% and 37% in the three and nine month periods ended July 1,
2000, respectively, as compared to 32% in each of the comparable periods in the
prior year. The growth in service revenues in all periods principally reflected
an increase in maintenance revenue from expansion of the installed base and the
level of services sold to the installed base, and to a lesser extent, an
increase in the level of maintenance contracts and professional services
accompanying new and upgrade sales. Also contributing to the growth in the three
and nine month periods ended July 1, 2000 were maintenance and professional
service revenues resulting from acquisitions of various dealer territories over
the past four quarters. Management anticipates that the service revenue growth
rate over the remainder of the fiscal year will be less than that experienced in
the third quarter due to (i) the level of product revenues achieved in the first
nine months of fiscal 2000 and (ii) the normalization of service revenues which
had been affected by dealer acquisitions in the prior year.
Gross Profit. Gross profit as a percentage of revenues was 61% in the
three and nine month periods ended July 1, 2000, decreasing from 65% and 64% in
the respective comparable periods in the prior year. The decrease in margin was
directly attributable to lower product revenues. Service revenue, which
generates lower gross margin, has grown faster than product revenue and
represents a greater proportion of total revenue in the three and nine month
periods ended July 1, 2000 than in the comparable periods of the prior year.
Management anticipates that gross profit will continue to be negatively affected
over the remainder of the fiscal year due to the anticipated mix of product and
service revenues.
Product gross profit as a percentage of product revenues was 77% in the
three and nine month periods ended July 1, 2000 as compared to 78% and 77% in
the respective comparable periods in the prior year. Software, which typically
generates higher gross profit, was a greater proportion of product revenues in
the three and nine month periods ended July 1, 2000 as compared to the prior
year. However, higher software development amortization and production costs due
to lower sales volume and, to a lesser extent, discounting of manufactured
product on certain significant transactions, offset the effect of this favorable
mix. Management anticipates that product gross margin for the remainder of the
fiscal year will be comparable to that experienced in the first nine months of
the fiscal year. Service gross profit as a percentage of service revenues was
40% and 42% in the three and nine month periods ended July 1, 2000,
respectively, compared to 41% and 40% in the comparable periods of the prior
year. The decrease in service gross profit in the third quarter as compared to
the first six months of the fiscal year was principally due to the timing of
increased investments in its service organization, including program spending
and additional headcount related to a dealer acquisition that occurred at the
end of the prior quarter. The increase in service gross profit in the nine month
period ended July 1, 2000 was primarily attributable to the growth in service
revenues without a proportionate increase in service expenses. This has
principally been accomplished by improving the efficiency in the delivery of
support services by centralizing the software support function, leveraging
web-based self-service offerings and, as customers have upgraded to current
versions of Kronos' product, reducing the number of versions requiring support.
In addition, Kronos has also focused on more accurately and fully billing for
professional services, which also improve service gross profit. Management
anticipates that service gross margin for the remainder of the fiscal year will
be comparable to that experienced in the first nine months of the fiscal year.
Expenses. Expenses as a percentage of revenues were 53% for the three and
nine month periods ended July 1, 2000, as compared to 51% and 52% in the
respective comparable periods in the prior year. The increase in expenses in the
three and nine month periods ended July 1, 2000 as compared to the prior year
was attributable to increases in program and infrastructure costs incurred to
support anticipated increases in business volume, product development efforts
and amortization of intangible assets related to acquisitions. Management
anticipates expenses as a percentage of revenues over the remainder of the
fiscal year will be less than that experienced in the third quarter.
Sales and marketing expenses as a percentage of revenues were 35% in the
three and nine month periods ended July 1, 2000, as compared to 34% and 35% for
the respective comparable periods in the prior year. Management anticipates
sales and marketing expenses as a percentage of revenues over the remainder of
the fiscal year will be less than that experienced in the third quarter.
Engineering, research and development expenses as a percentage of revenues were
11% in the three and nine month periods ended July 1, 2000 as compared to 10%
and 11% in the respective comparable periods in the prior year. Engineering
expenses of $7.2 million and $7.0 million in the third quarter of fiscal 2000
and 1999, respectively, are net of capitalized software development costs of
$2.4 million and $2.2 million, respectively. Engineering expenses of $21.8
million and $19.6 million in the first nine months of fiscal 2000 and 1999,
respectively, are net of capitalized software development costs of $7.2 million
and $6.4 million, respectively. The growth in engineering, research and
development expenses this year resulted principally from the continuing
development and integration of new products and acquired technologies.
Management anticipates that over the remainder of fiscal year engineering,
research and development expenses as a percentage of revenues will be comparable
to that experienced in the first nine months of the fiscal year.
General and administrative expenses as a percentage of revenues were 6%
and 7% in the three and nine month periods ended July 1, 2000, respectively, as
compared to 6% in each of the comparable periods in the prior year. Other
expense, net amounted to less than 1% of revenues for all periods presented.
Other expense, net is composed primarily of interest income earned on Kronos'
investments offset by amortization of intangible assets related to acquisitions
made by Kronos.
Income Taxes. The provision for income taxes as a percentage of pretax
income was 37% in the three and nine month periods ended July 1, 2000 as
compared to 35% for each of the comparable periods in the prior year. The lower
effective income tax rate experienced in fiscal 1999 was primarily attributable
to tax benefits resulting from Kronos' sale of its South African subsidiary as
well as substantial utilization of foreign net operating loss carryforwards.
Liquidity and Capital Resources
Working capital as of July 1, 2000, amounted to $1.7 million as
compared to $21.1 million at September 30, 1999. The decrease in working capital
was principally attributable to Kronos' investment in property, plant and
equipment (including the construction of its corporate headquarters facility),
the repurchase of common shares under Kronos' Stock Repurchase Program and, to a
lesser extent, payments related to acquisitions of businesses. Cash and
equivalents and marketable securities amounted to $40.3 million as of July 1,
2000 and $62.4 million as of September 30, 1999.
Cash generated from operations amounted to $26.7 million in the first
nine months of fiscal 2000 as compared to $36.0 million in the first nine months
of fiscal 1999. The decrease is principally attributable to a declining rate of
increase in the sale of standard and extended maintenance contracts and lower
earnings partially offset by increased collection of accounts receivable from
trade customers. Cash used for property, plant and equipment increased to $17.0
million in the first nine months of fiscal 2000 from $9.9 million in the
comparable period of the prior year. The increase in the investment in property,
plant and equipment was due to costs related to the construction of Kronos'
corporate headquarters facility as well as investments in information systems
and infrastructure to improve and support expanding operations. Over the next
three months Kronos anticipates it will use approximately $4.0 million in cash
for the completion of its headquarters facility.
Under Kronos' stock repurchase program, Kronos repurchased 494,000
common shares in the first nine months of fiscal 2000 at a cost of $21.4
million. The common shares repurchased under the program are used for Kronos'
employee stock option plans and employee stock purchase plan. Cash provided by
operations was more than sufficient to fund investments in capitalized software
development costs, property, plant and equipment and stock repurchases. Kronos
believes it has available adequate cash and investments and operating cash flow
to fund its investments in property, plant and equipment, software development
costs, cash payments related to acquisitions and any additional stock
repurchases over the remainder of the fiscal year.
<PAGE>
Certain Factors That May Affect Future Operating Results
Except for historical matters, the matters discussed in this Quarterly
Report on Form 10-Q are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Kronos desires to
take advantage of the safe harbor provisions of the Act and is including this
statement for the express purpose of availing itself of the protection of the
safe harbor with respect to all forward looking statements that involve risks
and uncertainties.
Kronos' actual operating results may differ from those indicated by
forward looking statements made in this Quarterly Report on Form 10-Q and
presented elsewhere by management from time to time because of a number of
factors including the potential fluctuations in quarterly results, timing and
acceptance of new product introductions by Kronos and its competitors, the
ability to attract and retain sufficient technical personnel, competitive
pricing pressure, the dependence on Kronos' time and attendance product line,
and the dependence on alternate distribution channels and on key vendors, as
further described below and in Kronos' Annual Report on Form 10-K for the fiscal
year ended September 30, 1999, which are specifically incorporated by reference
herein.
Potential Fluctuations in Quarterly Results. Kronos' quarterly
operating results may fluctuate as a result of a variety of factors, including
the purchasing patterns of its customers, mix of products and services sold, the
timing of the introduction of new products and product enhancements by Kronos
and its competitors, market acceptance of new products, competitive pricing
pressure and general economic conditions. Kronos historically has realized a
relatively larger percentage of its annual revenues and profits in the fourth
quarter and a relatively smaller percentage in the first quarter of each fiscal
year, although there can be no assurance that this pattern will continue. In
addition, while Kronos has contracts to supply systems to certain customers over
an extended period of time, substantially all of Kronos' product revenue and
profits in each quarter result from orders received in that quarter. If
near-term demand for Kronos' products weakens or if significant anticipated
sales in any quarter do not close when expected, Kronos' revenues for that
quarter will be adversely affected. Kronos believes that its operating results
for any one period are not necessarily indicative of results for any future
period.
Product Development and Technological Change. Continual change and
improvement in computer software and hardware technology characterize the
markets for frontline labor management systems. Kronos' future success will
depend largely on its ability to enhance the capabilities and increase the
performance of its existing products and to develop new products and interfaces
to third party products on a timely basis to meet the increasingly sophisticated
needs of its customers. Although Kronos is continually seeking to further
enhance its product offerings and to develop new products and interfaces, there
can be no assurance that these efforts will succeed, or that, if successful,
such product enhancements or new products will achieve widespread market
acceptance, or that Kronos' competitors will not develop and market products
which are superior to Kronos' products or achieve greater market acceptance.
Attracting and Retaining Sufficient Technical Personnel for Product
Development, Support and Sales. Kronos has encountered intense competition for
experienced technical personnel for product development, technical support and
sales and expects such competition to continue in the future. Any inability to
attract and retain a sufficient number of qualified technical personnel could
adversely affect Kronos' ability to produce, support and sell products in a
timely manner.
Competition. The frontline labor management industry is highly
competitive. The number of competitors is also increasing as applications and
systems providers in related industries, such as human resources management,
payroll processing and enterprise resource planning (ERP), enter the market.
Technological changes such as those allowing for increased use of the Internet
may also create the potential for new entrants. Although Kronos believes it has
core competencies that are not easily obtainable by competitors, maintaining
Kronos' technological and other advantages over competitors will require
continued investment by Kronos in research and development and marketing and
sales programs. There can be no assurance that Kronos will have sufficient
resources to make such investments or be able to achieve the technological
advances necessary to maintain its competitive advantages. Increased competition
could adversely affect Kronos' operating results through price reductions and/or
loss of market share.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
fiscal quarter ended July 1, 2000.
<PAGE>
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.
KRONOS INCORPORATED
By /s/ Paul A. Lacy
Paul A. Lacy
Vice President of Finance
and Administration
(Duly Authorized Officer and
Principal Financial Officer)
August 14, 2000
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KRONOS INCORPORATED
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
